Federal cash helps struggling states

September 1, 2010

State health directors breathed a loud sigh of relief last month when Congress finally managed to approve added funding for Medicaid just before leaving Washington for its summer recess.

WASHINGTON-State health directors breathed a loud sigh of relief last month when Congress finally managed to approve added funding for Medicaid just before leaving Washington for its summer recess.

The $16 billion increase in the federal contribution to state Medicaid financing was much less than the $24 billion in assistance originally proposed, and the extra funds will phase out over six months. But even this small increase in the federal medical assistance percentage (FMAP) for Medicaid programs was good news for cash-starved state governments.

States have the option of operating their own exchanges, partnering with other states to operate regional exchanges, or leaving it to HHS to provide this service for state residents. The feds will step in if a state does not act to establish an exchange by Jan. 1, 2013.

These grants are just the first step in helping prepare for this new program, according to Jay Angoff, director of the HHS Office of Consumer Information and Insurance Oversight. The funds will provide states with resources needed to comment on upcoming rules for exchanges, assess IT capabilities and plan for the new program.

Another grant program aims to encourage states to strengthen consumer assistance programs for appealing claims denials and rescissions by health plans. It will provide up to $30 million in funds.

Most states already provide external appeals for consumers, but HHS hopes that the grants will encourage those states lacking that option to adopt the new standards. The rules, though, do not affect "grandfathered" plans, and thus do not eliminate all the variation among plans and states for helping consumers contest health plan decisions.

States also can get $1 million in additional funds to enhance their rate review operations. Thirty states already require insurers to submit rates for review prior to marketing, but many have "file-and-use" policies that don't assess rates until long after they are filed. Future grants will require states to conduct proactive approvals.

One aim of the Obama administration in awarding these grants is to encourage states to establish insurance exchanges and comply with new policies. Many states opted out of high-risk pools in fear that the relatively small $5 billion offset will run out before 2014.

LEGAL BATTLES ESCALATE

Officials also hope that this federal assistance to states will defuse opposition to health reform across the country. Last month, Missouri voters approved a ballot initiative to block laws requiring individuals to purchase health insurance, undermining the individual insurance mandate that is central to health reform. Virginia and 20 other states are proceeding with legal challenges to the individual mandate and other reform provisions, claiming that the federal law violates state policy.

In many cases, state Medicaid and insurance directors are moving forward with PPACA implementation plans and filing grant applications with HHS, while local political leaders are battling the legality of the new programs in the courts and the political arena. The anti-reform rhetoric is slated to escalate in the run-up to November mid-term elections, when Republicans hope to oust many Democrats legislators who supported health reform.