Overview

Lack of federal action, as well as the desire to get a greater value from the health care system, have spurred state health care reform efforts in recent years. Currently, most states are experiencing a period of increased revenue and a better fiscal situation than they were three or more years ago. As a result, several states are enacting health care program enhancements and expansions, many of which were cut during the recent budget crisis. In fact, state spending increased by nearly 9 percent in fiscal year 2006.

Nevertheless, governors are cautious about moving forward, knowing that state budgets are likely to experience a downturn again at some point in the future. Governors are aware that they must pursue controlled program expansions, and that increasing coverage alone will not control the rising cost of health care. As a result, states are exploring three main areas of reform to improve coverage and care within their health care systems:

• Innovative coverage approaches using both public and private expansions. Public expansions involve using the Medicaid and SCHIP programs to expand coverage to populations that would otherwise likely be uninsured, particularly children with slightly higher incomes. The private expansions use state dollars to provide incentives and subsidies for small businesses to make it more feasible for them to provide health insurance to their employees. States are also using premium assistance programs to help low-income workers buy their employer-sponsored health insurance, and are setting up and contributing to health savings accounts (HSAs) to allow individuals to purchase their own health care services.

• Reforming the private insurance marketplace. States are approaching reforms by requiring employer participation to discourage employers from dropping the health insurance they offer to their workers, and individual requirements mandate that individuals have health insurance or face a penalty. Through tax incentives, states are encouraging employers to set up Section 125 plans to allow their workers to deduct their health insurance premiums with pretax dollars. States are also utilizing a connector model, which provides access to more affordable and portable insurance, as well as allowing a greater choice of insurance products for those not receiving their insurance through their employer. The creation of a state-defined benefit package is another option states are using to ensure individuals are receiving basic health services through private insurers.

• Improving the health care system. Through quality improvement and measurement, states are using methods, such as pay-for-performance, adoption of standard quality measures, and development of electronic data exchange, to improve the efficiency and quality of patient care in the health care system. States are also incorporating prevention and wellness benefits into their reform plans and insurance regulations in order to improve the cost effectiveness of care by treating preventable diseases earlier and improving the value of coverage.