Obama Passes ‘Hot Potato’ to States

By Alex Wayne - Dec 19, 2011 12:01 PM GMT+0700

The Obama administration avoided a potentially brutal lobbying battle over the medical benefits insurers must cover under the U.S. health-care overhaul when it decided last week to hand the decision off to states.

The Dec. 16 ruling, coming less than a year before the presidential elections, gives states the power to set coverage levels for the policies uninsured people will buy through regulated marketplaces, called exchanges, starting in 2014. Business groups will argue for a narrow set of benefits to save costs while consumer advocates push for more coverage.

The decision shifts the debate to statehouses and away from the White House, and lets President Barack Obama say he’s giving governors and legislatures more flexibility within their own communities to confront rising medical costs and control changes brought about by the 2010 health-care law.

“Obama has taken all the grief he can stand over health care,” said Erik Gordon, a business professor at the University of Michigan in Ann Arbor, in an e-mail “He doesn’t want it to give the Republicans any more political ammunition. He is passing the hot potato to the states.”

About 24 million people are projected to buy coverage through exchanges by 2019, according to the Congressional Budget Office. Premiums will average $5,800 for individuals and $15,200 for families in 2016.

Similar Services

Under the new guidelines, state lawmakers must either set coverage levels in line with widely subscribed small- business plans in their communities, or peg them to benefits included in their state employees’ health plan, federal employee plans or the largest commercial managed- care plan in the state.

Generally, health plans for small businesses, state employees and federal workers “cover similar services,” including doctors’ visits, hospitalization and outpatient mental health, according to a study conducted by the U.S. Health and Human Services Department ahead of the Dec. 16 announcement.

Differences arise in areas such as prescription drugs. While they’re covered as a basic benefit by all government employee plans, only 84 percent of small business plans include them. The others require additional premiums, the study found. Small business plans also don’t tend to cover dental care, acupuncture, bariatric surgery and hearing aids, unless states require it, the study showed. Federal plans cover those services.

Business’ Preference

“Businesses would rather deal with states, many of whom are far more sympathetic than Washington is to claims that high benefits will bankrupt employers,” the University of Michigan’s Gordon said. “Given the competition for jobs, I expect to see regulatory arbitrage bid down required coverages,” he said.

The lack of national standards may allow some states to skimp in areas such as maternity coverage, said Debra Ness, president of the National Partnership for Women & Families in Washington, in a statement.

The administration’s ruling is “a grave disappointment” that ignores the health-care law’s direction “to develop a detailed package that would apply uniformly to plans across the nation,” Ness said.

States that have delayed implementing the health-care law have one less excuse for not moving forward, said Ethan Rome, executive director of Health Care for America Now, a coalition of labor and civil rights groups that supports the statute.

Balancing Priorities

““This shifts the battle over essential benefits to state capitals, where the insurance lobby is strongest and where it will advocate for inadequate benefits that won’t meet the needs of people,” Rome said. “State regulators need to have a transparent process in making these important decisions and should stand up for consumers.”

Neil Trautwein, a vice president at the National Retail Federation, heads a coalition of business groups and insurers lobbying for a narrow coverage package.

He says both the federal and state governments need “to develop a rule that balances state-selected and reasonably comprehensive benefits with affordability for employers and Individuals,” no matter which state is involved.

Rules that do otherwise “will make health coverage more expensive for employers and individuals to purchase and make jobs more difficult for employers to create,” he said.

Guaranteed Coverage

Many states already set minimum benefit levels in regulating insurers. Idaho, for instance, mandates insurers to cover just 13 types of health services while Rhode Island requires coverage of 69, according to the Council on Affordable Health Insurance, an industry group.

The health law, though, created insurance exchanges as a way to guarantee coverage for those who don’t have it now and for people who find it hard to be accepted by a health plan because of pre-existing medical conditions.

The federally mandated exchanges are central to the law’s goal to expand coverage to as much as 95 percent of Americans. The law, though, left open many questions involving how thye would be set up and run, opening the way for the Obama administration to control that through regulatory guidelines.

The decision not to impose national standards is in line with other moves by the administration this year as it develops rules to expand coverage to a projected 32 million people.

More State Options

Regulations released by the U.S. Deparment of Health and Human Services in July gave states wide latitude to design and run the markets. The administration also offered conditional certification for states that make good-faith efforts to establish exchanges but aren’t able to meet a 2013 deadline.

HHS also issued several directives it said were aimed at giving states more options to design their own Medicaid programs. States and the federal government run Medicaid, with the U.S. approving changes in eligibility standards by granting waivers from national law. The program is among the biggest expenses for states and also a prominent vehicle to expand coverage to the uninsured under the law.

A February letter from the U.S. to states raised the prospect of dropping some adults with incomes exceeding 133 percent of the federal poverty level from the program to close budget shortages.

Still, foes of the 2010 health-care law say the moves don’t go far enough.

The law itself is the issue, not how it is regulated, said Senator Orrin Hatch of Utah, the senior Republican on the Finance Committee, suggesting that it will remain a key campaign issue in the presidential elections no matter what the Obama administration does to dim protests on specific issues.

“The framework proposed by the administration takes away the right of individuals to chose the health care plan that best fits their needs,” Hatch said after the administration announced states would set benefit rules.

To contact the reporter on this story: Alex Wayne in Washington at awayne3@bloomberg.net

To contact the editor responsible for this story: Adriel Bettelheim at abettelheim@bloomberg.net