[Congressional Record Volume 140, Number 101 (Thursday, July 28, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: July 28, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                           HEALTH CARE REFORM

  Mr. GRAHAM. Mr. President, at this point in the national debate over 
health care reform at least a half a dozen plans have come to the 
forefront. All of these seem now to have obtained negative majorities. 
But they all have a common and I believe a flawed premise. It is that 
the road to national health reform is a single, national, one-plan-
fits-all model. This path has taken a number of forms: managed 
competition, single payer, employer or individual mandate, pay or play, 
Medicare expansion, market reform. The path has been trampled by detail 
and controversy over the means, the means that supporters will use. 
This trampling has almost buried the broad agreement on the necessity 
of achieving universal coverage and cost containment.
  There is, Mr. President, however, a second path, a path which to date 
has been almost ignored. It is a decentralized structure based on the 
principles of federalism in which the Federal Government establishes 
fundamental objectives and the States provide the specifics. In such a 
system, the Federal Government would establish nationally agreed upon 
health care performance objectives, standards, and goals, while giving 
to the States and communities the ability to develop localized tactics 
to achieve those standards. Such a structure would bring the 
decisionmaking processes down to the State and local levels where the 
arrangements for health care are all very different.
  Although several plans refer tangentially to a State law, national 
reform should establish a Federal-State partnership as a central 
principle rather than an afterthought.
  Let me repeat, Mr. President. National reform should establish a 
Federal-State partnership as a central principle rather than as an 
aside.
  The National Academy of Sciences Institute of Medicine notes:

       States are the principal governmental entity responsible 
     for protecting the public's health in the United States. They 
     conduct a wide range of activities in health. State health 
     agencies collect and analyze information, conduct 
     inspections, plan, set policies and standards, carry out 
     national and State mandates, manage and oversee 
     environmental, educational and personal health services, and 
     assure access to health care for underserved residents. They 
     are involved in resource development. They respond to health 
     hazards and crises.

  Mr. President, health care is particularly suitable to the 
establishment of national goals with decentralized implementation and 
sensitivity to local culture, geography, and institutional variations. 
States and communities within States have different health care needs 
based on societal factors such as the quantity and nature of health 
care providers. For example, Nebraska, North Dakota, and South Dakota 
have twice the number of hospital beds per person as Alaska, New 
Hampshire, and Hawaii; varying demographics, especially for the most 
health intensive populations. For example, as a percentage of State 
population, Florida, Pennsylvania, Iowa, Rhode Island, and West 
Virginia have 50 percent more elderly than do Alaska, Utah, Colorado, 
and Georgia; current levels of insurance coverage. In Nevada, Oklahoma, 
Louisiana, Texas, and Florida, approximately one-quarter of the 
population under 65 is uninsured. However, in Hawaii, Connecticut, and 
Minnesota, less than one-tenth is uninsured.
  Clearly, different State circumstances will require differing 
solutions and timeframes. For example, what would work in rural areas 
will not work in urban areas. The means of achieving universal coverage 
and access are undoubtedly different in Florida than in Wyoming. Even 
within rural areas, the health care concerns of those along the rural 
sections of the United States-Mexico border are vastly different than 
the needs of ranchers in Montana.
  A successful plan would have to accommodate the broad diversity of 
this Nation. Yale Professors Theodore Mashaw and Jerry Marmor stated in 
a July 7, 1994, Los Angeles Times editorial:

       Given the diversity of States, their varied experience with 
     health care, and intense local preferences, why enact a 
     single brand of national health care reform, especially if it 
     is the poorly considered compromises that we seem to be 
     headed toward. By moving compromise in the direction of 
     preserving goals rather than defining means, we can allow 
     States the further thought and experimentation that are 
     needed for effective implementation.

  Mr. President, presently, there is insufficient field-based 
experience and consensus to commit the Nation to a single health care 
monitor. No State--not Hawaii nor California--has had an adequately 
extensive or sustained experience with a managed care model for all. 
There is not an empirical base of experience suggesting that such a 
model should be the centerpiece of a national health care reform.
  Unfortunately, it is largely the Federal Government's failure to 
provide waivers to Medicaid, Medicare, and the Employee Retirement 
Income Security Act [ERISA] which has limited States' creativity for 
many years. In the mid-1980's, while I was Governor, Florida was 
unsuccessful in an attempt to receive a waiver from the Federal 
Government for a Medicaid buy-in program from the Reagan 
administration. Florida's current Governor, Lawton Chiles, was in 
Washington a few weeks ago pushing again for a Federal waiver that will 
provide 1.1 million uninsured Floridians with health insurance. He has 
been met with foot-dragging and ho-humming from the Health Care 
Financing Administration. Why has there been such a long consistent 
pattern of Federal reticence to approve innovation and creativity at 
the State level?
  A New York Times article dated June 12, 1994, may provide an 
explanation. According to the article, in a June 1993 memorandum, 
Health Care Financing Administrator, Bruce Flatic warned: ``The waiver 
authority could become a way of relaxing statutory or regulatory 
provisions considered onerous by the States.''
  He went on to add that ``waivers will be used to slow down nationwide 
reform.''
  After 6 month's effort by Governor Chiles, the waiver which he has 
requested to allow the State, at no additional cost, to provide 
insurance for the near poor, the working poor, this waiver is still not 
forthcoming.
  The same arguments were made in 1974 when Hawaii passed its 
comprehensive health reform bill. There was the belief that it was 
unnecessary because there would soon be national comprehensive reform, 
and that Hawaii's bold initiative would frustrate national efforts. 
Instead, Hawaii and other States have become models for health care 
reform.
  In addition, the Federal Government's administrative agencies are not 
prepared or capable of accepting the mammoth new responsibilities 
inherent in any unitary program for health care system reform. 
Medicare's dismal performance in monitoring fraud--a $15 to $20 billion 
annual hemorrhage by some informed estimates--is a harbinger of what a 
unitary system could inflict upon a nation: a train wreck with all 
Americans aboard.
  I further add that Congress has not been successful in recent years 
in confronting major complex public problems. The savings and loan 
debacle, the 1986 Tax Act, and catastrophic health care, are all 
examples of how Congress has a greater interest in getting a bill 
passed than in truly solving problems. We may be at the point in this 
debate where certain compromised positions will sacrifice effectiveness 
and reform for a rose garden ceremony. The politically doable is not 
necessarily equal to the pragmatically desirable.
  Earlier this week, I sat at a chair in the Chamber and listened to 
one of the proposals being described by its advocate. The Senator 
argued for a plan, in part, because it was the result of a series of 
compromises on contentious components of reform. As I listened to the 
compromise being described as a virtue, I analogized this to two 
aviation engineers who could not decide on a wingspan of an airplane. 
One says the wingspan should be 100 feet. The other says the wingspan 
should be 150 feet. So they compromise, with disastrous results. They 
build a plane with one 50-foot wing and one 75-foot wing. Both 
engineers are happy, but the plane crashes and burns.
  Unlike the engineers, Congress must come up with a design that works 
and not one that compromises principles and threatens the health of all 
of its passengers.
  The unitary path to reform will likely result in an ineffective 
amalgamation of compromises or a highly partisan and closely divided 
final product. The Nation would be ill-served by either result. A 
narrowly based and unworkable program passed this year would sow the 
seeds for continued destructive sniping and controversy in the years 
ahead, and lead to an accelerated erosion of public confidence in the 
Federal Government.
  We cannot repeat the legislative failures of the 1980's. The savings 
and loan debacle cost us between $150 and $300 billion. It was a 
significant factor in the most serious recession since the 1930's. A 
health care debacle would put millions of Americans at risk, damage the 
world's highest quality health care delivery system and, if medical 
inflation continues, contribute to record deficits by the end of this 
decade.
  Mr. President, there is a second path. That path is a Federal-State 
partnership toward reform. This Jeffersonian model is one that has been 
utilized time and time again. In fact, the interstate banking bill 
which just passed by the conference committees this week provides for 
an interstate banking system with national standards and underlines 
State flexibility to recognize the diversity of communities across the 
Nation.
  Further, when it comes to health reform, States have significant 
experience, success, and track records they, in fact, have achieved 
more in the way of reform than Congress has. In the summer of 1993 
issue of Health Affairs documents successes at the State level and 
health reform from Florida, Hawaii, Maryland, Minnesota, Oregon, and 
Washington. Significantly, these States have adopted reforms that 
differ in terms of scope, anticipated outcomes, and process.
  These variations reflect diverse needs, ideology, and stages of 
health care evolution in each State. So should national reform. Moving 
health reform to the States and closer to the people should be a 
central principle of a national health plan. Only then will we have 
real accountability and responsiveness to the needs of citizens, 
business, and providers. Only then are we likely to have a reform which 
will actually deliver its promise of sustained and straightforward 
accessibility to high-quality, affordable health care for all 
Americans.
  Mr. President, we might ask how would this second path--a path which 
had as a central principle a Federal-State partnership--be 
accomplished? Let me suggest, first, that the Federal Government should 
establish Federal standards in those areas where uniformity is required 
and agreed upon. Standards that the Federal Government should set would 
include universal coverage, cost containment, the composition of a 
standard benefits package, insurance reform on issues such as community 
rating, portability, guaranteed issuance, and a State-based public 
authority to assure implementation and be accountable for these goals.
  Certainly, these are goals on which the Congress, the President, the 
States, and the American people can come to some agreement. However, 
the Federal Government should separate the ends and goals of health 
care from the means of health reform. The Federal Government should 
establish agreed-upon performance objectives to attain these 5 goals. 
However, for both political and policy reasons, the Federal Government 
should not impose the detailed means by which the States must achieve 
the performance objectives. Rather, the Federal Government should set 
forth performance standards which are achievable and will provide 
adequate and equitable financial assistance to States for 
implementation, and then hold States accountable for results.
  The fundamental question determining the Federal role in health care 
implementation should be this: Does the particular proposal under 
consideration require uniformity in process or procedure to achieve 
national goals? To repeat, Mr. President, the question which should be 
asked of every proposal, organization--financial, or regulatory--should 
be this: Does the particular proposal under consideration require 
uniformity in process or procedure to achieve the national goal?
  There are a set of limited circumstances which, in my opinion, meet 
this test. These would include Medicare, special populations--such as 
immigrants--which impose disproportionate impacts on States and local 
communities, and national tax policy which creates various health care 
incentives.
  The need for national uniformity might also include the special 
treatment of interstate corporations similar to that now received under 
ERISA. However, for the vast number of issues, the answer is clearly 
no. National uniformity is not required to achieve the goal of 
universal coverage.
  For example, to achieve universal coverage in cost containment, 
States could implement a system resembling Hawaii; States could 
implement the Clinton administration plan; States could administer 
national competition without mandatory alliance. They could administer 
a single-payer system, an all-payer regulation, or a combination of 
these proposals. Each of these means to accomplish the end has the 
capability of achieving the goals of universal coverage and cost 
containment.
  To attain the nationally established goals, the Federal Government 
should make funding available to States in the form of a block grant 
based on factors such as poverty, State income, other demographics, and 
health care costs.
  The Federal Government should utilize funding to provide rewards to 
States that move more quickly toward the goals of national reform--
guaranteed funding, so long as States continue to move toward those 
goals--and possibly even impose sanctions on the States failing to meet 
the goal.
  States should choose how to finance their share of the cost of health 
reform by virtually any means which they find most appropriate to their 
State. Beyond that, the Federal Government should only provide 
direction, and get out of the way of State reform. In fact, the States 
should be allowed to supplement the Federal standards benefits if they 
so choose, but with their own non-Federal funds. In a decentralized or 
Federal system, States would have the responsibility to establish and 
implement programs to achieve national standards.
  Among other things, States should have the flexibility in following, 
or States should be granted the flexibility to establish, the health 
delivery arrangement that best meets the geographic considerations and 
needs of its population.
  Financing: States should be responsible for any costs beyond that 
established as the basis of Federal block grant funding. Therefore, 
States will have a strong incentive to initiate effective cost 
containment systems whether by use of market forces, a regulated 
payment system, or a mix of both. In regulation, States have 
historically, and should continue to be, primarily involved in the 
training and licensure of health care providers, and have been 
responsible for the civil justice system, and, thus, medical 
malpractice reform.
  However, States such as Hawaii, Washington, Florida, Minnesota, and 
Oregon could maintain and build on the successful and popular health 
care reforms which they already have in place. How do we get there? How 
do we walk this second road of a partnership of the Federal Government 
and the States for health care reform?
  What is needed, Mr. President, is to convert the various unitary 
plans which combine both ends and means in a centralized Federal 
Government approach. We need a plan to convert those various unitary 
plans from explicit health care road maps to statements of destination.
  Due to the late hour of this debate, Congress should look at the 
objectives of the various plans and pick the proposal that best meets 
mutually agreed upon goals. Which of the half dozen or more plans 
before us will in fact give us the greatest confidence that they will 
achieve the objectives of universal coverage, cost containment, 
insurance reform, and the other goals which have been stated?
  The underlying organizational, financing and regulatory details would 
only be a temple for States. That would be applicable in the absence of 
a State's enactment of its own reform structure, or in the wake of a 
failed State plan. In short, the Federal temple would only serve as a 
safety net for States. States could opt out of any national design as 
long as they could demonstrate that they could meet the Federally 
established standards that we agree upon.
  Mr. President, this strategy is not original. In the President's 
Health Security Act, States were given the option of adopting a single 
payer in lieu of the purchase of private insurance through mandatory 
options. If States decline to use the single-payer option, they would 
be included in the national system.
  My proposal suggests a similar foundation of a national system but 
with a broader range of options to the States. Provided States meet the 
tests of achieving universal coverage, with guaranteed and affordable 
comprehensive benefits, they could choose from a variety of financing 
organization and regulatory arrangements.
  Mr. President, in the last election Americans made it clear that 
health care reform is of primary importance to the Nation. Health care 
reform is necessary not only to the 38.5 million uninsured Americans, 
but also for the health of the economy and the health of the rest of 
America.
  Congress is trying to respond. But at this point it appears that 
there will be one of two results: We will either fail to enact health 
care reform due to the partisan bickering, or we will pass a compromise 
that will not work, will detract from true reform, including stifling 
reform efforts at the State and local levels, and further diminish the 
public's confidence in the Federal Government.
  Mr. President, we badly need--this Nation, our people and our 
future--a sustained success in health care reform. The well trod road 
of federalism is that path.
  Mr. President, I ask unanimous consent to submit for the Record 
various materials referred to in my remarks.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                [From Domestic Affairs, Winter 1993-94]

 Taking Federalism Seriously: The Case for State-Led Health Care Reform

                          (By Jerry L. Mashaw)

       It is a good time to take stock of the debate about health 
     care reform. There are nearly as many divergent ideas about 
     the desirable specifics of reform as there are analysts who 
     believe that the system is broken and must be fixed. This 
     much is clear: A country that spends more of its gross 
     domestic product on health care than any other country in the 
     world, yet still fails to provide reasonable assurance of 
     coverage to a substantial, and increasing, proportion of its 
     population, is not doing a good job. We do need reform. What 
     should it be?\1\
---------------------------------------------------------------------------
     Footnotes at end of article.
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       The major proposed directions for reform are now reasonably 
     familiar to those who have been following the debate. But as 
     partisans of one reform strategy or another have battled for 
     attention and adherents, some simple facts have often been 
     obscured. The good news is that there is merit to most of the 
     proposals that have been put forward. The bad news is that no 
     one of them is without serious flaws or uncertainties. This 
     combination of good and bad news provides a persuasive 
     argument for national health care reform that leaves great 
     scope for state flexibility in the design of health care 
     systems.
       That is the simple message of this article. But to unpack 
     the argument a bit, we must first take a brief look at the 
     pros and cons of the major proposals. We will then see why 
     state planning makes sense and discuss how to avoid some of 
     the potential pitfalls of what I will call a federalist 
     approach.


                   on the one hand, on the other hand

       So much attention has been focused on the Clinton 
     administration's deliberations and reform strategy that we 
     have virtually forgotten the multitude of plans that were 
     being put forward in the last two years of the Bush 
     administration and that are still supported, in various 
     forms, by many important actors and interests. Roughly 
     speaking, these plans can be grouped under four headings: (1) 
     so-called play-or-pay proposals, (2) the Bush voucher plan, 
     (3) single-payer or Canadian-style arrangements, and (4) 
     managed competition.
       Play or pay is an attempt to build directly on the current 
     system of employer-based health insurance. Employers would 
     either provide insurance for their employees or pay into a 
     common pool that would in turn provide that insurance. In 
     short, play or pay is an employer mandate system that would 
     attempt to arrest the rapid unraveling of employer-based 
     insurance that now leaves as many as 60 million Americans 
     without insurance at some point each year. It is, indeed, the 
     decline in the percentage of employed persons who have health 
     insurance through their workplace--not unemployment or a 
     decline in support for public programs--that has resulted in 
     a smaller percentage of all Americans being covered now than 
     in 1980.
       Play or pay has the advantage of building on the current 
     system, but its disadvantages are many. Mandates are often 
     perverse forms of taxation with undesirable economic effects. 
     Small employers, who can least afford hefty benefits packages 
     and who are collectively the greatest source of job creation, 
     often bear the largest burdens. Moreover, because benefits in 
     a play-or-pay would remain tied to employment, the 
     ``portability problem''--the inability to change jobs without 
     losing or impairing insurance coverage--could be solved only 
     by further mandates or regulations. Finally, play or pay, in 
     and of itself, would do nothing about the unemployed, who 
     would have to be insured through a separate fund.
       This last issue points to a substantial risk inherent in 
     all play-or-pay schemes. There is a danger that highly paid 
     workers, who are already well-insured and who tend to have 
     lower health risks, would end up with generous packages of 
     employer-based insurance, while lower-paid-workers, who 
     generally have poorer health status and are more costly to 
     insure, would be in a public system that over time would 
     become increasingly costly. The response to that system's 
     rising costs would likely be belt-tightening for the less 
     affluent--that is, less and less adequate coverage for them.
       This sort of two-tiered medicine is not what most people 
     have in mind when they speak of universal health insurance. 
     After all, we have a similar situation now, with a lower tier 
     that is increasingly vulnerable to political demands for 
     cutbacks in government spending. The more of us who are 
     included in essentially the same system, the more likely that 
     system will be to provide high-quality treatment and low 
     levels of administrative hassle for everyone.
       Play-or-pay proposals also tend to leave much of the 
     administrative complexity and cost of the current health care 
     system intact. Moreover, although it is not impossible to 
     address the various drawbacks of these proposals, the 
     solutions themselves would generate new complications.
       Finally, there is no necessary link between play-or-pay 
     reform and cost containment. Reduction in the inflation rate 
     for medical care would have to be achieved through some other 
     regulatory mechanism, which could prove very intrusive--and 
     at precisely the point where most Americans would least like 
     regulation: the point of service delivery.
       Politically, play or pay was developed as a path of least 
     resistance. It is an approach built around existing 
     institutions and the anticipated political barriers to doing 
     anything else. Such a strategy could be politically astute in 
     the short run, but it would give us a Rube Goldberg design 
     for health care reform--a design that in the long run could 
     function very badly.
       To compete with the play-or-pay plans proposed by 
     Democratic leaders in Congress, the Bush administration 
     developed a different and conceptually much simpler system. 
     Universal coverage would be encouraged by a tax credit or 
     voucher, the value of which would be inversely correlated 
     with family income. Vouchers could be transferred to 
     employers for participation in an employment-based insurance 
     plan or used directly to purchase health coverage. The 
     proposal may have been intended to be the entering wedge for 
     a reform strategy based on an individual mandate, as 
     described by Michael Graetz elsewhere in this issue. And as 
     Graetz's article points out, there is much to be said for an 
     individual mandate approach. Our current scheme of tax-
     deductibility for employer contributions to health insurance, 
     combined with the exclusion of the value of those 
     contributions from taxable individual income, is a remarkably 
     regressive system of public support for health insurance.
       The Bush voucher plan, however, had the defects of its 
     virtues. First, although it would have increased the 
     proportion of the population with health insurance, it did 
     not propose to make coverage universal. Second, the credit-
     voucher approach would have left some Americans, whatever 
     their expected health risks, with only the insurance that 
     they could buy with their limited subsidies. Others would 
     have remained free--and financially able--to purchase more 
     and better coverage. The predictable result would have been 
     an extreme form of two-tiering. Third, the plan's mechanisms 
     for subvention--sliding-scale credits for the poor and tax 
     deductions for the well-off--would have afforded little 
     relief from the increasingly fantastic costs of insurance to 
     members of the working lower-middle class.
       Fourth, there was no obvious cost control mechanism in the 
     Bush proposal, although caps on tax deductibility under 
     employer-based plans could have been added later and cost 
     control was being built into the benefits package through the 
     unfortunate stratagem of cutting back on what most Americans 
     view as adequate coverage. This means of cost control would 
     be likely to exacerbate the extent of tiering as well as the 
     administrative costs and ``system gaming'' that always 
     accompany attempts to restrict the scope of coverage of any 
     health insurance program. The result over time might well be 
     little or no cost containment.
       Finally, because the Bush proposals relied on the current 
     insurance system--with its marketing costs, duplications of 
     coverage, and massive administrative bureaucracy--there was 
     little hope that the credit-voucher approach, as proposed, 
     would have significantly affected the absurd ratios of 
     administrative to service-provision expenses in American 
     health care. There may have been a managed competition 
     sleeper in the Bush plan's ``Health Insurance Networks'' that 
     would have lessened administrative costs, but the proposal 
     did not emphasize this feature. And any savings from this 
     portion of the plan might have been swamped by the costs of 
     the new administrative complexities inherent in means-tested 
     vouchers and deductions.
       Meanwhile, a number of senators and congressmen were 
     pushing a quite different alternative: single-payer or 
     Canadian-style reform, a proposal that is far from dead 
     either in the Congress or outside it. The single-payer 
     approach is elegant in its simplicity. All Americans would be 
     covered for all necessary medical expenses. The 
     ``government''--probably, in truth, state governments (just 
     as provinces play this role in the Canadian system)--would be 
     the ``buyer'' of all health care goods and services. Each 
     year, a state would negotiate with providers for an overall 
     budget limit on expenditures, along with a specific schedule 
     of payments for particular procedures. If the budget were 
     overrun in one year, the amounts paid for various procedures 
     would be cut back in the next. The specific amounts to be 
     paid for particular medical services would be hashed out 
     primarily in the medical fraternity--that is, doctors and 
     hospitals would, by negotiating with each other and the 
     government, determine how much of the overall and limited 
     health care pie each would consumer.
       For consumers or patients, this system is almost too good 
     to be true. Each patient would have a card entitling him or 
     her to health care as needed--that is when that need was 
     certified by a licensed professional. There would be no 
     limits on choice of doctors or hospitals; doctors and 
     hospitals would not be allowed to charge more than the prices 
     previously negotiated with the government; and private 
     insurance would be available only for those limited services 
     not covered by the national scheme (e.g., cosmetic surgery).
       As the Canadians like to put it, a system of this sort is 
     universal (everyone is in the same boat), portable (not tied 
     to either a particular job or place of residence), 
     accountable (public authorities bargain for the populace 
     concerning benefits and their costs), and fiscally prudent 
     (monopsony bargaining by a single payer produces the power to 
     constrain costs, and the necessity to provide other goods and 
     services motivates the government to constrain its health 
     care budget). Administrative complexities are kept to a 
     minimum. Multiple insurance policies, balance billing, 
     experience rating, and pre-clearance for access to tests or 
     care (``managed care'') are all unnecessary. While 
     administrative costs are shaved and provider incomes are 
     constrained, choices about how to practice medicine are 
     guided only by professional judgments and patient choices.
       For the United States, the difficulties with this system 
     are primarily ideological and political. The first problem is 
     the specter of ``big government.'' In a single-payer system, 
     virtually all of the health care dollars that now run through 
     the private economy would run through the government budget. 
     Experience in Canada and elsewhere should lead us to expect a 
     decline over time in the now-relentless rate of increase in 
     the share of our GDP devoted to health care costs. 
     Nevertheless, the prospect of a one-time shift of vast 
     resources--amounting to 8 to 10 percent of GDP--from private 
     accounts to public accounts has led many to believe that a 
     single-payer approach would be ideologically unacceptable to 
     the American populace. (Opinion polls do not necessarily 
     support this claim.)
       A second major problem is that single-payer reform would 
     decimate the private insurance industry. If we had to choose 
     a part of the American health care system to decimate--the 
     choices being providers, patients, or insurers--this would 
     surely be my choice. Nevertheless, putting this industry out 
     of business--except in niches or to the extent that it 
     administers portions of a single-payer apparatus--is thought 
     by many to be politically nonviable. A large number of jobs 
     are at stake here, even if they are in some sense make-work, 
     in that they involved carrying out administrative tasks that 
     a single-payer system would render unnecessary.
       There are also worries about queues, fed largely by 
     anecdotes that seriously misrepresent the true picture in 
     Canada and elsewhere. In addition, some have suggested that 
     government finance would stifle the continuous march of 
     technological progress in American medicine--a fear that 
     seems to be groundless as well. Yet, taken together, these 
     various concerns, however mistaken or exaggerated, may be 
     sufficient to make the single-payer approach politically 
     nonviable as a national solution.
       At this point enter (stage center) ``managed competition.'' 
     While oxymoronic in its nomenclature, managed competition 
     captured the imagination of the Clinton administration and 
     apparently provides the backbone of its plan. The basic 
     notion of managed competition is the formation of purchasing 
     cooperatives that would provide insurance for the whole 
     population and that, because there would be only one in each 
     local market, would have the bargaining power to force down 
     provider prices.
       Universalism can be built into a managed competition 
     proposal in any number of ways, ranging from allowing 
     employers to buy coverage for their employees from the health 
     insurance cooperatives (and setting up a governmental program 
     for those who are unemployed) to establishing a voucher 
     system reminiscent of the Bush plan. Managed competition 
     strategies typically would preclude insurers from experience-
     rating populations (that is, charging premiums in relation to 
     the relative risks of particular groups) or denying 
     individuals coverage because of their preexisting conditions.
       The advantages of managed competition are said to derive 
     from its use of monopsony power (as in a single-payer scheme) 
     to control costs and from its reliance on the competitive 
     provision of services as a mechanism to protect the quality 
     of care and patient choice. Thus, the ideological baggage of 
     managed competition--unlike that carried by the single-payer 
     approach--all seems positive: ``market,'' ``choice,'' and 
     ``competition.''
       However, the problems with managed competition are many. It 
     would rely very heavily on reorganizing the practice of 
     medicine into health maintenance organizations (HMOs) or 
     preferred provider organizations (PPOs). Groups of physicians 
     and hospitals would agree to treat populations of patients 
     for fixed annual fees. In essence, the providers would become 
     the insurers in this system--and would make money only to the 
     extent that they became efficient in managing the care of 
     their patient populations.
       A logical corollary of this arrangement is that patients 
     would have less choice about who provides them with medical 
     care and physicians themselves would have less professional 
     autonomy. The superficial ideological attractiveness of 
     managed competition may vanish as both patients and 
     physicians learn more about what managed competition really 
     means. In addition, because managed competition has never 
     been tried anywhere on a substantial scale, it would entail 
     the acceptance of these losses of autonomy for patients and 
     physicians in exchange for an unknown degree of cost 
     containment.
       These disadvantages may not be so dire as they sound when 
     stated abstractly. There are many successful HMOs with 
     satisfied customers. Moreover, few of us do much real 
     choosing of our doctors anyway. We may select a general 
     practitioner or internist (if we find one), but a huge 
     proportion of acute care is now provided by specialists or 
     sub-specialists to whom we are referred and about whom we 
     know little. The use of large cooperative purchasers would 
     cut down on administrative expenses and could be designed to 
     assure virtually unlimited portability of benefits, although 
     with some administrative stress.
       There are many variations on these four themes and perhaps 
     some approaches that are not captured very well by the 
     typology that has been employed here. Moreover, systems can 
     sometimes be fused. Play or pay and managed competition have 
     much overlapping content and can be brought even closer 
     together or made more distinct by technical design features 
     that go beyond the scope of this discussion. For present 
     purposes, the basic point would be clear enough: There are 
     lots of proposals out there, and each has strengths and 
     weaknesses.


                              why choose?

       Although the discussion in the last section was couched 
     mostly in policy-analytic terms, we should not be misled into 
     believing that deciding how to reorganize American health 
     care delivery and finance is just a matter of resolving 
     technical issues. These choices are highly political. To put 
     the matter slightly differently, because there are 
     substantial uncertainties about how any proposed system would 
     work and because each has different risks and benefits, 
     choosing a plan involves ascertaining what risks people think 
     are worth running for what potential gains. Moreover, there 
     are basic moral and political questions about how egalitarian 
     and comprehensive health care should be and about who should 
     have the authority to make what sorts of choices regarding 
     health care facing what incentives or constraints. Answers to 
     these sorts of questions are the essence of political 
     judgment.
       It is precisely here that the basic structure of our 
     federal system can play a crucial role in making health care 
     reform viable, successful, and acceptable to all Americans. 
     Political judgments concerning the desirability of the reform 
     directions we have been discussing are products of personal 
     experience, local economic and social conditions, and 
     political ideology. These factors change substantially as one 
     moves about the United States. If change is to be workable 
     and acceptable, it must take account of the real differences 
     between New York and Idaho, Wisconsin and Louisiana.
       For example, because of their long experience and heavy 
     involvement with HMOs, Californians may be perfectly happy 
     with some version of managed competition. Vermonters, by 
     contract, may find the idea of an HMO appalling and the 
     notion of competition among large health insurance 
     cooperatives laughable given the small size and sparse 
     population of their state. Maryland may prefer an all-payer 
     rate-setting system for cost control, in no small part 
     because it has had significant success over the last decade 
     constraining hospital costs by using that approach. The 
     governor of Kentucky has worked out a complex and 
     comprehensive version of play or pay that might well suit 
     Kentuckians and their particular circumstances.
       And so it goes. There is unlikely to be any single best 
     system for the whole of these United States. Regions, states, 
     even localities are different in their demographic 
     characteristics, political cultures, and existing styles of 
     medical practice and health care consumption.
       Why not then let states choose how to reform American 
     health care? If it is uncertain how any new proposal would 
     work out in practice, why run a single experiment, which 
     might fail, on the whole country at once? Is it not precisely 
     the genius of American federalism to permit not only 
     experimentation to discover what works, but continuous 
     variation in policy prescriptions over time to accommodate 
     different conditions and different preferences?
       My answer to these questions is yes. But I must recognize 
     that there are serious and plausible objections to leaving 
     much of health care planning to the states. In the next 
     section, I will consider some of the major concerns about a 
     federalist approach to reform.


                      arguments against the states

       I do not propose here to consider every conceivable 
     objection to a major role for the states in health care 
     reform, but I do want to describe--and, frankly, dispel--some 
     of the most important. My view is that the problems addressed 
     here, though real, are not so serious that they should cause 
     us to prefer a nationalist to a federalist approach to 
     reform.
       First, it is objected that ``letting the states do it'' 
     would mean that health care would be different, and 
     potentially less ``good'' (comprehensive, universal, 
     effective, or whatever), in Mississippi and West Virginia 
     than it is in Minnesota and New York. That is true. But it is 
     also true of housing, schooling, access to transportation, 
     and a host of other life-enhancing goods and services that 
     many of us would prefer to see more evenly distributed across 
     the national population. It is also, of course, dramatically 
     true of our existing health care arrangements. We should not 
     delude ourselves that the creation of a ``national'' plan 
     would stamp out the large differences in the economic or 
     other circumstances of populations across the United States.
       Moreover, if, as many analysts persuasively argue, managed 
     competition just would not work in Mississippi or Idaho or, 
     indeed, about half the states, putting that system in place 
     could hardly produce a big change for the better. Similarly, 
     if Minnesotans are ideologically opposed to means-tested 
     vouchers while Arkansans shudder at the thought of their 
     state government becoming the single payer that manages their 
     health care, why choose a national system that has the 
     potential to make these populations worse off than they 
     currently are? Uniformity is in fact a pipedream, and, as the 
     fictious Mr. Sherlock Holmes discovered, indulging in a large 
     number of those dreams can be detrimental to your health.
       What then about the capacities of the states, both 
     administrative and political? Can we really trust the states 
     to adopt and implement reforms that universalize coverage, 
     make it portable for their populations, constrain costs, and 
     maintain quality? We might readily ask those same questions 
     about the national government. And we already know the 
     answers with respect to the current system of private 
     provision. It fails all sensible tests for a good health care 
     system.
       But we need not rely entirely on ``as compared to what'' 
     arguments. For one thing, a federalist approach does not 
     eschew national standards, as we shall shortly discuss. Of 
     equal importance, a number of states have been actively 
     engaged in health care reform efforts of their own, and many 
     are having significant successes--against, as we shall see, 
     very steep odds.
       Hawaii is perhaps the best known example. That state has 
     developed an extraordinary amalgam of play or pay, monopoly 
     bargaining, voucher-type gap-filling, and single-payer 
     regulatory control under which the whole population is 
     covered. Quality of care and consumer satisfaction are both 
     high, and health care costs Hawaiians, as a proportion of 
     income, 5 percentage points less than it costs the average 
     mainlander. There are many historical and geographical 
     explanations for these happy circumstances in Hawaii, but 
     none explain away a true success story in American health 
     care provision. Moreover, the cost containment that has been 
     achieved is startling in a state that has the second highest 
     cost of living in the United States.
       A quick trip back East will also reveal some excellent 
     results in states such as Maryland and New York. For the past 
     decade, both of those states have been engaged in fairly 
     aggressive rate regulation and ``supply-side'' controls with 
     respect to hospitals. Their efforts have paid off handsomely. 
     Maryland's all-payer regulation of hospital rates is the most 
     developed and most successful in the country, and New York's 
     rate of growth in hospital spending is now among the lowest. 
     Is New York well-known for low costs and good government? For 
     that matter, is Maryland? And yet, these states, pressed hard 
     by hospital cost escalation that increasingly showed up in 
     their Medicaid budgets, took actions that have constrained 
     costs without, as far as anyone can tell, impairing the 
     quality of care provided their populations.
       Many other states have initiatives at various stages of 
     planning, enactment, and implementation (Minnesota, Delaware, 
     Vermont, and Florida, for example). Others, such as New 
     Jersey, have tried to strike out in new directions only to 
     find that they are hemmed in by federal regulations related 
     to Medicare and Medicaid--and particularly by the pre-
     emption, in the Employees Retirement Income Security Act 
     (ERISA), of state actions affecting self-insuring employers. 
     Indeed, Hawaii's signal success in universalizing care while 
     constraining costs has much to do with its good fortune in 
     having obtained a waiver from the ERISA preemption rule--a 
     waiver that has not been made available to any other state in 
     the Union.
       By this point, another quite sensible query may have 
     occurred to many readers: If the states are so good at health 
     care provision or reform, why do we have a national health 
     care crisis? The basic story is conceptually simple. Remember 
     the various types of national health care reform plans that 
     were discussed earlier. One common feature of all of these 
     proposals is their comprehensive nature. To universalize 
     care, make it portable, maintain quality, and constrain 
     costs, you have to have a plan that addresses virtually all 
     aspects of health care delivery and finance.
       Under current law, this sort of comprehensive approach is 
     unavailable to the states. Forty cents of every dollar 
     expended on health care is spent by the federal government 
     under rules and regulations that are not subject to state 
     control. To be sure, some states have been able to get 
     waivers of certain Medicaid regulations, and Maryland has 
     managed to get, and utilize effectively, a Medicare waiver as 
     well. But their inability to control large chunks of health 
     care finance is only the beginning of the states' current 
     difficulties. If it is impossible to fold self-insured 
     employers into the system because of ERISA, as it is 
     everywhere except in Hawaii, then states cannot build 
     comprehensive systems. To oversimplify, but not by much, the 
     ERISA preemption means that the people who have the lowest 
     health risks and the highest abilities to pay will be outside 
     of the state systems.
       Equally important, a huge proportion of the federal 
     contribution to the expense of American health care comes 
     through the tax code. The tax deductibility of employer 
     expenses for employee health care means that some $65 billion 
     is dumped into the health care system annually in a form that 
     can be maintained only if insurance or self-insurance remains 
     employment-based. This eliminates, for all practical 
     purposes, the potential for states to cut health care 
     insurance loose from its historic, and accidental,\2\ 
     moorings in the workplace.
       In short, the problem is not just that federal policies 
     have failed to facilitate state solutions to problems of 
     health care delivery and finance; it is that these policies 
     continue to thwart state efforts at almost every turn. Nor, 
     to be frank, has the federal government been responsible 
     about throwing these monkey wrenches into state efforts. The 
     ERISA barrier, which is probably the most serious, was 
     created by a statute that preempts all state regulation while 
     failing to provide any national regulation in its stead. 
     Hence, while states can prevent private insurers from 
     excluding people because of preexisting conditions and can 
     require insurers to community rate, as the states 
     historically have done with the Blues, ERISA prevents them 
     from taking the same steps with respect to self-insured 
     employers. The result has been a flight to self-insurance to 
     avoid regulation--and then the increasingly frequent and 
     distressing discovery by employees that their employer's 
     health insurance can be counted on to provide good coverage 
     only if they remain well.
       I do not want to oversell this tale of state responsibility 
     in the face of federal obstructionism. States are not 
     responsible, or even competent, all of the time. And if large 
     amounts of federal monies are going to be put into a national 
     health care system, then it is surely also irresponsible for 
     the national government to allow those monies to be spent 
     with no federal controls or oversight.
       I have no quarrel with this position, but it does not 
     entail the conclusion that we must therefore have a national 
     health care system that is uniform across all states and 
     administered primarily from Washington. On the contrary, it 
     should lead only to the conclusion that the federal 
     government should set broad goals or parameters within which 
     state systems are required to operate and then free the 
     states to create those systems that work best for their 
     populations within the constraints of the federal guidelines.
       This is hardly a novel institutional structure. We use it 
     in many realms of national domestic policy, ranging from 
     highway construction to environmental protection to day-care. 
     In my view, we would be well-advised to use it again in 
     health care reform. If the federal government would continue 
     its fiscal contribution to American health care--both direct 
     expenditures and tax expenditures--but make maintenance of 
     that contribution conditional upon some straightforward 
     guidelines for state organization of health care provision 
     and finance, we might have the best of both possible worlds: 
     a system that satisfies national aspirations and is 
     responsible with national monies, while it simultaneously 
     responds to the differing conditions, cultures, and 
     preferences of states and their populations.
       In principle, these guidelines could be quite simple. A 
     state should not receive the necessary waivers from federal 
     statutes or the maintenance of federal fiscal contributions 
     unless it provides or constructs a universal system that 
     covers all reasonably necessary medical procedures. Benefits 
     in that system should be portable both within and without the 
     state, and there should be a public authority that can be 
     called to account for the operation and quality of the 
     system. The federal government's means for financing its 
     contribution to the system should ensure that if a state's 
     (appropriately adjusted) health care costs per capita, or its 
     health care cost inflation rates, exceed national targets, 
     those excess costs are to be paid 100 percent with state and 
     private, not federal, dollars.


                          trouble in camelot?

       As does any reform plan, the federalist solution raises its 
     own set of worrisome issues: What would be the effects of 
     multiple and varied rules on national employers? How would 
     the federal government enforce the conditions it sets? How 
     would a federalist approach deal with the reality that states 
     differ in their capacities to achieve universality and cost 
     containment given the current differences among their health 
     care systems on both counts and, more generally, the 
     differences among their economic, social, and institutional 
     situations?
       As to the first question, national employers already cope 
     with enormously diverse health care needs and systems across 
     the country. All health care arrangements are intensely 
     local. The claimed need for uniformity is a smoke screen for 
     the real objectives of the big businesses who cite it: either 
     the maintenance of the current system, which gives them some 
     advantages over small businesses (e.g., no regulation of 
     their health care benefits and the potential ability to avoid 
     contribution to the cost of the uninsured) or the 
     construction of a new set of mandates that will disadvantage 
     their smaller competitors even further. The objection to a 
     lack of uniformity should be ignored.
       Enforcement, by contrast, is always a problem in state-
     federal cooperative arrangements, but the size of the problem 
     should not be overstated. Over time, progress generally is 
     made through threats, negotiation, and occasional sanctions, 
     Moreover, a federal statute can easily be structured so that 
     consumers and providers have private rights enforceable in 
     court. The double-whammy of federal bureaucratic pressure and 
     private litigation has a long history of enforcement success 
     in program after program of ``cooperative federalism''--
     though not unalloyed success, of course. Compliance is never 
     perfect with any legal requirement in any legal system.
       Differences in state capacities would have to be recognized 
     and taken into account in federalist strategy. Most state-
     federal systems begin with the submission and approval of 
     plans, move on to implementation and monitoring, and continue 
     over time with endless rounds of negotiations, sanctions as 
     needed, and legislative amendments. Any such system--and 
     health care would surely be no exception--establishes a 
     process, not a completed product. And in that process, states 
     will perform better, worse, or just differently. No sensible 
     federal administrator could expect otherwise.
       Doubters and skeptics among the readers of the last three 
     paragraphs may view them as overly optimistic, perhaps even 
     glib. And even the more sympathetic may now be thinking the 
     equivalent of ``easy to say, but tough to implement.'' My 
     response for now is only this: So is everything. All reform 
     is essentially trial and error--or more cheerfully, trial and 
     accidental success. Social engineering is an art, not a 
     science, and mistakes can be very costly.
       To take a pessimistic view, if in reforming American health 
     care we are currently about the business of engineering a 
     train wreck, it would be nice not to have the whole country 
     on the train. From a more optimistic perspective, in 
     establishing and operating this grand new experiment, it 
     would be helpful to be able to learn over the years from the 
     experiences of those states where the switches work better 
     and the trains run closer to their scheduled times.


                                footnoes

     1The conclusion that the system is broken seems to 
     generate little disagreement, although I must confess that I 
     believe we can take the bashing of the health care system too 
     far. An industry that grows at twice the rate of the gross 
     domestic product, creates a huge number of high-paying, high-
     skilled jobs, provides the United States with technological 
     leadership in a major economic sector, and is virtually 
     immune from foreign competition should hardly be treated as 
     public enemy number one.
     2Somewhat ironically, the origin of employment-based 
     health insurance is attributable in substantial part to 
     employers' desires to avoid wartime wage controls.
                                  ____


           National Health Reform: Where Do We Go From Here?

         (By Theodore Marmor, Jerry Mashaw, and Jon Oberlander)


                             i. the problem

       The debate over health care reform has reached a critical 
     juncture. There is significant opposition in Congress to the 
     administration's plan without consensus on an alternative. 
     There is widespread agreement that health reform is needed 
     but disagreement on the precise shape reform should take. 
     Given these political circumstances, and the associated risk 
     of deadlock, what should supporters of health reform do? How 
     can national health reform be enacted when no majority exists 
     for any single reform plan?
       The challenge for reformers is to pursue a strategy that 
     reflects the political consensus on the goals of health 
     reform as well as the lack of consensus on solutions. With no 
     clear majority for any proposal, health reform proponents are 
     divided into factions favoring managed competition, single-
     payer, expanded Medicare and various hybrids of these 
     approaches. These divisions, however, should not obscure the 
     larger consensus among reformers on fundamental principles: 
     universal coverage, cost containment, and radical reform of 
     private health insurance practices.
       A majority for health reform can be formed if supporters of 
     the various reform options are aggregated around their common 
     commitment to these principles. In other words, if a 
     legislative proposal can be developed that brings together 
     all those serious about health reform--be they single-payer, 
     managed competition or whatever--a sufficient majority will 
     be created that can overcome the resistance of health reform 
     opponents. The trick, then, is to pursue legislation that 
     builds on the reformers' consensus on goals while recognizing 
     their differences on how to achieve those goals.


                            ii. the solution

       One possible solution to the problem of forming a 
     legislative majority amongst reformers whose health policy 
     preferences diverge is to enact legislation requiring 
     universal coverage, cost containment, and insurance practice 
     reform but allowing for multiple strategies for meeting these 
     standards.
       Specifically, Congress could pass legislation mandating 
     that the states enact universal coverage, insurance reform 
     and cost control by a specified date but leaving the states a 
     choice about which administrative and health delivery changes 
     they wish to implement. To a limited extent the Clinton plan, 
     with its single-payer option, already recognizes the 
     advantages of state flexibility. We propose, however, to 
     expand on the concept of state-led health reform by enlarging 
     the scope of state discretion and making it a political 
     cornerstone of national health reform.
       How would a proposal for state-led health reform work? 
     Congress would enact legislation mandating state compliance 
     with federally-established national health reform standards. 
     By a specified date, states would be required to enact 
     universal health insurance meeting the following standards.
       Universality. All citizens must be guaranteed health 
     insurance coverage. Insurance coverage may not be denied for 
     preexisting medical conditions. Community rating is mandated. 
     Insurers may not sever coverage.
       Comprehensiveness. Health insurance coverage must include 
     all necessary medical services. Congress should specify a 
     minimum benefit package which leaves states the option of 
     adding coverage for additional services (e.g., dental care).
       Portability.
       Accountability. States must designate an administrative 
     agency responsible for overseeing their health care system.
       Fiscal viability. States must establish a reasonable plan 
     for cost containment. States exceeding national targets for 
     medical inflation will themselves be financially responsible 
     for excess expenditures.
       States would submit their proposed plans to a National 
     Health Commission for approval. It should be noted that 
     Congress must enact accompanying legislation (such as reform 
     of the ERISA provisions of self-insuring companies) that 
     allows states sufficient legal discretion to pursue health 
     reform. States should be allowed, with federal approval, to 
     fold Medicare and Medicaid into their health systems.
       Federal funding would be available to states meeting the 
     national health reform standards. Funding could be in the 
     form of a block grant varying with state income, 
     demographics, and health cost history. Federal monies would 
     constitute only a portion of the financing base. States could 
     choose how to finance their portion of the health budget.
       While the standards for national health reform would be 
     national, states would retain autonomy in choosing how to 
     meet these standards. States could implement a system 
     resembling the Clinton administration's plan. They could also 
     pursue managed competition without mandatory alliances or 
     single payer or all-payer regulation or a combination of 
     these proposals. As long as they satisfied national health 
     reform standards, states would be free to create the health 
     system of their choice.


                            iii. discussion

       What are the political advantages of a state-led or 
     federalist health reform? By mandating principles of reform 
     without imposing a single reform strategy, federalist reform 
     addresses the puzzle of how to take advantage of the majority 
     for health reform when that majority cannot agree on the 
     precise shape of reform. The widespread support for universal 
     coverage, cost containment and insurance reform is embodied 
     in the national health standards. The diversity of opinions 
     on how to achieve these goals is recognized by giving the 
     states flexibility in meeting the standards. Single-payer and 
     managed competition advocates will both find room in state-
     led health reform to realize their favored system and 
     therefore ought to come together within the same coalition.
       The federalist strategy will put opponents of reform on the 
     spot. Legislators whose opposition to reform has been cloaked 
     in objections to specific plans or elements of plans will 
     have to come clean. They will no longer be able to object to 
     national health reform on the basis of dissatisfaction with a 
     particular reform plan; federalist legislation will not 
     impose any one plan on the states. The political dynamics of 
     health reform would be altered. The debate would no longer 
     center, for example, on the desirability of mandatory health 
     alliances. Instead lawmakers will be faced with a 
     straightforward question: ``Do you support the goals of 
     national health reform; universal coverage, cost control and 
     insurance market reform?'' It will be more difficult to 
     oppose national health reform standards than it is currently 
     to oppose specific plans. The health debate will move to a 
     terrain which is more comprehensible to the public--and where 
     public support for reform will be a stronger political force. 
     And that is crucial.
       States vary widely in wealth, demographics, political 
     culture, and medical arrangements. Given this diversity, it 
     is preferable to give states flexibility in setting up health 
     systems appropriate to their respective situations. Managed 
     competition, for instance, is not obviously feasible in 
     states with geographically dispersed low populations; there 
     is insufficient population density to sustain a system of 
     competing health plans. On the other hand, states such as 
     California with substantial HMO experience will be more 
     comfortable with such arrangements. The political 
     perspective on health care is not the same in Vermont as 
     it is in Utah.
       Moreover, many states have a significant track record in 
     health reform. State health reform contains many examples of 
     selective success such as Hawaii's universal coverage system 
     and New York's hospital rate regulation. Even as the federal 
     government considers national reform, states such as Florida, 
     Minnesota and Vermont are pushing ahead with their own health 
     reform plans. Most states would likely welcome the 
     opportunity to pursue their own health reform strategies. 
     Given states' socioeconomic and political diversity, their 
     experience with health reform, and their preferences for 
     maintaining their own health systems, does it not make sense 
     to enact national health reform that gives the states the 
     freedom to choose what kind of health administration they 
     want?
       The Clinton Health Plan has received criticism for limiting 
     choice. This criticism is largely misplaced. Nevertheless, 
     reforms must confront the problem of reform's association 
     with restrictions on choice in medical care. By leaving the 
     states free to choose their own administrative structure, the 
     criticism the administration's plan has encountered will be 
     ideologically neutralized; health reformers can seize the 
     symbolism of choice. Health reform built on federalism will 
     resonate with the public as a flexible, pragmatic solution to 
     the nation's medical crisis.
       As the proliferation of reform proposals in Congress 
     demonstrates, there is more than one route to universal 
     coverage and cost containment. There is a great deal of 
     uncertainty about how these plans would operate in practice. 
     Managed competition has never been tried anywhere on a 
     systemwide level and no state currently employs a single 
     payer model. Given this uncertainty, it makes sense to take 
     advantage of the opportunity federalism gives us by allowing 
     for experimentation with various reform ideas. State-led 
     reform will allow us over time to observe the effectiveness 
     of various options for reform.


                             iv. conclusion

       The fundamental assumption behind the federalist strategy 
     is that there is an existing but divided majority for health 
     reform in Congress. We propose to mobilize this majority by 
     providing a formula for health reform that reflects both 
     reformers' consensus on the goals of national health reform 
     and their disagreement on how to achieve those goals.
       Many Legislators who do not agree on the direction of 
     reform do agree on the necessity of reform. By pursuing 
     legislation that simultaneously sets national health reform 
     standards while guaranteeing state flexibility in 
     implementation, a legislative majority committed to health 
     reform but not to any one health reform can, we believe, be 
     coalesced. The federalist strategy offers hope for enacting 
     national health reform legislation in 1994.
                                  ____


            Federalism: Making It Work in Health Care Reform

                 (By Theodore Marmor and Jerry Mashaw)


                            i. introduction

       Our earlier March memorandum--National Health Reform: Where 
     do we go from here?--argued that a federalist form of health 
     reform made substantive and political sense in the current 
     Congressional context. By federalist reform we meant a 
     combination of a limited number of fundamental national 
     standards for universal health insurance and substantial 
     state discretion for choices beyond those architecture 
     fundamentals. The national standards we noted included 
     universality of overage, comprehensiveness of benefits, 
     portability of insurance coverage, public accountability, and 
     reasonable constraints on rising medical costs. Under this 
     form of ``strong federalism,'' the rest of the medical care 
     domain is left for the states: whether or not to change the 
     regulation of medical practice (who can do what with what 
     licenses), whether to encourage changes in the organization 
     and delivery of services (HMOs, PPO's, integrated health 
     systems), how to implement cost controls that limit the rate 
     of increase in medical expenditures (single budgets, all-
     payer systems, competitive health plans), and so on.
       What follows here is an elaboration of what these board 
     claims might mean in practice. We first address the question 
     of what should not vary among the states--what should be 
     uniform in health care reform. We discuss the case for 
     substantial state discretion under the rubric of a simple 
     question: Should one care if states vary in how they deal 
     with this or that feature of a universal health insurance 
     system?


              ii. persistent questions: federalist answers

       A. Should states be permitted to vary in who is entitled to 
     health insurance coverage? Put another way, what does 
     universal coverage mean operationally and what, if any, 
     variation is permissible?
       The answer, in our view, is simple. Citizens and resident 
     aliens are the proper beneficiaries of guaranteed health 
     insurance and no good case exists for permitting variation in 
     this national standard. There are, however, grounds for 
     treating the health costs of illegal aliens--and the burdens 
     they impose on localities--as a serious, separate issue in 
     spreading the costs of health services.
       Universal coverage is a precondition of the economic 
     security expected from reform. We cannot reach that goal 
     without requiring that the great bulk of our citizens and 
     legal residents have health insurance. Adjustments to the 
     realities of illegal entry into the United States is 
     certainly an important feature of national burden-sharing, 
     but not one that should be built into the basic statutory 
     entitlement. After all, the psychological security we hope to 
     produce is for those legitimately within our borders. Dealing 
     with the consequences of having others within our borders is 
     crucial for states like Florida, Texas, California, and 
     new York, but it is part of fiscal federalism, not 
     entitlement to health insurance.
       B. What does federalism mean for portability of coverage? 
     If states are the basic administrative units for universal 
     health insurance, the obvious question is of portability. The 
     equally obvious solution is the national requirement that 
     states recognize the terms of other state's health insurance 
     programs. There are many practical issues involved here, but 
     they are second-order ones; Canadian provinces have a half 
     century of experience in doing precisely this in medical 
     care. Conflict, it must be noted, is inevitable with 
     portability requirements. States with different remuneration 
     policies will necessarily have differences with providers of 
     care in other states. Cross-state agreements will be 
     required, but national legislation must require portability, 
     not the details of its implementation.
       C. How uniform should health insurance benefits be across 
     states? Put another way, should one care if Minnesota 
     residents have a health insurance plan that differs in its 
     covered services from that of South Dakota? This is far more 
     complicated a question than is usually recognized.
       Having a system of universal health care that varies from 
     state to state, but includes a federal financial 
     contribution, raises three quite separable issues: First, 
     there is the problem of raids on the federal treasury by 
     sates that create ``luxury'' health insurance systems. 
     Second, there is the problem that with different resources, 
     states contributing the same level of fiscal effort cannot 
     create the same comprehensiveness of coverage. Third, 
     there is concern that some states will choose to have 
     ``inadequate'' health insurance coverage.
       The first and second issues are quite easily solved as part 
     of the federal formula for transfers to the states. As in 
     many systems of ``cooperative federalism,'' the national 
     formula should take account of the risk factors, population 
     and financial resources available to states in calibrating 
     the federal government's contribution. Though no calibration 
     can be perfect, it is clearly possible to eliminate major 
     disparities in state capacity by the ways in which federal 
     financial contributions are structured.
       Similarly, the federal financial contribution should be in 
     the form of a block grant or capitated amount. States cannot 
     make raids on the federal treasury by choosing luxurious 
     health insurance benefits, if the total amount of the federal 
     contribution for each year is fixed. Spending above that 
     level will have to be done out of funds generated through 
     state policies and the state political processes.
       The problem of ``inadequate'' state systems is in many ways 
     a non-problem. If we assume that the federal government is 
     making contributions that substantially equalize state fiscal 
     capacities, then claiming that a state has chosen an 
     inadequate package of health care benefits says little more 
     than that the speaker disagrees with the state's political 
     choice. There is no agreed-upon ``best'' health insurance or 
     care system a state could offer. Moreover, both needs and 
     medical preferences vary widely across the United States. 
     The question is why a national system should override a 
     state's perceptions of its needs or, similarly, a state's 
     expression of political preference about the shape of a 
     health insurance package?
       Virtually none of the arguments that usually justify 
     national uniformity apply to health care. Certain forms of 
     basic immunization may be required to prevent the spread of 
     disease, but these ``externalities'' are a modest part of 
     health reform. Moreover, preventive measures may be 
     instituted quite separately from whatever insurance package 
     is provided in particular localities.
       There is little reason to expect a ``race to the bottom'' 
     in health care provision. So long as health insurance is 
     being made universal, the politics of health care in states 
     will not resemble the politics of welfare or Medicaid. 
     Universality can be reinforced by federal conditions that 
     require state subsidy or supplementation for low-income 
     persons--measures ensuring that everyone has access to 
     insurance that is equally affordable to them.
       Any argument that it is simply unfair to have state-by-
     state variations in health insurance benefits seems confused. 
     To put the matter more charitably, it seems to assume some 
     baseline of adequacy for health insurance coverage that is 
     established apart from any process of collective 
     decisionmaking about what adequacy means. In short, it is a 
     criticism of a state's political process rather than a 
     criticism of a state's health insurance program.
       Alternatively, such an ``unfairness'' claim may be that 
     strict equality of health care or (health care insurance) is 
     an aspect of national citizenship. This is, to say the least, 
     a controversial claim. There is a moral case for 
     egalitarianism here, but it is not a necessary feature of 
     acceptable reform. That a particular state wants to spend 
     less on health insurance and more on other things expresses a 
     political judgment with which one may disagree, but it is 
     hard to see how it violates some transcendental right to a 
     specific level of health insurance coverage equal to some 
     other state whose system we happen to prefer.
       Finally, there is very little reason to believe that some 
     variation in health benefits from state to state will have 
     major impacts on location decisions either of individuals or 
     of firms. There is a huge literature attempting to discover 
     that one or another social program has some major impact on 
     migration or location. To date, no single factor has any 
     significant explanatory power. There is no reason to believe 
     that health insurance will be any different from other state 
     programs for highways, education or welfare benefits.
       In short, a strong form of federalist system would leave 
     very wide discretion among the states to determine the 
     ``basic'' or ``comprehensive'' benefits package for 
     themselves.
       A separate argument has to do with the terms of competition 
     in states that want to implement the Clinton plan's scheme of 
     managed competition. Some fear that in the absence of a 
     uniform national benefit package, competition would drive 
     plans to vary their benefits to attract enrollees rather than 
     concentrate competition on the cost and quality of the 
     services provided. The truth is that regulating the terms of 
     competition will be difficult in any event. The 
     implementation of risk-adjusted premiums is a far more 
     difficult task than American reformers realize, as known by 
     anyone familiar with the five years of frustration in the 
     Netherlands over trying to do just that. There is less reason 
     to insist on uniformity of benefits (beyond a basic package) 
     and more reason to worry about the implementation of risk-
     adjustment, we believe.
       Moreover, part of the concern here is the predictable 
     struggle of various service providers to have their work 
     included in state benefit packages. Some believe that a 
     uniform benefit package will insulate states from this 
     struggle. We doubt that, but we believe the National Health 
     Board should oversee the activity by sorting out such issues 
     as what is worth including for reimbursement purposes in the 
     national plan and what is not, who should be regarded as 
     medical providers under the national plan and who should not 
     be, and so on. Regardless, this should not lessen the role 
     states now have in regulating the terms of insurance coverage 
     and medical practice.
       D. State accountability. The only national standard 
     should be one requiring each state to have a designated 
     agency of accountability. Citizens should know whom to 
     address with complaints, but the authorities need not be 
     uniform across the states. We know from the Canadian 
     experience with health insurance federalism that a largely 
     uniform package or benefits and eligibility is compatible 
     with substantial variation in precisely who is accountable 
     for the provincial administration of universal coverage.
       E. Cost Controls. The central question here is whether 
     national reform--with the goal of reducing America's rate of 
     inflation in medical care--requires uniform rates of growth 
     in medical expenditures. We think not, but emphasize that the 
     design questions here are tricky.
       One method is to control the rate of increase in federal 
     contributions to state operations. Where this has been done, 
     the relevant lesson is that subnational units must face the 
     full financial consequences of the decisions they make. In 
     short, you can legitimately control the funds flowing to 
     states as part of national policy, but must structure the 
     rules such that states face the political and economic 
     consequences of either expansionary or contractionary 
     policies. What is wrong is to have one unit of government pay 
     and another administer.
       On the other hand, if employer-employee contributions are 
     to fund the bulk of medical care expenditures, the fiscal 
     arrangements are a bit more complicated than when ordinary 
     income or payroll taxes are involved. The architecture here 
     requires attention; the models are numerous and each brings 
     with it special difficulties. For now, we would urge 
     concentration first on what would count as the desired 
     performance an second on what levers of reward and penalty 
     the national government can impose. Draconian measures are 
     only apparently attractive; they are largely useless in 
     practice. Modest signals are attractive to states, but are 
     not responsible responses to the national goal of 
     constraining expenditures over time.


                               conclusion

       The case we have made is for a strong version of 
     federalism. How one proceeds depends on whether one begins 
     with a strong federalist model and treats a variety of stat 
     plans as options or whether one presumes the Clinton plan is 
     the preferred model and structures ``options'' to it. This is 
     the issue we take up now.
                                  ____


 State Flexibility Under the Proposed Provisions of the Clinton Health 
                              Security Act


                            i. introduction

       The proposed Health Security Act offers states the option 
     of adopting a single-payer system (or an alliance-specific 
     single-payer system) if it meets the various conditions of 
     the Act. There is a catch, though. Those conditions narrowly 
     constrain most of the areas in which a state might wish to 
     exercise programmatic discretion.
       For instance, the state must provide the comprehensive 
     benefits specified in the Act. While a state may reduce co-
     payments, it may not compensate for those reductions by 
     increasing co-payments for other goods or services. The 
     state's overall expenditures are limited to a sum that will 
     not exceed an amount determined (by Sec. 6003 of the Act) on 
     the assumption that the state is simply a single regional 
     alliance for that particular year. As defined in the Health 
     Security Act, the state must cover everyone who is alliance-
     eligible and must function like an alliance itself--offering, 
     for instance, reductions in cost-sharing for low-income 
     individuals, data collection quality and anti-discrimination 
     requirements.
       Moreover, states are locked into employer-based financing 
     as a principal source of revenue. They are required to raise 
     at least as much from employers as those employers would 
     have been required to pay in premiums for their alliance-
     eligible employees. Presumably, states have some 
     discretion over how they would phase in their single-payer 
     system during the transition period, but that period is 
     quite short. All states must be participants by 1998; is 
     not, the federal government takes over and administers the 
     Health Security Act's version of managed competition for 
     the state in question. The question, then, is: What amount 
     of flexibility do states have under the Clinton plan?


                     ii. areas in which to manuever

       The major ``wiggle room'' provided by the single-payer 
     alternative comes in two areas: The extent of delivery system 
     reform and the state's choice of administrative and 
     regulatory arrangements. Even here, however, the state 
     discretion allowed is rather modest. Only a single-payer 
     arrangement is permitted--or the Clinton plan plus one 
     ``alliance specific single-payer'' arrangement. To be sure, 
     this leaves the state some considerable discretion in how it 
     approaches cost-control (capitated payments, prospective 
     payments or whatever) and quality assurance activities 
     Nevertheless, it excludes systems that would use multiple, 
     but perhaps highly regulated, payers, as in the current New 
     York or Maryland hospital payment systems. It also excludes 
     other major alternatives such as a system of individual 
     mandates and subsidies combined with small market insurance 
     reforms.
       Moreover, while the single-payer approach does not commit a 
     state to the Clinton Administration's health plan delivery 
     system, the statute's highly specific coverage provisions 
     give states little freedom to experiment with major shifts 
     of health care resources (perhaps toward preventive care 
     and palliative care)--at least if they plan to finance 
     those shifts by downplaying some other parts of the 
     comprehensive benefits package. In short, while the 
     single-payer arrangement allows states to leave the 
     traditional fee-for-service medical system largely in 
     place, the combination of cost-control constraints and 
     benefits entitlements probably leave them a modest 
     practical opportunity for profoundly rethinking the role 
     and shape of medical care in population health.


                 iii. ideas for broadening the choices

       It may well be that the level of uniformity and federal 
     control central to the Act's single-payer opt-out provisions 
     are politically necessary to its acceptability. If one takes 
     that as a political given, then the question becomes whether 
     additional and parallel ``opt-out'' arrangements could be 
     provided to broaden the menu of state discretion and thereby 
     overcome some of the objections to the Clinton plan itself.
       Broadly speaking, there seem to be two alternative systems 
     of universal comprehensive care, in addition to the single-
     payer option, that might be provided as corollaries to the 
     Clinton Health Security Act. The first system could be called 
     ``multiple regulated payers.'' In such a system the state 
     would function, not as a single payer, but as a regulator. It 
     could cover all applicants, provide an identical 
     comprehensive basic package of insurance, ensure that all 
     payers play by the same rules, and simplify administration 
     through unified billing procedures, specified fee 
     schedules and other cost-containment measures. This, as we 
     have said, is the way that Maryland and New York currently 
     handle hospital payments and the Federal Republic of 
     Germany handles its whole national insurance program.
       To some, the advantage of the multiple regulated payer 
     scheme will surely be the preservation of much of the 
     existing insurance industry, although in a highly-regulated 
     form and one in which most small players eventually will have 
     to merge or drop out of the business. Like the single-payer 
     system, it preserves the existing delivery system more or 
     less intact. The multiple regulated payer system also builds 
     on our several decades of experience with price setting for 
     the medical care industry under Medicare, Medicaid, and 
     several state systems.
       Such a scheme could seemingly be made an option in very 
     much the same way as the single-payer system in the current 
     Health Security Act. Obviously some changes would have to be 
     made. For example, the enrollment and issuance of health 
     security card obligations would have to be put on insurers or 
     self-insuring employers rather than on the state as a single-
     payer. There would be no need to permit states to fold self-
     insuring employers or Medicare recipients into a multiple-
     payer system other than to provide the states with the power 
     to regulate these payers as they regulate others. (For 
     Medicare this would of course require the usual waiver, 
     such as the one under which Maryland currently operates 
     for hospital care.) And, because the state would not be 
     the insurer, there should be no exemption from the Health 
     Security Act's requirement that states provide a plan for 
     financial solvency of the regulated payers.
       The other major alternative is an individual mandate system 
     with subsidies. It is trickier to design as a state option. 
     If done at the national level, the individual mandate 
     operates by translating the employer tax deductibility of 
     employee health care benefits into personal, refundable 
     income tax credits for the purchase of the defined basic 
     benefits health insurance package. In so doing, it maintains 
     the federal fiscal effort that is now concentrated in the tax 
     code in the form of employer deductibility of health care 
     expenses for their employers. It also translates that federal 
     fiscal effort into a fully portable benefit for individuals. 
     Because states do not have control over the Internal Revenue 
     Code, this feat of fiscal alchemy is more difficult to 
     accomplish on a state-by-state basis. Nevertheless, the 
     situation does not seem hopeless. The question is whether it 
     is worthwhile.
       For example, it might be possible to allow states to elect 
     an individual mandate approach if they permitted the 
     individual mandate to be satisfied by an employer's purchase 
     of insurance (or employer self-insurance) that delivered the 
     comprehensive benefits package. Employers who use this 
     device would of course receive the usual tax 
     deductibility, capped at an appropriate level. For those 
     who were not covered by their employers, there could be an 
     individual tax credit, funded by a special tax on 
     employers not providing health care benefits. The tax 
     would be equal to the amount that they would otherwise 
     have paid into an alliance for their alliance-eligible 
     employees under an employer mandate system.
       It is hard to believe, though, that this approach would be 
     very attractive as a state option. As described, it begins to 
     look very much like the old ``pay or play'' system. It is, in 
     substance, an employer mandate disguised as an individual 
     mandate. And, if employer mandates are the objectionable 
     feature of the Clinton plan, this state option hardly removes 
     that feature. In short, if one wants to move to comprehensive 
     insurance coverage via an individual mandate and tax credits, 
     this is probably better done as a national plan, rather than 
     as a state option.


                             IV. conclusion

       In summary, then, the existing opt-out provisions of the 
     Health Security Act provide some room for states to 
     experiment or avoid features of the Clinton proposal that 
     some find objectionable. This option could readily be 
     expanded to include schemes employing multiple regulated 
     payers as well as single payers. Its usefulness does not 
     extend, however, to states that wish to diverge more 
     radically from the Clinton or single-payer approaches.
                                  ____


                [From the New York Times, June 12, 1994]

                           50 Labs for Reform

              (By Jerry L. Mashaw and Theodore R. Marmor)

       New Haven.--The debate over health care reform has reached 
     a critical juncture. There is significant opposition in 
     Congress to the Clinton plan without anything like consensus 
     on an alternative.
       How can a workable version of national reform be enacted 
     when there's no majority for any single plan? The challenge 
     for reformers is to find a strategy that reflects the 
     political agreement on the goals of health reform as well as 
     the disagreements on solutions.
       The reformers are split into factions favoring managed 
     competition, a single-payer system, expansion of Medicare and 
     various hybrids of these approaches. But these divisions 
     should not obscure the broad agreement among reformers on 
     fundamental principles: universal coverage, reliable cost 
     containment and radical reform of health insurance practices.
       If a legislative proposal can be developed that brings 
     together all those serious about health reform--no matter 
     what option they favor--a majority can be created to overcome 
     the resistance of reform's opponents. The trick, then, is to 
     pursue legislation that builds on the reformers' common goals 
     while recognizing their differences on how to achieve them 
     administratively. One solution is the federalist option.
       After all, the states have already achieved more on reform 
     than Congress has. There is no reason to stop their progress, 
     and every reason to encourage it. The federalist approach 
     would set national standards for health insurance--that it be 
     universal and portable (not based on residence or 
     employment), cover all medical necessities and have effective 
     cost-containment methods plus clear accountability for the 
     quality of the overall system.
       Having done that, the Government could promise to continue 
     its current financial contributions to health care so long as 
     the states met its conditions for acceptable plans. That 
     would free states to experiment with any of the options the 
     Administration has outlined--or any others, either existing 
     or under development around the country.
       In short, Mr. Clinton and Congress could acknowledge that 
     medical organization and practices vary substantially in 
     different geographical areas, as do demographics and 
     political beliefs. They could develop a plan that motivated 
     state experimentation, rather than mandating a single system 
     for the entire country.
       Mr. Clinton could insist that national legislation--
     Medicare, Medicaid, the Employee Retirement Income Securities 
     Act and the Internal Revenue Code--not get in the way of 
     state innovation, but nonetheless impose sanctions on states 
     that did not conform to broad national standards.
       This approach recognizes that the nation does not yet know 
     what works or will work everywhere. It would help the nation 
     learn from successes and failures while avoiding the possible 
     total failure of a plan imposed from Washington.
       If Congress adopts an unproven and untested version of the 
     Clinton plan and it turns out to be the health care 
     equivalent of a train wreck, it would be sensible not to have 
     the whole country on the same train at the same time.
                                  ____


               [From the Los Angeles Times, July 7, 1994]

               Give the States a Crack at Devising Reform

              (By Theodore R. Marmor and Jerry L. Mashaw)

       We have reached a point in the congressional struggle over 
     health-care reform where there is enough opposition to defeat 
     the Clinton Administration's plan but nothing like a firm 
     majority for an alternative. With proposals emerging from the 
     House Ways and Means Committee, Senate Finance Committee and 
     three other committees, the press reports are confusing, the 
     policy issues are unintelligible to most Americans and the 
     chances of deadlock are considerable.
       Can a workable version of national reform be enacted when 
     no majority exists for any single plan? The answer is yes, 
     but you'd never know it from the compromise proposals now 
     making the rounds. The real challenge for reformers is to 
     find a strategy that reflects whatever agreement there is on 
     the goals of health reform and accommodates the disagreements 
     on means. Instead, in the search for a plan that can pass, 
     the compromisers focus on what seems doable politically 
     rather than what is substantively desirable.
       Three of these political compromises--which look appealing 
     on the surface but are badly thought through--current crowd 
     the agenda:
       Amending the definition of ``universal coverage.'' Debates 
     on this issue mask a substantive disagreement about how great 
     a role public compulsion, of either individuals or 
     businesses, should play in ensuring coverage. A group in the 
     Senate Finance Committee including John Chafee (R-R.I.) and 
     John Breaux (D-La.) suggests giving up President Clinton's 
     nearly 100 percent goal and substituting a 95 percent 
     coverage ``target'' by the year 2002. This approach is 
     misguided because it fails to confront either the large-scale 
     insecurity or the cost escalation problems that have driven 
     reform. Who will the 5 percent left uncovered turn out to be? 
     You? Me? The chronically ill? The usually well? Only if we 
     know whether reform was likely to achieve its major goals. 
     The methods proposed to increase coverage if it falls below 
     the target percentage may also be misaimed--either 
     ineffective (another study of the problem) or pointed in the 
     wrong direction (employer mandates, which would fizzle if the 
     uninsured were not workers).
       A continuing aversion to straight talk about paying for 
     reform. This was evident in President Clinton's original 
     proposal that employers pay for the health insurance of their 
     employees, reinforcing the delusion that because employers 
     write checks for health insurance, they bear the costs. Then 
     and now, it is we citizens who bear the costs, whether it's 
     through direct taxes, increased prices or forgone wages and 
     employment. The only relevant questions--then or now--concern 
     the fairness and sustainability of the distribution of the 
     costs. We will keep paying a steep price in confusion and 
     discord until this crucial matter is understood. Those who 
     want to avoid all mandates--individual or employer--have 
     given us a scheme that is truly illusory: Tax 40 percent of 
     the most expensive health-insurance plans to provide 
     subsidies for low- and moderate-income Americans. But people 
     in expensive plans may be there because they are ill, not 
     because they are rich. And the game-playing that will go on 
     by people trying to stay below the 60th percentile ought to 
     reemploy any insurance company personnel laid off by other 
     reforms.
       Forgetting about the cost-control problems that prompted 
     the reform movement in the first place. The continuing 
     escalation of health costs, which still threatens the 
     affordability of health insurance, has dropped out of the 
     vocabulary of compromise. Words like moderate or centrist 
     typically appear in descriptions of senators like Breaux, 
     Chafee, David Durenberger (R-Minn.), Kent Conrad (D-N.D.), 
     David Boren (D-Okla.) and others, but they don't fit the 
     reforms sponsored by them, because they contain no serious 
     approaches to cost control. Just as it does not make sense to 
     cross a chasm in two steps rather than a leap, it is 
     impossible to have workable health reform without slowing the 
     rate of expenditure increases.
       Is there a compromise that builds on agreed goals but 
     permits enough variation of means to assemble a majority for 
     reform? One possibility is state-led reform (in this, 
     California is a leader, with its modified single-payer 
     health-reform initiative on the November ballot). Congress 
     could pass legislation that provided federal assistance to 
     states that enacted universal coverage, insurance law reform 
     and reasonable controls on costs. This would leave states 
     free to choose which administrative and health-delivery 
     changes they wanted to implement. By mandating basic reform 
     principles without imposing their administration, state-led 
     reform builds on the reformers' consensus about goals while 
     allowing for wide differences in the means of achieving them.
       States already have a significant track record in health 
     reform, including Hawaii's near-universal coverage and 
     employer mandates. Given the diversity of states, their 
     varied experience with health care and intense local 
     preferences, why enact a single brand of national health 
     reform, especially if it's the poorly considered compromise 
     that we seem to be headed toward?
       By moving compromise in the direction of preserving goals 
     rather than defining means, we can allow states the further 
     thought and experimentation that are needed for effective 
     implementation.
                                  ____


                      How Would Legislators Do It?

                          (By Carl Tubbesing)

       What, if state legislators were constructing it, would a 
     final health care reform plan contain?
       Flexibility.
       Delaware Senator John Still summarizes the notion of 
     flexibility this way: ``There's a perception that states have 
     flexibility in the proposal, but they really don't. The final 
     plan should allow for diversity and accommodate differences 
     among states. Achieving flexibility and protecting against 
     unfunded mandates should be the two primary goals for states 
     as the proposal moves through Congress. The plan should be 
     changed to accommodate state reforms already in place.''
       Arizona Senate Minority Leader Cindy Resnick emphasizes the 
     need for experimentation at the state level. ``Why are there 
     just two choices--managed competition and single-payer? Why 
     not five or six? Would all states be comfortable with the 
     managed competition approach? Arizona is a managed care 
     state. But others have little experience with it and may like 
     it a lot less. States have been aggressive about reform. The 
     federal government needs to encourage experimentation,'' says 
     Resnick, citing recent efforts in Florida, Washington, 
     Hawaii, Minnesota and others.
       Ohio Senator Grace Drake says simply, ``I think we should 
     let the states come up with their own solutions. You can't 
     regulate all the states the same way. I met with Speaker 
     Douglas Chamberlain, who's developing his own plan for 
     Wyoming. I asked him, `How many people live in your state?' 
     He said, `470,000.' I have 330,000 in my Senate district. I 
     said, `You have more sheep than people.' You can't have an 
     overall plan that tries to force all states into the same 
     plan.''
       Represenative David Richardson of Pennsylvania and Missouri 
     Representative Chris Kelly, chair of the House Appropriations 
     Committee, wonder why the federal government doesn't just let 
     the states take the lead. ``I think most states will adopt 
     major reforms before the federal government will,'' 
     Richardson predicts. ``Why not just let the states decide 
     what approach they want to take?''
       ``Why should the federal government be doing it?'' Kelly 
     asks. ``We can learn from each other. Maybe Missouri will 
     screw it up. But maybe North Carolina will get it right. 
     Missouri could learn from North Carolina and make 
     adjustments.''
       One way of providing flexibility would be for the federal 
     government to establish a framework, but allow for diversity 
     among state plans. This approach echoes through several of 
     the interviews. Senator Drake: ``I prefer a Jeffersonian 
     approach. Let the federal government provide a pattern with 
     plenty of room for states to develop plans that suit their 
     needs.'' Senator Still: ``I would prefer that the federal 
     government establish a basic structure. The model should 
     define basic issues, but leave it up to the marketplace and 
     the states to work out all the details.'' Senator Resnick: 
     ``Some would argue that you need a federal framework. Give us 
     a federal outline and let the states provide the details.''
       What should the framework include? Senator Still provides 
     the most comprehensive list: universal access, portability, 
     no exclusion for preexisting conditions, provision for 
     catastrophic illness, reduced administrative costs and 
     guaranteed renewability. Senator Resnick adds a minimum 
     benefit package to the list; Senator Drake includes coverage 
     for the working poor and the uninsurable.
       Some legislators have other ideas for an ideal final 
     package. Illinois Senator Judy Baar Topinka feels strongly 
     that the plan should place limits on the use of technology: 
     ``How many MRIs do we need on one block? How many heroic 
     actions to save a life? Where do we put our resources?''
       She believes the package should include tort reform. ``I 
     feel some resentment toward the president and Mrs. Clinton 
     for taking a powder on tort reform,'' she says. ``If we want 
     health reform to work, we have to address it. They have to 
     have the gonadal fortitude to take care of this.'' Senator 
     Still, however, does not make tort reform a high priority, 
     and Representative Jeffrey Teitz of Rhode Island believes 
     this traditional state responsibility should remain with the 
     states.
       Pennsylvania Senator Allyson Schwartz believes ``it is very 
     important that the plan address questions of distribution of 
     services and health professionals in urban and rural areas.'' 
     Representative Charlene Rydell of Maine prefers a system with 
     much simpler, income-based financing.
       These legislators are sure that there will be plenty of 
     opportunity to make their views known to the administration 
     and Congress. They expect the plan to change. And they plan 
     to influence it when it does. Representative Teitz predicts, 
     ``Any proposal of this enormity will go through a series of 
     refinements. Even the designers of the plan expect it to 
     change.''
       ``I'm taking them at face value--that this is just a 
     proposal and they are willing to modify it, to do whatever is 
     necessary to get a workable system,'' says Baar Topinka. 
     Senator Still predicts, ``The Clinton plan will change 
     significantly as it moves through Congress. And it should.''
       Rydell is confident that ``the proposal sets the stage for 
     states to work together and with the federal government. I'm 
     optimistic the administration will work with the states and 
     that a consensus will emerge.''
       Kelly is less optimistic and asserts he will oppose the 
     plan if it is not changed to accommodate state interests. 
     ``We are not going to let them cram this down our throats. We 
     could wind up saying `don't pass it.' I'm not inclined to do 
     that today. But they could force us to go to someone else if 
     they don't negotiate.''
       All would agree with West Virginia Speaker Robert Chambers 
     that the states should be involved in shaping the final 
     outcome and ``ultimately will look at it and judge if the 
     good outweighs the bad.''
                                  ____


        [From the U.S. General Accounting Office, Sept. 9, 1992]

 State Health Care Reform--Federal Requirements Influence State Reforms

 (Statement for the Record by Mark V. Nadel, Associate Director Human 
                          Resources Division)


                        summary of gao testimony

       GAO reported in ``Access to Health Care: States Respond to 
     Growing Crisis'' (GAO/HRD-92-70, June 16, 1992) that states 
     have taken a leadership role in devising strategies to expand 
     access to health insurance and contain the growth of health 
     care costs. Their approaches range from narrowly focused 
     efforts to reform the health insurance market or contain 
     hospital costs to comprehensive initiatives to achieve 
     universal access to health care coverage.
       States attempting comprehensive solutions are hampered by 
     restrictions imposed by federal programs, particularly 
     Medicaid, and by the Employee Retirement Income Security Act 
     of 1974 (ERISA), which preempts state regulation of employee 
     benefit plans, including health plans provided by self-
     insured employers.
       GAO presented testimony on states whose reform plans are 
     affected by federal laws. Hawaii, the only state requiring 
     employers to provide health insurance, is able to enforce 
     this mandate because the Congress exempted the state's 1974 
     law from certain ERISA provisions. The exemption, however, 
     limits the law to its original form and prohibits changes 
     state officials believe are necessary to improve the 
     effectiveness and equity of Hawaii's system.
       In enacting a health care reform package in 1992, Minnesota 
     officials tried to design a plan that would not require 
     relief from federal restrictions, thus limiting the state's 
     options. To fund a state-subsidized health plan for lower-
     income uninsured residents, the state levied a provider tax 
     that hospitals may pass on to all payers. The provider tax is 
     currently being challenged on the basis of ERISA.
       Florida's health plan, enacted in 1992, would require 
     statutory changes to Medicaid and also might require an ERISA 
     exemption. If employers do not voluntarily offer coverage to 
     their employees by the end of 1994, the law contemplates a 
     mandatory system, which could be affected by ERISA. State 
     officials would also like to expand Medicaid coverage to 
     people without employment-based insurance who are near 
     poverty but ineligible for Medicaid.
       If Congress decides that reform at the state level is an 
     appropriate path, it should consider reducing the potential 
     barriers to comprehensive state reform. States considering 
     reform perceive restrictions associated with ERISA and 
     Medicaid as potential obstacles. Congress could facilitate 
     state reform efforts by developing approaches that provide 
     states with early assurance that they will receive the 
     federal cooperation necessary to implement change.
       Mr. Chairman and Members of the Committee: This statement 
     discusses our report, ``Access to Health Care: States Respond 
     to Growing Crisis'' (GAO/HRD-92-70, June 16, 1992). Providing 
     health care to every American has become one of the most 
     serious problems facing the nation. The number of individuals 
     without--or with inadequate--health insurance is increasing, 
     while the cost of providing care is growing. Our report 
     responded to a request from Representatives John Dingell and 
     Ron Wyden to describe state initiatives that address the 
     problems of access and affordability in the health care 
     system and to report on federal barriers that limit state 
     options for achieving universal access to health care. 
     Recently you asked us to provide additional information about 
     the need for states to obtain changes in federal laws to 
     implement innovative health care reform.
       Several states are developing programs designed to expand 
     access to health insurance and contain the growth of health 
     care costs. None has found this to be an easy process. State 
     political leaders must assemble coalitions of supporters from 
     the variety of interest groups involved in--or affected by--
     their health care system. To do so, they must frame proposals 
     that will win the support of--or at least be acceptable to--
     health care providers, employers, taxpayers, and a patient 
     population ranging from those currently well insured through 
     those currently underinsured to those who have no insurance 
     at all.
       One barrier these state political leaders face is the 
     preemption provision of the Employee Retirement Income 
     Security Act (ERISA) of 1974. Another is uncertainty over the 
     particular terms that the federal government will require as 
     a condition for a Medicaid waiver. Oregon's recent experience 
     illustrates this latter problem. State officials worked for 
     several years to develop a proposal capable of garnering the 
     political support necessary, but their effort was recently 
     derailed by denial of their request for a Medicaid waiver.
       In my statement, I would like to provide some background 
     information on the federal laws that might restrict state 
     efforts to achieve comprehensive reform. Then I will present 
     the results from our recent report describing the reform 
     efforts of several states. I will close by updating the 
     legislative efforts of four states in this rapidly changing 
     health reform environment.


                               background

       When enacted in 1974, ERISA was designed to correct serious 
     problems regarding the solvency of employer-sponsored pension 
     plans, but ERISA covers all employee welfare benefit plans, 
     including health benefits. ERISA established federal 
     standards for these employee benefit plans--although it 
     imposes few requirements on health plans--and preempted their 
     regulation by states. Although preventing states from 
     regulating health insurance plans, ERISA confirmed the 
     states' authority to regulate insurance companies.
       ERISA's preemption provision\1\ enables employee benefit 
     plans to serve employees in many jurisdictions without 
     becoming subject to conflicting and inconsistent laws of 
     various state and local governments. However, it has also 
     produced a divided system in each state: the federal 
     government has authority to regulate health plans provided by 
     employers who self-insure but not health policies sold by 
     insurance companies, and states can regulate health insurance 
     companies and their policies but not the plans provided by 
     employers who self-insure.
---------------------------------------------------------------------------
     Footnotes at end of article.
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       Under the Medicaid program, states receive federal funds 
     only if they meet all relevant federal requirements, 
     including eligibility and benefit plan standards. Medicaid 
     eligibility is primarily tied to eligibility for the 
     Supplemental Security Income (SSI) or Aid to Families with 
     Dependent Children (AFDC) programs. Due to the eligibility 
     restrictions of these two programs, young single people and 
     childless couples are generally precluded from Medicaid 
     coverage.
       In addition to categorical eligibility requirements, 
     Medicaid recipients must meet specific income and resource 
     criteria. The income level that states set for welfare 
     programs is usually the standard that applies to Medicaid 
     eligibility. Medicaid eligibility levels vary across 
     states, with only 16 states offering Medicaid to AFDC-
     eligible families with incomes over 50 percent of the 
     federal poverty level.\2\
       Some state reform plans that do not comply with existing 
     Medicaid laws can be implemented by obtaining a waiver from 
     the Health Care Financing Administration (HCFA). HCFA has the 
     authority to grant Medicaid waivers and does so regularly. 
     Some waivers, such as for managed care programs, can be 
     renewed indefinitely. In addition, states can obtain 
     demonstration waivers from HCFA that give them greater 
     latitude to modify their Medicaid programs, but these waivers 
     are for a limited duration and cannot be renewed.


               states actively pursue health care reforms

       State governments have a major stake in financing and 
     providing health care. States are a major purchaser of health 
     care services in this country. On average, over 13 percent of 
     a state's budget is used to fund Medicaid, which, in 1990, 
     grew by 18 percent. An average of 20 percent of a state's 
     budget goes to fund health care programs.
       This has led to state governments' taking an increasingly 
     active role in the search for solutions to our national 
     problems of constructed access to health care and rising 
     health care costs. During the first few months of 1992 alone, 
     three states--Florida, Minnesota, and Vermont--enacted 
     ambitious plans to reform their health care systems.
       In some states, debate no longer centers on whether to set 
     a goal of ensuring universal access to health care coverage, 
     but on how to achieve it. Hawaii was the first state to try 
     to extend coverage to all its residents, and its uninsured 
     rate is the lowest of all the states. The principal tool that 
     has allowed Hawaii to approach universal access is its 1974 
     law requiring employers to provide health insurance for 
     employees working at least 20 hours a week. State 
     requirements that virtually all employers provide insurance 
     and that insurers cover all employees result in less 
     uncompensated care and cost shifting. For most residents not 
     covered by employers or Medicaid, the state has a subsidized 
     insurance program, known as the State Health Insurance 
     Program (SHIP), with less extensive benefits.
       Minnesota, Florida, and Vermont are among the most recent 
     states to pass laws aimed at providing coverage to all 
     state residents. Minnesota's 1992 Health Right Act phases 
     in several programs to extend access to health insurance 
     to many of the state's uninsured. Key features of the act 
     include creation of a state Health Care Commission, which 
     is responsible for devising a plan to set targets for 
     reducing the growth of health care expenditures, and a 
     state-subsidized, managed-care health plan for lower-
     income residents not eligible for Medicaid.
       Florida's 1992 legislation set a December 31, 1994, goal 
     for universal access to a basic health care benefits package. 
     It created the Agency for Health Care Administration to 
     develop and administer a plan with specific goals and 
     timetables for ensuring access, cost containment, and 
     insurance reform.
       Vermont's 1992 Health Reform Act proposes to provide 
     universal access to all state residents by October, 1994. The 
     legislation created the Vermont Health Care Authority, which 
     is charged with preparing two comprehensive reform 
     proposals--one based on a single-payer system and the other 
     based on a multiple-payer system--to be voted on by the 
     legislature. In addition, the Authority is responsible for 
     administering the insurance reform, data compilation, and 
     cost containment provisions contained in the law.
       Instead of adopting comprehensive plans, some states have 
     opted for programs targeted to specific uninsured groups, 
     such as low-income children and adults. These states have 
     expanded access to coverage for these populations either 
     through state-subsidized private health insurance, such as 
     Washington's Basic Health Plan, or expanded Medicaid 
     eligibility, such as the Maine Health Program.
       Most states have also adopted measures to make it easier 
     for people with high-cost health conditions and for small 
     business owners and employees to obtain affordable health 
     insurance in the private market. Almost half the states have 
     created high-risk pools to make insurance available to the 
     medically uninsurable--people who cannot obtain conventional 
     insurance because of their medical conditions--and to spread 
     the risk of covering them among all insurers in the state.
       To address problems in the small business insurance market, 
     states have adopted a broad range of initiatives, including 
     subsidies and regulatory reforms, that attempt to make 
     insurance more affordable and accessible. Thus far, most of 
     these efforts have had only a modest effect on the number of 
     small firms newly offering health insurance to their 
     employees.\3\
       While most states have focused their attention on expanding 
     access to coverage, some have made efforts to control 
     increasing costs. Through changes in methods for reimbursing 
     providers, these states attempt to limit the health care 
     system's cost growth and administrative burden. For 
     example, since 1972, Maryland has operated a hospital 
     rate-setting system that reduces hospital costs and 
     provides for nearly uniform payments by all insurers, both 
     public and private. During this period, Maryland's 
     hospital costs per admission fell from 25 percent above 
     the national average to 10 percent below.
       In an attempt to reduce administrative costs, New York 
     State is now implementing a system to coordinate health care 
     billing and payment procedures. The state's Single Payer 
     Demonstration Project is expected to reduce claims-processing 
     costs for participating hospitals.


                 federal barriers hinder state efforts

       One barrier to state health reform efforts is the budget 
     problems experienced by many states, since many of these 
     reform proposals require additional state resources. But 
     states that overcome these budget problems find that their 
     reform efforts are also hampered by federal laws and 
     regulations. ERISA is a barrier because it preempts state 
     authority to regulate employee health benefit plans. While 
     ERISA was primarily intended to correct problems with the 
     solvency of employer-sponsored pension plans, its impact on 
     employer-provided health benefits has grown as more firms 
     have self-insured for health benefits. Over half of U.S. 
     workers are employed in firms that self-insure, and states 
     cannot require such employers to provide a specific health 
     plan or pay state-imposed premium taxes. The funding base for 
     state-sponsored high-risk pools, for example, is limited 
     because the insurance assessments that supplement individual 
     premiums do not apply to self-insured companies. Without more 
     flexibility in dealing with self-insured firms, states' 
     reform options are limited.
       On the other hand, many large employers and union groups 
     fear that any diminution of ERISA could undermine the 
     structure of existing employer-provided health insurance 
     plans. Employers with operations in more than one state are 
     concerned that alternations to ERISA might increase their 
     administrative costs if they must comply with different 
     requirements in different states. Some unions are also 
     concerned that changes to ERISA may lead to limitations of 
     their benefits plans or an increase in cost-sharing burdens.
       Medicaid's rules and requirements also present obstacles to 
     state reform efforts. States wishing to implement reforms may 
     need waivers or legislative action to modify Medicaid 
     requirements. Examples of such reforms are integrating the 
     Medicaid program with a state health insurance plan or 
     creating a single organization to administer all payments to 
     health care providers. States find the process of obtaining 
     Medicaid waivers and subsequent renewals to be cumbersome.
       However, those administering this process have legitimate 
     concerns that protections contained in the law not be 
     compromised without careful thought. Medicaid regulations 
     exist to ensure that state reform activities do not diminish 
     minimum standards or quality of care for program recipients. 
     In addition, the federal government is concerned that state 
     reform efforts that expand health programs to a broader 
     population might generate additional expenses for Medicaid. 
     For example, some states that want to expand Medicaid to 
     groups that are currently ineligible are seeking additional 
     federal funds, thus increasing costs for the federal 
     government.
       In the remainder of this statement, I will discuss the 
     experience of several states, primarily Hawaii, Minnesota, 
     Florida, and Vermont, whose efforts to expand access to 
     health insurance have been affected by federal constraints.

           Hawaii needs Federal legislation to refine system

       Hawaii is the only state that now requires employers to 
     provide health insurance to employees. Hawaii is able to 
     enforce this requirement because the Congress passed 
     legislation exempting the state's 1974 law from certain ERISA 
     provisions. In part because its law took effect before ERISA 
     was enacted, Hawaii is the only state with such an exemption. 
     The exemption, however, has frozen the Hawaiian law in its 
     original form. The ERISA exemption is limited to Hawaii's 
     Prepaid Health Care Act as it was passed in 1974; the state 
     cannot amend the act unless specific legislation is passed by 
     the Congress.
       Hawaii officials believe they have made great progress in 
     their quest toward achieving universal access, but they also 
     told us that they need to improve the effectiveness and 
     equity of the state's system. A small percentage of the 
     population remains uninsured. The state cannot modify the 
     mandated benefits package for employer-provided insurance, 
     require coverage for dependents, or change the cost-sharing 
     formula for premiums. Hawaii is currently seeking amendments 
     to ERISA to permit it to respond to implementation problems 
     or to improve the employer-mandate law.
       Other states that have tried to move toward coverage of all 
     their citizens have had to work within ERISA's constraints. 
     States adopting universal access plans more recently than 
     Hawaii did not have the option of requiring employer-provided 
     insurance and had to devise other approaches. One strategy, 
     enacted by Massachusetts and Oregon but not yet implemented, 
     has been to create ``play-or-pay'' systems that rely on the 
     state's power to tax. Employers are required to pay a tax to 
     help finance state-brokered insurance; if they provide health 
     insurance to employees, they generally receive a credit for 
     the amount they spend on coverage. These laws, however, are 
     expected to face legal challenges based on ERISA, and the 
     outcome is uncertain.

           Minnesota's options limited by federal constraints

       When Minnesota officials considered different methods of 
     reducing the number of uninsured residents in the state, they 
     decided to construct a plan that would not require relief 
     from federal restrictions. Avoiding federal constraints, 
     however, was itself an approach that limited their options. 
     One reason for ruling out a play-or-pay system, for example, 
     was uncertainty about whether such a system would withstand 
     an ERISA challenge.
       A key component of the health package that Minnesota 
     adopted is a state-subsidized, managed care health plan for 
     lower-income residents who are not eligible for Medicaid. In 
     addition to collecting premiums from enrollees, the state 
     will fund the plan with a 5-cent increase in the state 
     cigarette tax and a phased-in provider tax: (1) a 2-percent 
     gross revenue tax on hospitals (effective 1993) and on 
     physicians and other health care providers (effective 1994) 
     and (2) a 1-percent tax on HMOs and nonprofit health service 
     companies (effective 1996). Hospitals may pass the tax 
     through to payers during 1993, to the extent allowed under 
     federal law.
       Minnesota officials decided to use a provider tax so that 
     financing would come from within the health care system. 
     Because ERISA preempts states' ability to regulate employee 
     benefit plans, other financing mechanisms, such as a premium 
     tax, would not have reached self-insured employers.
       State officials told us that ERISA precludes their taking 
     other actions that could enhance the effectiveness and fiscal 
     soundness of their program. For instance, they would like to 
     discourage employers who currently provide health insurance 
     from dropping coverage for employees who could be eligible 
     for the program, and have discussed techniques such as taxing 
     these employers. They are concerned, however, the ERISA may 
     bar such an approach.
       Another idea Minnesota officials are considering is 
     collecting the premiums of program enrollees through a 
     payroll deduction mechanism. They are not sure whether ERISA 
     would prevent them from requiring all employers, including 
     those who self-insure, to collect the premiums for the state. 
     In addition, their fears that their plan might be contested 
     were realized when a self-insured union health plan recently 
     announced that it would bring suit under ERISA to challenge 
     the provision allowing hospitals to pass the provider tax 
     through to payers.

                      Florida seeks Federal action

       In contrast to the Minnesota approach, Florida policymakers 
     enacted a health reform plan whose full implementation 
     would require statutory changes to Medicaid and also might 
     require an ERISA exemption. Florida's Health Care Reform 
     Act stipulates that the state's 2.5 million uninsured 
     should be offered coverage primarily through an expansion 
     of Medicaid and an extension of employer-based insurance. 
     Because the expansion of employer sponsored coverage is 
     initially voluntary, an exemption from ERISA requirements 
     is not needed immediately. Florida officials believe, 
     however, that obtaining such an exemption now would 
     provide a catalyst for voluntary expansion of coverage.
       The Florida law asks employers in the state voluntarily to 
     offer coverage to all of their employees by December 31, 
     1994. A newly created state agency will establish interim 
     targets, by firm size and industry. regarding the percentage 
     of employees and dependents insured and the number of 
     employers offering insurance. In this way, Florida hopes to 
     challenge its business community to expand employee health 
     insurance on a voluntary basis. If substantial progress has 
     been made towards insuring all employees by the end of 1994, 
     the state will continue this voluntary approach. However, if 
     target levels are not met, Florida officials will consider 
     implementing some type of mandatory employer-sponsored health 
     insurance system.
       A potential obstacle to the expansion of employer-sponsored 
     coverage is ERISA's preemption of state regulation of 
     employee benefit plans. ERISA precludes Florida from 
     mandating employer-based coverage. In addition, Florida could 
     not levy a premium tax or specify a minimum benefits package 
     for all employers because the state could enforce these 
     requirements only with respect to employers that purchase 
     health insurance, not those who self-insure. Florida 
     officials are considering a play-or-pay requirement, but 
     recognize that employers could challenge such a system under 
     ERISA.
       State policy makers think that if the state has the ability 
     to compel all employers to provide health insurance, 
     employers might be more inclined to provide coverage 
     voluntarily. Therefore, Florida officials have proposed that 
     the Congress amend ERISA's preemption clause with respect to 
     health plans.
       Another element in Florida's strategy to provide universal 
     coverage is to expand Medicaid to people without employment-
     based insurance who are near poverty but ineligible for 
     Medicaid. Because approximately 600,000 Floridians are in 
     this category, state officials would like to implement a 
     Medicaid buy-in program that de-couples economic assistance 
     from medical assistance. Medicaid coverage would then be 
     expanded to those who may not be categorically eligible and 
     who have incomes below 250 percent of the federal poverty 
     level. Under this program, state officials expect that 
     participants would share in the cost of premiums and would be 
     offered a benefits package that is less comprehensive than 
     Medicaid's.
       It is possible, though unlikely, that this proposal could 
     be implemented through a 5-year non-renewable demonstration 
     waiver. Florida officials, however, told us that they need 
     congressional legislation because limiting the duration of 
     such a complex program to 5 years would not justify the 
     difficulty and expense of implementing it.
       Medicaid requirements also may constrain Florida's efforts 
     to control the cost of its health care system. Part of 
     Florida's cost containment strategy is to place its Medicaid 
     population in managed care settings. HCFA is authorized to 
     grant waivers that allow states to implement such programs, 
     but the law also stipulates that Medicaid and Medicare 
     beneficiaries cannot constitute more than 75 percent of an 
     HMO's patient population.\4\ In some parts of Florida, this 
     requirement is difficult to achieve, thus hampering the 
     state's attempt to provide more care through HMOs.
       Florida officials are also seeking changes to Medicare 
     laws. They would like the Congress to amend the laws to 
     permit wide-scale demonstrations of alternative payer 
     systems, including state administration of all Medicare 
     benefits through a single-payer system.

              Vermont anticipates need for Federal relief

       Vermont's reform proposal is similar to Florida's in that 
     it defers immediate need for relief from federal 
     restrictions. The cornerstone of the plan is the 
     implementation of either a single-payer or multi-payer 
     universal system by October, 1994. The legislature will 
     decide which system to implement after November 1, 1993. Key 
     components of any Vermont system will include universal 
     coverage, uniform and portable benefits, capital expenditure 
     controls, and global budgeting for hospitals and providers.
       Vermont officials believe that ERISA is the largest hurdle 
     for implementing their universal access plan. They are 
     concerned that as the state gains more control of the health 
     system, more employers will self-insure, removing themselves 
     from the system. In addition, they realize that if the state 
     were to implement a single-payer system, at some point they 
     may want to include Medicare within the system. State and 
     federal officials are uncertain whether Medicare could be 
     integrated into such a system under current law.


        conclusions and matters for congressional consideration

       An increasing number of states are trying to expand access 
     to health insurance while controlling increases in health 
     care costs. Their approaches range from narrowly focused 
     efforts to reform the health insurance market or contain 
     hospital costs to comprehensive initiatives to achieve 
     universal access to health care coverage.
       Comprehensive state reform solutions have proved 
     challenging to formulate and implement. States not only are 
     having difficulty in building support for their reform 
     efforts, but also are hampered by federal laws and 
     regulations that make it difficult to design and implement 
     innovative health care reforms. State officials have 
     commented that the uncertainty associated with receiving 
     permission to circumvent federal requirements has hindered 
     comprehensive reform.
       There is widespread agreement that our health care system 
     needs major changes. Some believe that such change can be 
     achieved most effectively through national reform. Others 
     contend that states should take the lead on reform efforts 
     either;
       (1) To gain information on the feasibility of incorporating 
     such changes into a national plan, or
       (2) To permit states to design unique plans that are most 
     appropriate for each State's particular characteristics.
       If the Congress decides that reform at the state level is 
     an appropriate path, it should consider reducing the 
     potential federal barriers to comprehensive state reform. For 
     a state that is pursuing the difficult process of 
     comprehensive reform, ERISA eliminates some options, such as 
     mandated employer coverage. Additionally, some states are 
     struggling to implement approaches specifically designed to 
     circumvent ERISA, but still fear that their plans might not 
     survive a challenge based on ERISA.
       Congress could facilitate state reform efforts by 
     developing approaches that provide states early assurance 
     that they will receive the federal cooperation necessary to 
     implement change. For example, states would need assurance 
     that they could obtain a limited waiver from ERISA's 
     preemption clause in order to develop certain innovative 
     universal access systems. The Congress could define minimum 
     standards--governing such factors as benefits packages, 
     extent of coverage, accountability, and terms under which the 
     waiver application might be revoked--that a state must meet 
     to receive and maintain such a waiver.
       Additionally, if the Congress is interested in state 
     demonstration projects that achieve universal coverage 
     through an approach entailing the use of Medicaid funds, the 
     Congress might consider amending or streamlining the waiver 
     process for Medicaid restrictions. This would facilitate the 
     integration of the Medicaid program into state comprehensive 
     reform efforts.


                               footnotes

     \1\29 U.S.C. section 1144 (1988).
     \2\Recently Congress has passed legislation that expands and 
     enhances Medicaid maternal and child health services. 
     Medicaid eligibility has expanded to improve the access of 
     low-income women, children, and infants to needed health care 
     by not only broadening the allowable service coverage to 
     these groups but also severing the traditional link between 
     Medicaid and AFDC income eligibility criteria.
     \3\For a more detailed discussion of state efforts to modify 
     the health insurance market for small businesses, see 
     ``Access to Health Insurance: State Efforts to Assist Small 
     Businesses'' (GAO/HRD-92-90, May 1992).
     \4\A state can request a demonstration waiver that would 
     permit them to increase this percentage.

  Mr. GRAHAM. Thank you, Mr. President.
  Mr. President, I suggest the absence of a quorum.
  The ACTING PRESIDENT pro tempore. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. KERREY. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.
  Mr. KERREY. Mr. President, what is the business at the moment?
  The ACTING PRESIDENT pro tempore. Under the previous order, the 
Senator from Nebraska [Mr. Kerrey] is recognized to speak for up to 30 
minutes.
  Mr. KERREY. Mr. President, I yield such time as necessary to the 
Senator from Minnesota.
  The ACTING PRESIDENT pro tempore. The Senator from Minnesota is 
recognized.

                          ____________________