State-Based Health Insurance Initiatives 109

Further Readings often delivered after a disease has

progressed, when the disease is more
Starr, Paul. The Social Transformation of American
difficult and expensive to treat.
Medicine: The Rise of a Sovereign Profession and the
Preventive healthcare is likely to be the
Making of a Vast Industry. New York: Basic first type of care that uninsured
Books, 1982. people do without. When uninsured
Starr, Paul. The Logic of Health Care Reform. Americans finally do receive healthcare,
Knoxville, TN: Grand Rounds Press, 1994. other citizens and businesses ultimately
Starr, Paul. “What Happened to Health Care pay for the cost of that care.
Reform?”
Individuals, businesses, and
governments all have incentives to
The American Prospect 20: 20–31, Winter 1995.
create an efficient and equitable health
Starr, Paul. Freedom’s Power: The True Force insurance coverage system. The federal
of Liberalism. New York: Basic Books, gov- ernment addresses this problem
2007. through several insurance entitlements
and funding mechanisms. However, the
Wailoo, Keith, Timothy Stoltzfus Jost, and
federal government programs have not
Mark Schlesinger. “Professional been able to provide all Americans with
Sovereignty in a Changing Health Care guar- anteed health insurance. The
System: Reflections on Paul Starr’s The unmet cost of health- care for these
uninsured Americans then falls to local
Social Transformation of American Medicine,”
charities and governments, and these
Journal of Health Politics, Policy, and Law
entities have tried to meet this demand.
29(4/5): 557–68, August–October 2004.
Many states are attempting to
expand health- care coverage in spite of
the continued rise in the cost of health
Web Sites insurance and the decline in employer-
sponsored health insurance coverage.
Princeton University Faculty
The health insurance landscape creates
Profile: many challenges. The
[Link]
~starr
states themselves, faced with budgetary
constraints,
residents, did not any have health
STATE-BASED HEALTH insurance coverage. Nationally, 15.8% of
INSURANCE INITIATIVES the population were uninsured, but the
variation across states ranged from a low
Many states in the nation, including of 8.5% for Minnesota to a high of 24.1%
Illinois, Maine, and Massachusetts, have for Texas. Individuals without health
created state- based health insurance insurance receive no care, inade- quate
initiatives to expand cover- age. care, or care paid for by a third party
These state- such as the government, a charity, or
based initiatives have incrementally involuntary sub- sidy. Inadequate
expanded existing health insurance healthcare often means more expensive
programs as well as created new care. Healthcare for the uninsured is
programs. Their varied attempts have
resulted in equally varied results and
outcomes. These varied outcomes
mirror the states’ diverse populations
and situations. Their successes have
been limited by federal laws, finan- cial
constraints, and political wills.
In 2006, approximately 47 million
Americans, or about one in six
109 State-Based Health Insurance Initiatives
4
political interest groups, and federal
regulations, find their attempts to
provide health insurance dif- ficult. No
state has been able to provide universal
health coverage. In addition to the
financial and political hurdles the
states must face, they must also
conform to federal laws. And federal law
pre- vents them from mandating
businesses to provide health insurance
benefits.

Health Services Research Issues

State-based health insurance
initiatives must address three health
services research issues: access, cost,
and quality of care. However, access
issues have been their primary focus.
State-based initiatives have mainly
attempted to expand health insurance
coverage through improved financing
(increasing state funds) and lowering
the cost of health insurance premiums.
Funds for these goals can come from
state taxes or from federal govern-
ment programs and grants.

Access
State governments can increase access
to health- care by expanding eligibility
to state-sponsored
 State-Based Health Insurance Initiatives 109
5

health insurance (largely Medicaid and Types of State Initiatives

State Children’s Health Insurance The individual states have taken several
Programs, or SCHIP). They can encourage specific initiatives to increase health
employee-sponsored insur- ance by insurance coverage. These initiatives
providing subsidies to businesses that include the following: expanding
offer it or by providing premium eligibility for Medicaid and other federal
assistance to employ- ees who elect to programs, offering reinsurance, creating
take the insurance. The states can modify high-risk pools, establishing mandated
eligibility rules, and they also can and limited-benefit plans,
attempt to increase access by lowering
the costs of health insurance premiums.
Lower health insurance pre- miums may
increase the number of people who opt
to purchase insurance.

Cost
Many states have attempted to lower
the cost of health insurance by creating
high-risk pools that organize high-risk
individuals (individuals with preexisting
medical conditions, individuals
employed in small businesses, and
others) into larger groups, thereby
spreading the risk of insur- ance across
the larger group of people. These high-
risk pools do require higher premiums,
but they provide insurance access that
would otherwise not exist. The states
have also provided liability pro- tection
to insurance companies (reinsurance)
to limit the insurance companies’
exposure from high-risk individuals’
insurance claims. The states also have
lowered health insurance costs by allow-
ing decreased benefits (however, this
can decrease quality). However, states
have limited means to actually decrease
the costs of healthcare.

Quality
Many states have attempted to
increase the qual- ity of care via
expanded coverage within the state-
sponsored entitlement programs or
through rules mandating specific
coverage benefits that insurance
products must offer. Some states have
set up com- missions to address the
quality of healthcare.
109 State-Based Health Insurance Initiatives
6
imposing individual mandates, buy-in groups. Other groups, if desig-
allowing group purchasing nated by the state, are allowed to be
arrangements, adding dependent covered with-
cover- age, and providing [Link]
administrative assistance. -eligible groups include some subsets
of the same groups (children, parents of
children, disabled, and elderly) that
Medicaid and Other Federal Programs exceed the specific federal poverty
limits—for example, children over the
Medicaid is the nation’s largest age of 6 who live over 100% of the
health insurance program for the poor, federal poverty level but are still
covering over 40 million Americans.
Medicaid is a joint federal-state gov-
ernment program. It is financed by both
the federal government and the
individual states. The federal
government matches state spending
on qualified Medicaid recipients.
Both the federal government and the
states set the rules for Medicaid
eligibility. The Medicaid program was
created by the federal government to
provide health insurance to needy
members of society—impoverished
families with children, the disabled, and
elderly individuals. As a federal pro-
gram, Medicaid is not a purely state-
based cover- age initiative; but the
states define eligibility (within limits)
and administer their own Medicaid
programs. The federal government
establishes some minimum and
maximum eligibility criteria, but the
states have some flexibility in
determining who qualifies for Medicaid.
Additionally, multiple waivers are
available to allow the states to expand
coverage beyond their historical limits.
As a result, state control of the
Medicaid program is the most
important means for a state to provide
coverage for its uninsured residents.
The states may expand Medicaid
eligibility beyond the federal criteria,
but matching federal funds will not be
provided unless the state has a waiver
for the expanded coverage. Certain
groups are eligible for Medicaid,
including children living under a
specific federal poverty level, parents
of children living under a specific federal
poverty level (which differs from state to
state), pregnant women below the
poverty level, elderly and disabled social
security insurance beneficiaries with
incomes less than the poverty level,
some working disabled, and Medicare
 State-Based Health Insurance Initiatives 109
7

impoverished by state-set standards. Other groups, In 2001, the Health Insurance Flexibility and
such as the medically needy, may be permissible. Accountability Act expanded Section 1115. It
The federal government sets specific guidelines for encourages new comprehensive state approaches to
these groups, but multiple avenues exist for states increase the number of individuals with health
to try to expand coverage and still receive match- insurance coverage with current-level Medicaid and
ing funds. The flexibility of coverage criteria results SCHIP resources. However, these new initiatives
in a wide range of eligibility standards from state cannot increase a state’s federal matching funds.
to state. This range of eligibility variability will
likely continue to expand.
Reinsurance
The federal Personal Responsibility and Work
Opportunity Reconciliation Act of 1996, better Reinsurance, insurance for insurance compa-
known as the Welfare Reform Act, created options nies, provides an avenue for insurance carriers to
for the states to expand Medicaid. The provisions lower their risk and therefore lower the premiums
in Section 1931 of the act require states to con- they charge. The state is likely to be the source of
tinue to cover families with incomes below the the reinsurance, but reinsurance can be a private
1996 Aid to Families With Dependent Children enterprise that is encouraged by the state. The rein-
(AFDC) income limits regardless of whether they surance is specifically created to cap the risk expo-
receive cash assistance. More important, Section sure from high-risk health insurance policies. The
1931 gives states greater flexibility to extend eligi- reinsurance premium is paid by the insurance car-
bility to more low-income families. The states are riers in exchange for limiting their risk. For exam-
allowed to disregard some of an individual’s ple, maximum 1-year claims may be capped at a
income or assets. By ignoring some income or predetermined figure. Any claims higher than the
assets, many additional individuals meet the fed- capped amount would be covered by the state rein-
eral criteria for poverty. surance fund. Limiting the insurance carriers’ lia-
Federal SCHIP allows states to provide health bility should entice the carriers to offer policies to
insurance coverage to uninsured children in low- higher-risk individuals, groups, or small busi-
income families that are not otherwise eligible for nesses. Only a few states currently have reinsur-
Medicaid. The states are allowed to include chil- ance plans.
dren from families with higher income levels than
otherwise allowable. Additional funds were desig-
High-Risk Pools
nated for this program, and additional rules for
copayments and benefits are allowed. The federal High-risk pools create a source of health insur-
matching rate is higher for this program than for ance to high-risk individuals who could otherwise
traditional Medicaid, but the total SCHIP funds not access it. The high-risk pools attempt to create
available to all the states, in aggregate, are capped, an option for individuals who are the most difficult
and new funds will determine the future of this to insure—those who do not qualify for entitle-
program. ment programs, have preexisting medical condi-
The federal Ticket to Work and Work Incentives tions, and do not have access to group insurance
Improvement Act of 1999 provides another way to policies. The high-risk pools are state associations
increase Medicaid eligibility. Under this law, states specifically created as a last option for health insur-
may permit working individuals with disabilities ance. Most states have created high-risk pools.
to maintain their Medicaid eligibility. The federal Health Insurance Portability and
Another major initiative of the federal govern- Accountability Act of 1996 (HIPAA) requires that
ment to encourage the states to explore novel ways people leaving a group health insurance policy be
to expand coverage is Section 1115 of the Social able to access an individual policy. Each state sets
Security Act. This law allows the federal govern- its own premium rates (usually significantly higher
ment to waive certain Medicaid requirements in than group insurance rates) and then uses specific
order to conduct pilot, experimental, or demon- insurance carriers to administer the health insur-
stration projects that expand or improve health ance. High-risk pools usually require additional
insurance coverage. funds to cover the claims expenses, as many of the
109 State-Based Health Insurance Initiatives
8

covered individuals have costly healthcare needs. group that can qualify for lower health insurance
Most states view high-risk pools as a last resort premiums. Group purchasing arrangements can be
and establish strict guidelines on accessing them to formed outside state governments, but many states
encourage individuals to seek other options first. have organized these groups to facilitate individual
purchase of health insurance. Little evidence exists,
however, that these groups actually have access to
Mandated and Limited-Benefit Plans less expensive health insurance.
State legislatures require health insurance poli-
cies to offer specific benefits. Each state has its Dependent Coverage
own list of mandated benefits. Most of these man-
dated benefits are essential and needed safeguards, Dependent coverage allows minors to receive
while a few of the mandates emerged as reactions health insurance through their parent or guardian.
to isolated public events. These mandates generally Young people older than 18 years often go without
increase the quality of healthcare, but they also health insurance. Several states have changed laws
increase overall healthcare expenses. In an attempt to allow these individuals to continue qualifying
to make health insurance more affordable, and for dependent coverage past age 18 and school
thereby increase coverage, many states have enrollment. These arrangements are quite effective
allowed (and/or encouraged) insurance carriers to as the dependent coverage can be reasonably
offer bare-bones policies. These policies usually priced and involves no expense for the states.
suspend the state mandates and frequently offer a
reduced set of healthcare benefits, such as cata- Administrative Assistance
strophic coverage only.
Several states have limited-benefit plans, but Some states encourage their residents to access
their effectiveness in expanding coverage has been health insurance by providing various kinds of
small. The limited-benefit plans tend to be only administrative assistance. For some states, this
slightly less expensive than comprehensive plans; means offices to enroll residents in Medicaid, but
they do not sell well, and insurance companies do for other states the assistance can be quite extensive.
not like to market them. Additionally, when indi- Some states attempt to find private insurance or
viduals who previously had a comprehensive plan offer additional state financial benefits for individu-
purchase limited-benefit plans, many of them actu- als who use local government medical services.
ally reduce their health coverage, creating an unin-
tended effect.
Federal Limits on State Power
The federal Employee Retirement Income Security
Individual Mandates Act (ERISA) of 1974 created employer mandates
Individual mandates require individuals to for health insurance coverage. This federal law sets
obtain health insurance coverage. Presumably a guidelines for companies offering health insurance
financial penalty (added to an individual’s state coverage. The states may not pass laws with addi-
tax obligation) would ensue for those failing to tional health benefit rules for specific companies.
obtain health insurance. Individual mandates have As a result, no state can expand health insurance
been passed by a few state legislatures, but they coverage by placing the burden on business enter-
have not been effective. Impoverished or low- prises. However, the states are allowed to raise
income individuals, those most likely to be unin- revenues from businesses and individuals to pay
sured, do not generally pay state income taxes. for state health insurance coverage schemes. Several
states have implemented “play or pay” laws that
force businesses to pay additional taxes if they do
Group Purchasing Arrangements
not provide additional state-mandated coverage.
Group purchasing arrangements are small These laws seem to be allowable by the courts if
groups or individuals who join together to pur- the businesses are given a real option between the
chase health insurance. The goal is to create a large tax and employer-sponsored insurance. If the tax
 State Children’s Health Insurance Program (SCHIP) 109
7

poses a choice that is not much better for State Health Policy, 2000.
than provid- ing employer-sponsored Steinbrook, Robert. “Health Care Reform in
insurance, it is unlikely to be considered Massachusetts: Expanding Coverage,
legal under ERISA. Escalating

Future Implications
Increased globalization and the
competitive economy are pushing
many companies to decrease
employer-sponsored health insurance.
Without a national health insurance
program, the states are being forced
to develop expanded coverage
systems. The states have implemented
and proposed a wide variety of health
coverage initiatives. State-based
coverage initiatives have explored a
range of proposals, but no state has
successfully eliminated the problem of
the unin- sured. Many proposals are
being tested, and many remain to be
explored. As some states are finding
ways to expand coverage, other
states may follow their lead.
Richard A. Guthmann

See also Access to Healthcare; Economic Barriers

to Healthcare; Employee Retirement Income
Security Act (ERISA): Health Insurance;
Health Insurance Coverage; Medicaid; Public
Policy; Uninsured Individuals

Further Readings
Coughlin, Teresa A., and Stephen Zucherman.
“State Responses to New Flexibility in
Medicaid,” Milbank Quarterly 86(2): 209–40,
June 2008.
Hackey, Robert B., and David A. Rochefort, eds.
The New Politics of State Health Policy. Lawrence:
University Press of Kansas, 2001.
Isaacs, Stephen L., and Steven A. Schroeder.
“California Dreamin’: State Health Care
Reform and the Prospect for National
Change,” New England Journal of Medicine
358(15): 1537–40, April 10, 2008.
Monheit, Alan C., and Joel C. Cantor, eds. State
Health Insurance Market Reform: Toward Inclusive
and Sustainable Health Insurance Markets. New
York: Routledge, 2004.
Riley, Trish, and Barbara Yondorf. Access for the
Uninsured: Lessons From 25 Years of State
Initiatives. Portland, ME: National Academy
109 State-Based Health Insurance Initiatives
8
Costs,” New England Journal of Medicine
358(26): 2757–60, June 26, 2008.
Weil, Alan. “How Far Can States Take Health Program Design
Reform?”
Health Affairs 27(3): 736–47, May–June 2008.
Like Medicaid, SCHIP is a joint federal-
state pro- gram, though SCHIP offers
states more flexibility with respect to
eligibility criteria, program design, and
Web Sites benefits. States had three broad
options for
Alliance for Health Reform:
[Link] Commonwealth
Fund: [Link]
Families USA: [Link]
Henry J. Kaiser Family Foundation (KFF):
[Link]
National Academy for State Health Policy
(NASHP): [Link]
State Coverage Initiatives (SCI):
[Link]

STATE CHILDREN’S HEALTH

INSURANCE PROGRAM (SCHIP)
The federal Balanced Budget Act of
1997 created the State Children’s
Health Insurance Program (SCHIP) as
part of Title XXI of the Social Security
Act. SCHIP is the single largest
expansion in health insurance
coverage since the enactment of
Medicaid in 1965. The goal of SCHIP
is to increase the medical coverage
of low-income, uninsured children up
to the age of 19 by extend- ing
eligibility for public insurance to
children in families earning too much
to qualify for Medicaid yet earning too
little to afford private health insur-
ance, which generally includes
families earning between 100% and
200% of the federal poverty level.
The SCHIP legislation apportioned
more than $40 billion in federal
matching funds over 10 years
beginning in FY1998. States are
allowed to use these funds to
expand Medicaid eligibility, develop
new insurance programs, and
increase outreach for children already
eligible for public coverage.