With Health Care Lawsuits, States Hope for Victory but Plan for Defeat

When Congress approved the sweeping federal health care overhaul in March, Texas Governor Rick Perry was one of the loudest critics. He blasted the initiative as unconstitutional, a government takeover of health care and an unfunded federal mandate on the states.

“The health care vote had more to do with expanding socialism on American soil than it does fixing our health care finance and delivery systems,” Perry declared. “Texas leaders will continue to do everything in our power to fight this federal excess and find ways to protect our families, taxpayers and medical providers from this gross federal overreach.”

That sentiment remains widespread in Texas, which has joined with 20 other states in suing to block the law from taking effect. Yet even in Texas, hollers of protest are giving way to the blunt reality of governing, as the state takes reluctant but real steps toward implementing the law. Already, Texas has developed a plan for adding Medicaid coverage for services at freestanding birth centers, an early requirement of the law. More broadly, Department of Insurance and Medicaid officials have begun working on the two biggest parts of the law for states: expanding Medicaid access and tightening regulation of insurers.

Similar scenarios are playing out across the country, where every state that’s actively challenging the law is at the same time taking steps to implement it, according to a Stateline analysis and information compiled by the National Conference of State Legislatures. Just like the states that supported the overhaul, opposition states are setting up high-risk insurance pools and setting up task forces to plan out how to meet an aggressive set of deadlines spelled out in the law ( see sidebar ). While some people see these steps as acknowledging the lawsuits’ slim chances of success, others simply see them as a smart backup plan.

 “We have not taken the attitude that we’re not going to pay attention because it might get overturned,” says Jeff Stensland, spokesman for the South Carolina Department of Health and Human Services. South Carolina was among the first states to challenge the federal law. Since then, the state’s begun envisioning what its insurance exchange will look like, which is among the more onerous tasks for states to implement. “No matter how we feel personally about the reform,” Stensland says, “if it goes through and if it stays law, well, it’s the law of the land. We do need to implement it.”

THE ROAD TO COVERAGE

The federal health care overhaul relies on states to implement much of the effort to get to near-universal coverage. Here are some key deadlines for states.

2010

• Must form pools to cover high-risk individuals or else have the federal government do it for them.
• Can opt-in early to expand Medicaid, in exchange for additional federal dollars.
• Can provide CHIP coverage to the children of some state employees.

2011

• Can apply for grants to test changes to tort litigation.
• Can allow Medicaid patients with serious chronic illnesses to designate a provider as a “health home” in exchange for federal dollars.
• Can apply for federal dollars for community health centers, as well as new programs supporting school-based health centers and nurse-managed health clinics.

2012

• Can create demonstration projects to explore changes in the way Medicaid pays for services such as hospitalization and mental health.
• Must enhance collection and reporting of data on race, ethnicity, sex, language, disability status and underserved populations.

2013

• Must increase Medicaid payments to primary care doctors for two years, paid for by the federal government.

2014

• All citizens required to have insurance.
• Must expand Medicaid eligibility to at least 133 percent of the federal poverty line, with the federal government paying for initial costs associated with the coverage.
• Can create a basic health plan to cover those just above the new Medicaid eligibility level.
• Must operate state-based health insurance exchanges, with federal tax subsidies going to middle-income people to help pay premiums.
• Must have new standards, reporting requirements and insurance regulations.
• The amount of federal dollars going to state hospitals that regularly treat a disproportionate amount of uninsured will be reduced.
• Can apply to be one of 10 states with pilot wellness programs that offer rewards to individuals with insurance.

2016

• Can form health care choice compacts with other states, allowing insurers to sell policies in states participating in the agreement.

*Includes information from Kaiser Family Foundation health care timeline.

The thinking is much the same in Nevada, where Republican Governor Jim Gibbons has been an outspoken critic of the law. Even as Nevada sues the federal government, Gibbons complains that the state has simultaneously spent more than $120,000 on implementing it. As Daniel Burns, a spokesman for the governor, puts it, “We’re following the law; we’re fighting the law.”

The opposition has a lot to do with the billions of dollars it will cost some states to expand Medicaid coverage, run health insurance exchanges and increase regulations. But it’s also about the familiar exercise of flexing states’ rights in the face of a far-reaching federal initiative, says Harvey Tucker, a political science professor at Texas A&M University. “In many cases,” he says, “these states, they’ve argued the federal constitution doesn’t apply to them.”

“From their perspective, they’re doing the right thing,” Tucker adds. “They know they’re going to lose, it’s just they’re buying more time or dragging their heels”

A long to-do list

One thing nobody disagrees with is that the federal overhaul leaves little time for states to waste. The entire initiative relies on the states for a number of the pieces that are supposed to add up to near-universal health coverage.

By 2014, for example, Medicaid eligibility will broaden widely, meaning that millions of additional low-income people will be added to states’ insurance rolls. At the same time, states are charged with setting up new insurance exchanges by 2014 so that middle-income people and businesses can have an easier time shopping for insurance coverage.

In short, there’s a lot states need to get done in a small amount of time. And the Obama administration has been letting them know it. “2014 is now,” Cindy Mann, director of the Center for Medicaid and State Operations, told a standing-room-only gathering of state lawmakers in Washington in April. “There are things I should’ve done yesterday to make it easier for you to do what you need to do tomorrow.”

The day President Obama signed the law, 13 states filed suit against it. That number has since grown to its current 21, with a number of states joining just last month. Yet these states have for the most part been taking Mann’s advice, if not always for the reasons she wants them to.

In Indiana, for example, the thinking seems to be that following the law may actually be the best way to discredit it — that as the costs of covering the uninsured come into focus, voters will turn against it. Recently, Republican Governor Mitch Daniels released a report showing a scenario in which every Hoosier who becomes eligible for Medicaid under the federal law actually enrolls in the program. Although that scenario isn’t likely, its estimated price tag of $3.6 billion over a decade got a lot of attention in Indiana. “We’re going to let people know what’s needed to get this bill going,” says Marcus Barlow of the Indiana Family and Social Service Administration. “If that’s tax increases, that’s something the governor’s going to let people know about.”

But Indiana’s rationale cuts the opposite way, too. In Colorado and Washington State, Democratic governors think that getting health care reform up and running will shore up public support as citizens begin to see the benefits. Although both states have Republican attorneys general who are suing over the law, these states also are working to identify benefits such as improved access to insurance and a shifting of some state Medicaid costs over to the federal government. In Colorado, Governor Bill Ritter has offered assistance to U.S. Attorney General Eric Holder in fighting the state lawsuits. “There will be benefits,” Lorez Meinhold, Colorado’s director of health reform implementation, says. “We want to make sure Coloradoans can feel that.”

But in most of the states engaged in the health care litigation, the strategy seems to be hoping for a victory while planning for a defeat. Despite the steps Texas has taken to implement the law, a spokesperson for Perry says the governor’s initial take on the overhaul has not changed. Likewise, in Virginia, where Republican Governor Bob McDonnell and Attorney General Ken Cuccinelli have become national leaders of state resistance, a spokesman for the governor says there’s virtue in coming up with a Plan B. “Prudence,” she says, “dictates Virginia must plan for implementing federal health care if the suit is unsuccessful.”