What goes right and wrong this year with health reform efforts, especially those in Massachusetts and California, will be closely watched by whoever wins the presidency, state politicians, the health care industry and, of course, voters.
Massachusetts is center stage because its health coverage program is the most ambitious up-and-running initiative in the nation; it requires nearly all residents to get health insurance. California's sheer size - one in eight Americans live in the Golden State - means its health reform efforts will have an outsized impact on every American.
For both states, 2008 is a crucial year. The real teeth of implementing legislation adopted in Massachusetts in 2005 - penalties for laggard companies and workers - bite for the first time in April. The fate of California's proposals will likely come down to whether a ballot measure succeeds there in November.
Of course, the presidential election will intensify the scrutiny. In fact, two leading candidates helped elevate the issue on the national agenda. As Massachusetts governor, Republican presidential candidate Mitt Romney struck a deal with an overwhelmingly Democratic Legislature to make the Massachusetts program a reality. On the campaign trail, Romney has backed away from many central tenets of the initiative, but Democrats have borrowed heavily from the model he helped create.
Among the would-be copiers is U.S. Sen. Hillary Clinton (D-N.Y.). As first lady, Clinton led an ill-fated attempt in 1993-1994 to deliver universal coverage nationally. As a presidential contender, Clinton is resurrecting her effort. In doing so, she's taken a page from her husband's playbook for the 1992 election: The third major theme of Bill Clinton's initial bid - right behind the more famous "The economy, stupid" - was "Don't forget health care."
Ironically, California Gov. Arnold Schwarzenegger (R) has defended his ideas for a health care overhaul by stressing how similar it is to Hillary Clinton's proposal.
The Massachusetts model is getting a close look because it is bipartisan, comprehensive and relatively cheap. The program includes:
- A requirement for all residents to obtain coverage as long as it's "affordable."
- The creation of a new state agency, called the Commonwealth Connector, which lets residents use pre-tax income to buy their choice of private insurance.
- Expanded insurance subsidies for residents making less than three times the federal poverty level (roughly $63,000 for a family of four).
- New penalties to punish employers that don't offer insurance.
- Overhauled insurance rules that now apply the same regulations to health insurance bought by individuals and coverage purchased by employers.
The state avoided a broad-based tax increase by using federal Medicaid money in a new way. Instead of heavily subsidizing hospitals serving poor patients - a practice the Bush administration questioned and threatened to curb - Massachusetts officials decided to use $375 million per year of that money to help low-income residents buy private insurance.
By December, at least 290,000 Massachusetts residents had signed up for new health coverage. That's between half and two-thirds of the estimated number of uninsured in the state, and far more than enrolled under the reform efforts in the smaller states of Maine and Vermont.
"One of the key lessons from Massachusetts is that it is possible for a state to think big and to attempt to address the entire issue of the uninsured. Massachusetts has set an excellent example," said Vernon K. Smith, a principal for the consulting firm Health Management Associates.
Schwarzenegger has borrowed several ideas from Massachusetts, including the requirement that all residents get insurance. But the task of covering the uninsured will be far more difficult than in Massachusetts.
California, the nation's most-populous state, has the seventh-highest uninsured rate in the nation - nearly twice as high as in Massachusetts. In fact, the 6.8 million people without health insurance in California outnumber Massachusetts' entire population of 6.3 million.
Moreover, fewer than half of California's residents get insurance through their employers. And there's only one doctor for every 323 Californians, compared to one physician for every 193 Massachusetts residents.
"The California proposal is the boldest one yet. It is very significant because the scale of the problem is greater in California than almost anywhere," said Smith, a former Michigan Medicaid director.
As a Republican governor trying to win support from a Democratic Legislature, Schwarzenegger faces a similar situation to the one Romney faced in Massachusetts.
Major sticking points in the California negotiations included:
- Whether to impose a requirement on residents to buy insurance and, if so, what to do about people who can't afford coverage.
- Whether it's better to give lowermiddle- class workers tax breaks or subsidies to make insurance more affordable.
- How much to fine companies that refuse to offer insurance to their employees.
- Whether and how much to tax doctors and hospitals to raise money for subsidies.
- Whether to require insurance companies to issue coverage to individuals, regardless of their age or preexisting medical conditions (a requirement Massachusetts had even before enacting the 2005 law).
- How to pay for the reforms, especially with the state facing a looming budget shortfall of up to $14 billion. Schwarzenegger backed off his proposal to lease the state lottery to raise the money. House Democrats proposed a tobacco tax hike instead, among other revenue raisers.
Health care reform - especially covering the uninsured - is a hot topic in state capitols throughout the country. In fact, two-thirds of governors unveiled plans to cut the number of uninsured in 2007, Smith said.
States are in a unique position to tackle the issue. They regulate health insurance for small businesses and individuals. They administer public programs, such as Medicaid and the State Children's Health Insurance Program (SCHIP) that together cover 63 million poor Americans. And their small size, compared to the federal government, often makes it easier for them to experiment.
Showing how divisive the issue remains in Washington, D.C., one of the biggest battles between President Bush and Congress (including many Republicans) last year involved SCHIP. Bush twice vetoed legislation that would have allowed states to cover an additional 4 million people under the program, arguing that it would discourage people from buying private insurance. In December, Bush agreed to continue the program in its current form through March 2009.
The dispute was, in large part, fueled by states' aggressive efforts to reach out to more families.
Illinois and Pennsylvania now offer insurance for all kids; the amount their parents pay depends on their income. New Mexico covers kids 5 and under, and Connecticut offers insurance for all kids who are legal residents.
The issue of the uninsured continues to come up because 47 million Americans are now not covered, a number that keeps growing. Americans are losing coverage as premiums get more expensive and more employers, especially small businesses, stop offering health insurance.
Health care costs keep rising far faster than the rate of inflation, and have for decades. That means medical expenses gobble up more and more of the nation's economy, accounting for 16 percent of the country's gross domestic product, compared to 7.2 percent in 1970.
Many factors contribute to the skyrocketing costs. One of the chief contributors is the continual introduction of new, high-priced technology, which consumers demand even though they don't directly pay for the treatment, said Ted Frech, an economics professor at the University of California, Santa Barbara.
Another possible reason for the climbing costs - and one whose existence is a matter of dispute among researchers - is a practice called "defensive medicine," in which doctors order extra tests and treatment to avoid lawsuits.
Of course, higher medical bills mean higher insurance rates.
A 2006 PriceWaterhouseCoopers study for the insurance industry attributed 43 percent of the cost of premium hikes to increased services. General inflation accounted for 27 percent of the increases, and price hikes for health services that outstripped inflation caused the remaining 30 percent, according to the report.
Another problem complicating efforts to reduce the number of uninsured Americans is that adults are more likely to be without coverage than kids, and adults are more expensive to insure. Nearly a third of adults younger than 30 don't have coverage, and 29 percent of childless adults between ages 30 and 39 go without - compared to 16 percent of the population as a whole.
But most state efforts to establish universal health care, such as those in California, Illinois, Pennsylvania and Wisconsin, ran aground in 2007. The whopping price tag of some proposals, measured in the billions of dollars, scared many lawmakers. Others feared government intrusion into private markets. Still others wanted better information and more time.
Meanwhile, the three states with plans in place - Maine, Vermont and, most famously, Massachusetts - have each run into snags as they try to translate high-minded rhetoric into everyday reality. But officials in those states remain confident their programs are working well.
In Massachusetts, the state took several steps to encourage the 10 percent of residents who are uninsured to comply with the mandatory insurance requirement that took effect in July 2007. It launched a media campaign to inform residents about the new requirement, with a special emphasis on those most likely to be uninsured: men in their mid-30s.
By December, more than 290,000 Massachusetts residents signed up for new coverage. Roughly 160,000 took advantage of the subsidized products, 70,000 enrolled in Medicaid and 60,000 bought private insurance specially designed to meet the new law, state officials said.
Those who still didn't get coverage by Dec. 31 will face financial penalties when they file their 2007 tax returns. Initially, they'll lose a personal exemption worth $219. Later, the penalties will get steeper, up to half as much as it would cost to buy insurance.
The state won't penalize people who it determines can't afford the insurance they're offered, some 60,000 people in the program's first year.
Not every state can do exactly what Massachusetts did, but the path to universal coverage in any state would have some of the same components, said Enrique Martinez-Vidal, director of State Coverage Initiatives, a project to help states make health insurance available to more people.
To cover the poorest residents, states would have to beef up their public programs, such as Medicaid and SCHIP. That could be a costly proposition, especially for states that aren't starting with the same generous level of benefits Massachusetts offered even before it passed the reform law.
Working-class residents are likely to need some financial help to buy decent coverage, Martinez-Vidal said. But the politics of deciding who deserves subsidies and how generous their coverage should be is tricky, he said.
Another dicey political decision is what to do with the uninsured who can afford health insurance but choose not to buy it, he said.
Massachusetts decided to require residents to get coverage, just as it requires drivers to get auto insurance. But mandatory auto insurance laws don't guarantee universal coverage. The Heartland Institute points out that 15 states with such auto laws actually had a greater share of motorists driving without insurance in 2004 than residents going without health coverage.
Ed Haislmaier, a health care expert for the conservative Heritage Foundation and the chief proponent of the Massachusetts "connector," said the reason Bay State lawmakers were able to strike a deal is that they went beyond expanding public programs.
"If you're a governor who wants to do this - I don't care if you're Republican or Democrat - the first person you should start with is your insurance director, not your Medicaid director," he said.
Even people who don't have health insurance still get health care, primarily at hospitals, he said, so the first question to answer is who pays for their care now. In Massachusetts, a handful of hospitals received major federal support to cover the cost of treating the uninsured, so lawmakers redirected that money.
But in most states, Haislmaier cautioned, the answer is more complicated. Hospitals compensate for care they provide for free by raising their prices for everybody else. Insurance companies that pay the hospital bills pass on the extra cost to the businesses and individuals who buy their coverage.
Haislmaier said the sheer size of California makes the negotiating process far more difficult than in a smaller state like Massachusetts.
"California will probably be the last people to do transformative health reform," he said. "There's too many stakeholders, too many people, too much money, everything. In some of the smaller states, if you get the right 20 people in the room, you could do it if you really want it."
The absence of a deal in California is not for lack of trying. State lawmakers have approved sweeping health care reform for four consecutive years, but none of the proposals made it into law, thanks to gubernatorial vetoes or the defeat of ballot initiatives.
Schwarzenegger promised progress during his January 2007 State of the State address to lawmakers.
"In the past, health care reform was always dead on arrival. But this year I can feel something different in the air. I can feel the energy, the momentum, the desire for action," he said then. "Ladies and gentlemen, we will get this done."
But by year's end, a deal still was not in hand. In a major step, the governor and his Democratic allies in the state Assembly agreed in mid-December on a measure to require most Californians to have insurance starting in 2010. But they put off resolving how to fund their health reforms, and the state Senate was dragging its feet on taking up the package - much less embracing it.
Any compromise couldn't take effect unless approved by voters anyway. The governor's plan stalled because of Republican opposition to his proposed tax hikes to help cover the cost. He needed GOP support because tax increases in California must be approved by a two-thirds majority in both the Assembly and the Senate. Negotiations continue, but any final compromise will likely need to be approved by voters in November.
The fact that Schwarzenegger hadn't secured a deal a year after vowing to get all Californians health care highlights how difficult such major overhauls can be politically. That doesn't mean the interested parties are giving up hope.
Dietmar Grellmann, a senior vicepresident for the California Hospital Association, an early supporter of Schwarzenegger's efforts, said the governor's interest makes a breakthrough possible.
Schwarzenegger, a former movie star and body builder, used his considerable influence with the public to keep attention on the health insurance reform efforts, Grellman said. He also credited Schwarzenegger's governing style of focusing on making big changes on big issues, because it kept pressure on lawmakers and interest groups to keep working on the ambitious proposal.
"If it had been any other governor or any other administration," Grellman said, "we wouldn't have made it this far."