Great States


Innovative state experiments propel health reform forward

As U.S. Supreme Court Justice Louis Brandeis once famously wrote, states can often "serve as a laboratory" for social and economic experiments-a sentiment that still rings true today in the era of healthcare reform.

With the implementation of the Patient Protection and Affordable Care Act (PPACA), states are creating their own models and proposing alternate ideas about how healthcare reform should be approached. State models serving in many ways as laboratories that test and put into practice reform concepts, ideas and policies. Models can be vastly different-and sometimes contradictory-to one another but they all aim to improve the healthcare system through fundamental reform.

"The Affordable Care Act and the whole body of national health reform are national initiatives, but local implementation is really central to the process. And states are doing a whole variety of different approaches," says Allan Baumgarten, an independent analyst and consultant who also authors state health market reviews.  "In some cases, you can say that states themselves have multiple approaches."

In fact, the Center for Consumer Information and Insurance Oversight (CCIIO), which is responsible for executing many of the health reform provisions that affect commercial plans, works with states and insurers in providing guidance on reform provisions. In 2012, for example, CCIIO defaulted to the states for the Essential Health Benefit packages, allowing them to choose a local benchmark plan rather than identifying a national standard. States have also had a choice on their insurance exchange models as well.

While all states are taking steps to move toward reform, healthcare experts say some states are adopting potentially innovative models that could carry national implications or further healthcare reform.


A discussion of state reform efforts would be remiss without the mention of Massachusetts, a state whose reform efforts have in large part served as a model for PPACA.

The state enacted a healthcare reform law in 2006 in an effort to move toward universal healthcare coverage. One primary tenet of the law was an individual mandate that required residents to carry health insurance coverage or face a fine. Massachusetts also established a healthcare exchange to improve the nongroup insurance market.

While many states are just now trying to establish these same elements as part of PPACA compliance, Massachusetts has an established system with several years of experience under its belt. Healthcare experts say the state is already seeing some measureable outcomes from its efforts.

For instance, research by J. Kolstad and Amanda Ellen Kowalski found that reform in the state of Massachusetts has reduced hospital admissions that originate in the emergency room by about 5%.

"In Massachusetts before the reform, there was a lot of overuse of emergency rooms because low income, uninsured people were able to get totally free care at ERs through the Uncompensated Care Pool," says Sarah Miller, PhD, assistant professor at the University of Notre Dame. “This would pay for their ER visit, but it wouldn't pay for a doctor's visit. There was this incentive in place for people to use the ER as their personal doctor.”

Use of the ER by the uninsured is a chronic issue in every state.

Miller's own research has found that before state reform, more than 40% of ER visits could be categorized as non-urgent and primary-care treatable. Once reform took place, the majority of the reduction in ER usage-more than 80%-was attributable to visits that could be classified as non-urgent or primary-care treatable.

While emergency room usage decreased, research has found that post-reform, routine office-based care, primary care and preventive services saw large increases in utilization.

While Miller says the reform efforts have been a step in the right direction in terms of cost control, healthcare experts agree that cost of expanding coverage remains an obstacle.

"It's expensive to provide 400,000 with health insurance, which is essentially what happened in Massachusetts. And those costs are bigger than the cost savings," she says.

Cost containment is the state's next challenge. In August 2012, the legislature passed a health payment reform law that attempts to keep healthcare costs-and by extension insurance premiums-at a minimum increase by holding the annual increase in total healthcare spending to the rate of growth of the Gross State Product for the first five years. After 2017, the permitted annual increase will drop even lower to half a percentage point below the GSP before returning to the rate of growth of the GSP.

Wendy K. Mariner, JD, MPH, an Edward R. Utley professor of Health Law and a professor of socio-medical sciences at Boston University, says that would mean healthcare spending growth should be below 3.6% currently. According to information released by the Governor Deval Patrick's office, the payment reform law could result in nearly $200 billion in healthcare cost savings over the next 15 years.

Mariner says one of the challenges of the new law is that there is little direct enforcement. For instance, providers who fail to meet the target will have to produce a written plan to meet that target in the future.

"It's not a cure-all," Mariner says. "It's a target."

She also says that while the healthcare reform law in 2006 went off essentially "without a hitch" in the state of Massachusetts, the model could be more challenging for other states because Massachusetts was much closer to universal healthcare coverage to begin with. Some states have a much larger distance to travel.

"The Massachusetts model is both a great model and an imperfect model," she says.

Many industry observers wonder if the state’s policies to increase coverage first, then address the costs separately, is a better approach than attempting to address coverage and cost simultaneously. While PPACA attempts to balance out new spending with savings on existing costs-reducing hospital disproportionate share payments to reflect the reduction in the uninsured, for example-few believe the national law will reduce healthcare spending in any significant ways.



In Vermont, legislators are hoping the answer to healthcare reform is a single-payer system. The state plans to implement a tax-based single-payer system in January 2017 in an effort to provide universal coverage to its 620,000 residents.

"The vision is that we move to a system where every Vermonter has insurance because they are a Vermonter not because they happen to work for a generous employer or a large business," says Robin Lunge, Vermont’s director of healthcare reform. "When we move to that universal system, it would be publically funded, so everybody is in, and everybody pays."

Another important component of Vermont reform efforts is cost containment. The state legislature has established the Green Mountain Care Board, an independent, five-member board, to recommend cost containment and determine areas of potential savings.

"The governor believes strongly that healthcare costs need to be brought under control," Lunge says. “If we can't figure out a way to control healthcare costs than there is no way that the state could actually afford to be a single payer.”

She says in addition to one-time administration savings, moving to a single-payer system will also allow the state to create more population health programs and reduce the fragmentation that exists in the system currently.

"When you are taking a holistic view of healthcare, you can really focus on healthcare instead of healthcare coverage," she says.

As a single payer, the state also plans to move from a largely fee-for-service structure to a value-based payment structure.

"If we move toward value-based payment so that we are paying providers to focus on the health of their patients instead of paying them piecemeal for the number of services they provide, that too will change the way that providers deliver healthcare and lead to decreased cost," Lunge says.

Although Green Mountain Care, an entity established by the legislature, will serve as the state's coverage provider, Lunge says there still may be a role for other insurers.

"First of all, it's our assumption that some employers may wish to continue supplemental insurance. So, Green Mountain Care will be a good solid plan for Vermonters but some employers may want to continue to offer additional benefits on top of the single payer," she says, adding that the state may also choose to contract out parts of the single payer system.

Lunge says insurance carriers have had mixed reactions to the state's plan.

"We have one national carrier who is not interested in participating in a single payer system in any way, and we have a local carrier who thinks that it could really bid to be a significant contributor to a single payer system. So it's really been a mix," she says.

While the idea of a single payer has been discussed for years in Vermont, healthcare experts say other states might not have the same political environment necessary to make such a shift. Vermont is currently working on establishing a state healthcare exchange which would be open for enrollment in October. To operate the single payer system in 2017, they are planning to apply for a PPACA waiver which Lunge says will probably be filed at the end of 2015 or early 2016. 

"I tend to think that this effort by Vermont is likely to be something of an anomaly, and I'd be surprised if there were other states where there was significant interest in moving in that direction and trying to replicate whatever model Vermont develops," Baumgarten says.




The Maryland Health Services Cost Review Commission (HSCRC) sets hospital rates for all payers-Medicare, Medicaid and private insurers. The HSCRC has been operating since 1971 and setting hospital rates since 1977. When Medicare introduced its diagnostic-related group (DRG) reimbursement system, the state received a waiver from the federal government that allowed the HSCRC to continue setting rates for Medicare reimbursement.

But a new proposal submitted this spring to the Obama administration could mean a significant change for the state as it attempts to curb rising medical costs.

The proposal, which a spokesperson for the Maryland Hospital Assn. called a "huge change," would tie hospital rates to the state's economy and would make hospitals responsible for population health management instead of simply treating illness and injury.

The proposal is a request from the state to modify the waiver it currently receives from the Centers for Medicare and Medicaid Services (CMS) to operate hospital rate setting in the state. To use its own model of setting hospital prices, the state must pass a waiver test with CMS that demonstrates that Medicare spending under Maryland's payment system is less than what spending would be under the prospective payment system Medicare uses in other states.

"Basically what was established was a waiver test that looked at the rate of growth in hospital spending per admission in Maryland relative to other states," says Bradley Herring, PhD, an associate professor at Johns Hopkins Bloomberg School of Public Health.

Herring says that over time the waiver cushion has shrunk and the cost per case in Maryland has probably grown faster than other states.

"Maryland is in danger of no longer beating this so-called waiver test, so that in turn has led our state's rate setting commission...along with the state's department of health and mental hygiene to then come up with a proposal to CMS to now do something different," he says.

Under the new proposal, the state would switch from a waiver test that focuses on cost per admission to cost per person.

Jim Reiter, senior vice president of communications for the Maryland Hospital Assn., says the association supports the overall direction the proposal suggests, but does not support the initial proposal submitted because it lacks certainty. Provisions could cause hospitals to take on all the financial risk without clarity on how the policy would be implemented.

Unlike other states that have tried hospital rate setting in the past, the concept has been relatively successful in Maryland and has earned the support of many of the state's healthcare stakeholders. Reiter says hospitals have been supportive of hospital rate setting overall, which fixes hospital prices for all healthcare purchasers,  because it ensures stability, equity and innovation.

To be successful, however, experts say it requires a certain buy-in from stakeholders.

"It requires collaboration and cooperation, an ‘all-in’ from payers, hospitals and the state," Reiter says. 




The state of Colorado is centering its reform efforts on medical homes in an effort to improve care coordination and healthcare. The Colorado Medical Home Initiative (CMHI) was established in 2001 as part of a frontrunner effort to promote the use of the patient-centered medical homes (PCMH). In addition, the state passed a law in 2007 that requires increased access to a medical home approach for children who are eligible for Medicaid and Child Health Plans (CHP).

"Colorado is one of the states where they tried Medicaid HMOs, Medicaid managed care, and were very unhappy with the results," Baumgarten says. “That's why they turned to patient-centered care management and similar kinds of programs where it's all about the primary care physician, the primary care clinic, playing a bigger role in care coordination.”

One example of a managed care organization that has embraced the medical home concept is Rocky Mountain Health Plan, a not-for-profit health plan that serves approximately 214,000 enrollees across the state. Rocky Mountain Health Plan has served as both a lead agency in the Beacon Community Cooperative Agreement Program (a national health IT project) and a payment agent for Comprehensive Primary Care Initiative (CPCI) program (a public/private Medicare effort). It is now looking at ways to incorporate behavioral health into coordinated care models.

"We have been working with the state Medicaid department to pursue a state innovation program grant to actually be on the ground, integrated with behavioral health," says Steve ErkenBrack, the chief executive officer for Rocky Mountain Health Plan.

The plan's approach to healthcare is centered on the primary care physician and focuses on collaboration to improve quality and efficiency. In fact, its hometown of Grand Junction, Colo., is often cited by policymakers as a benchmark location for advanced care coordination.

ErkenBrack says plan leaders have been able to see measurable decreases in healthcare costs through coordinated care efforts in hospital bed days, but he says the advantages of medical home models go beyond dollars.

For instance, the health plan has a program in which a nurse calls the patient directly 24 to 48 hours after a discharge from the hospital to make sure the patient fully understands the discharge instructions.

"Just having a telephone conversation actually lowered their unnecessary hospital readmissions, and it's better care for the patient obviously, and it's a less expensive system," he says. "You are avoiding an unnecessary hospital readmission."

The state model and Rocky Mountain Health Plan's own efforts to increase coordinated care could translate to other communities as well, ErkenBrack says.

"Western Colorado is an independent practice system," he says. "We are not a fully integrated health system or anything close to a fully integrated system. So we have to find a way to make this work for providers. That creates a community conversation, and that's what is sadly missing in a lot of communities."




Arkansas is gaining attention for its efforts to provide an alternative to PPACA Medicaid expansion. In April, the state's governor signed a plan into law that would use federal Medicaid funds to buy private insurance for about 250,000 state residents who earn up to 133% of the federal poverty level. Under the plan, Baumgarten says individuals would receive subsidies to purchase insurance from private carriers through the state exchange, just like those who are not enrolled in Medicaid.

In this case, the network of physicians and hospitals could be wider than the existing Medicaid network, but the payment to providers would likely be higher too. Officials believe market competition would moderate prices.

Federal officials have not approved the Arkansas waiver request but are considering it. The model could be appealing for states where political posturing or opinions make expanding Medicaid eligibility a difficult proposal. Other states like Florida have also considered similar plans.

"The idea that you could do something else that sounds more like a private market solution is appealing in certain circles," Baumgarten says.

While the plan has yet to gain federal approval, Baumgarten says some of the early comments suggest that the Arkansas Medicaid plan could have costs similar to those for Medicare Advantage plans and could cost the federal government more than just the Medicaid expansion of eligibility.

"It's an interesting mix of political considerations layered over the specific interest of expanding coverage and trying to do it in a way that is acceptable to the leaders of the state," he says.


National Diversity

Whether it's a single payer system, state support of the medical home concept or hospital rate setting, it's clear that each state is establishing its own unique definition for healthcare reform. Over time, some concepts will prove more viable than others, but in many ways it's too early to tell which models will rise to the top or be translatable to other states looking for answers.

While the large diversity in reform efforts presents some challenges for national insurers who have to adapt to each individual state's policies and regulations, overall the variety in approaches could yield to innovation and more investment in approaches with in-practice results.

"As a whole I see diversity as a good thing," Baumgarten says.

Jill Sederstrom is a freelance writer based in Kansas City

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