Ian Morrison

In my rattling around the country I talk to a lot of cab drivers. They are my major source of insight. Cab drivers all hate Obamacare and they are almost all uninsured. They don’t know how they can possibly afford health insurance, even if they got a subsidy. “Hey man, it costs a $100 to fill the gas tank, and they want me to spend money on health insurance. Are they crazy?”

I have had very interesting conversations with cab drivers about a variety of health care issues, such as where to get a cheap colonoscopy for cash (ideas, anyone?) or how to get a job in health care, because driving a cab isn’t making it for them.

Last week I had a nice conversation with a 38-year-old cab driver in Palm Springs, who after serving nine years in the military, went to the University of Florida and got a degree in finance. For the last decade, Geoff has bounced around in poorly paid, unsatisfying jobs in the financial services industry, only to be bounced out on the street in the economic meltdown. He is uninsured. (His parents were uninsured for 20 years until they became old enough for Medicare, when they found out that they both had untreated, mild heart attacks in their 50s). Geoff plans to move to Oregon and become a nurse.

Cab drivers are the working poor, the very people health reform is supposed to help. All across America they face the same problems. There are no jobs, even for college graduates, and there are certainly no jobs with health insurance. To buy health insurance in the individual market is insanely expensive and clearly out of reach for those making less than $50,000 per annum. All cab drivers face the same problems. Health reform is supposed to help all of these cab drivers, but there is very uneven progress in implementing health reform across the country.

Four Americas Defined

In my travels to 33 states since health care reform passed last March, I have been struck by the substantial variation in the enthusiasm for and energy behind health reform. In almost all major markets there are market-leading health systems preparing for a new health care future that models the principles of reform. But in many states, this view of change is not shared by governors, elected officials or hospital administrators, or by the population at large. This is particularly true of progress being made toward health insurance exchanges, which is the focus of this column.

Along with my colleagues at Harris Interactive and the Harvard School of Public Health, we developed a crude segmentation of states into what we term the Four Americas. They are the “active implementers,” the “passive-aggressive implementers,” the “place on hold” states and the “send back” states.

Active implementers. States such as California, New York, Maryland and those that compose New England are making rapid progress toward health insurance exchanges by passing state legislation and detailing the design of the exchanges. In my state, California, we have passed a law enabling the exchange and prescribing its form and powers, including the ability to selectively contract with qualified health plans. We have four out of five of the board members appointed to the Health Insurance Exchange Board. We are holding planning meetings. We are writing position papers. We are on our way, despite our massive budget problems.

A similar story could be told in New York, Maryland and New England. Of course, all of us are following in the path-breaking work of Massachusetts, and indeed many states are availing themselves of support from John Kingsdale and his colleagues, who are now consulting on forming exchanges and sharing their invaluable experience in creating the Massachusetts Connector. Virtually all of the active implementers have Democratic governors, and these states have received five out of seven grants to establish the electronic infrastructure for the insurance exchanges.

Passive-aggressive implementers. There is a large group of states that are making progress: They are planning, and they may be having meetings, but they are either publicly or privately seething because they hate Obamacare. States like Georgia, Texas or Missouri fall into this category.

Why are they even bothering? Obviously, part of it is that health reform is the law, and it would be a little churlish not to make an effort to comply with the law. And second, it’s about the money. The basic story of health reform is that blue states subsidize red states. For example, Connecticut provides Medicaid coverage up to 200 percent of the federal poverty level (FPL). Obamacare requires that Medicaid be available up to 133 percent of FPL as a national standard, with the federal government paying for almost all of the increment in expenditure. Connecticut gets nothing out of it.

Conversely, many passive-aggressive implementer states have very restrictive eligibility requirements for Medicaid and would be substantial net beneficiaries of the new law. (By the way, this is a standard law in the perversity of American politics that blue states pay more in taxes than they get back in benefits, and red states get more than they pay in. This is also true within many states, such as California; blue counties subsidize red counties.)

Place on hold. Attorneys general from more than 20 states have joined to present legal challenges to the health reform law. In a subset of those states, such as Florida, governors are placing health reform implementation on hold until the legal challenges are resolved (ultimately by the Supreme Court). The Obama administration seems to be in no particular hurry to litigate this issue, which means that another large game of chicken is being put in place. Governors who place implementation on hold are betting that Obamacare gets repealed (and maybe even contributing to that outcome by standing firm in resistance). However, if President Obama is re-elected in 2012, and the law remains in place, these reluctant governors would have a couple of weeks to pull an exchange out of their hat and notify the federal government by January 1, 2013, that they will have one. Otherwise the feds will roll into town to do it for them. That would be fun to watch.

Send back. Some states just do not want to play with Obamacare, and they make no secret of it. I have spent a good deal of time in Oklahoma over the last couple of years working with my dear friends at Saint Francis Health System on their Vision 2015 Initiative. Through that work, I have learned a bit about Oklahoma politics and policymaking.

On a recent visit, the Tulsa World newspaper reported that despite the fact that Governor Mary Fallin (a newly elected Republican) was glad Oklahoma received one of the seven health insurance exchange innovation grants, state senate leaders were unwilling to take up the enabling legislation in the state legislature to allow the state to accept the grant because that would mean “we’d be marrying Obamacare.”

Similar battles have raged within Oklahoma, where major hospitals have proposed a voluntary fee (not a tax) on their revenues to be used to get matching federal support for Medicaid (on a 3-to-1 matching basis). State legislators refuse to accept the money from hospitals because it would be a tax.

Variances Reflected in Polls

The wide range of views on health care reform are evidenced in survey data from the Four Americas. We took the Harris Poll results on public attitudes toward “repeal and replace” that we discussed in a previous column (“Common Ground”) and analyzed the responses across the Four Americas.

Just to remind you, based on a poll taken after the election, 40 percent of Americans want to repeal some or all of the bill, 31 percent want to keep all or most of the bill (including those who want to expand it) and 29 percent are not sure. Across the Four Americas, 38 percent in active-implementer states want to repeal the bill, as do 40 percent in passive-aggressive-implementer states, 47 percent in place-on-hold states and 52 percent in send-back states. That is a significant difference.

However, we also found in analyzing the data by state that states with a Republican governor versus those with a Democratic governor don’t show this range of variation. In Republican-controlled states, the repeal/keep ratio is 43/30, but in Democratic-controlled states it is 38/32. I believe this shows two important things: First, there is no block of states (not even blue states) where health reform has majority support. (Partly this is the belief among core Democrats that the health reform law does not nearly go far enough.)

The second observation is that Democratic-controlled states and Republican-controlled states are not that different. While we know that Democrats and Republicans are widely different in their view on reform at the individual level, that does not aggregate to clear-cut views in either direction at the state level. I guess there are Democrats, Republicans and Independents everywhere. That is why I would say that governors, both Republicans and Democrats, would be wrong to assume that the recent election has given them a strong mandate in one direction or the other—particularly based on an election where national turnout was 42 percent. The results could be very different with a 60 percent turnout in the 2012 election.

Impact on Exchanges

Health insurance exchanges could have a major impact on the health care marketplace. There is considerable uncertainty and potential variation in the types of exchanges that may be established at the state level, albeit that the federal law places some strict rules they all must meet. Couple that to varying degrees of enthusiasm about getting started, and the health insurance exchanges could be very different across the country, with resulting impacts on the health care marketplace in each state.

Here are some things to watch for.

We are all turning bronze. There is a growing body of evidence—from actuaries, academics, consultants and researchers—that when consumers in the exchange select insurance options, they will pick the bronze plan (a 60 percent actuarial value). By definition these plans will have high out-of-pocket costs and may not cover as wide a range of benefits as the health reform enthusiasts intended.

Some in the health care delivery business see exchanges as a new source of patients with commercial insurance similar to the benefits that schoolteachers and firefighters enjoy. Not so fast. Not only will those school teachers and firefighters get their benefits rolled back as part of the global backlash against public employees, but those of us in the exchanges will be operating with skinny network, high-deductible plans.

Exchanges could be a non-event or become the exchange that ate Manhattan. Depending on how exchanges are structured at the state level, they could have limited pickup. The proposed insurance exchanges have two huge advantages over some of the failed insurance exchanges across the country, such as California’s Pac Advantage program for small business. First, the proposed exchanges have subsidies. Second, they have enabling rules. However, there is still a huge opportunity for states to make exchanges highly dysfunctional by not regulating the behavior in the non-subsidized individual and small group market.

What killed Pac Advantage was brokers taking good risks outside the exchange and dumping bad risks into the exchange. Unless state legislation prevents this, it is highly possible that exchanges get selected against and spiral downward. Conversely, if exchanges are up and functioning and acceptable, there could be massive growth over time as employers see the benefit of giving their employees incentives to move to the exchange. This won’t happen initially in 2014, but in a Cadillac tax world and with high-functioning exchanges, there could be massive growth. (And remember, we would all be pretty bronzed).

Activist exchanges or a website. Some states like California have started a path toward an activist exchange with rules and practices that pursue various policy goals. Other states such as Utah have functioning small business insurance exchanges that are no more than well-designed websites that give consumers a clearinghouse of options in the marketplace and some useful comparison tools to allow consumers to shop for the available options. Some states will be more activist than others.

Activist to do what? There are a wide range of options that states could consider even if they are committed to an activist path. For example, in California we are having exploratory planning meetings to discuss a wide range of options. These include:

• Just get folks covered. Some argue that the first goal is to reduce the uninsured so that the exchange’s first priority would be to enroll the previously uninsured. A priority on coverage expansion, above all, would suggest that the focus be on ease of use and outreach, rather than on trying to pursue other policy objectives like delivery system transformation.

• Make value-based purchasing to encourage delivery reform (e.g., accountable care organizations, or ACOs). Some argue that it would be wrong to squander the opportunity to use the exchange to encourage delivery reform through activist value purchasing approaches. Given that one of the five exchange board members is Paul Fearer, chairman of the board of the Pacific Business Group on Health (the leading employer coalition on the West Coast), one can imagine that value-based purchasing will be considered by the health insurance exchange board as a goal for the exchange. Some suggest that we go even further and that the exchange should favor ACOs.

• Support a robust private market for health insurance. Some argue that the exchange should be aimed at encouraging an expansion of private health insurance coverage, and encouraging more competition from local plans as well as those from other states.

• Re-create managed competition for small groups. Some aficionados of managed competition, such as Kaiser, would like the exchange to structure its small group offering so that an individual employee at Joe’s Cab Company could pick Kaiser or Blue Cross and not have to stay in a group.

• Blend Medicaid and the exchange business for the low-income consumers. Public sector leaders argue that the exchange business and Medicaid are really the same population (people who move in and out of eligibility for Medicaid as their income and employment varies). The leaders would advocate for close coordination and connection between the two programs. But private sector leaders in the health care system and the business community would disagree.

• Support the safety net delivery system. Leaders in the safety net (particularly public hospitals and community clinics) would like to see the exchanges designed to support the safety net, because they are really the providers of last resort for low-income folk, and they will be there for the many millions who are still left out, even after health reform.

• Provide the final exit for business. Some in the business community argue that the exchanges need to be developed as a socially acceptable alternative for their employees, and that they may provide business with a golden opportunity to gracefully exit the health benefits business over the next decade.

All of these are valid arguments, and we will see how they play out in California. My point is that all of these decisions have to be made in every state. Hospitals and health care systems need to develop a point of view of what they would like to see happen in the state or states in which they operate. And they need to work with governors and state legislators on shaping the enabling legislation.

Four Americas: Play the Tape Forward

How will this all play out? To find out, I interviewed my friend Drew Altman, president and CEO of the Kaiser Family Foundation, a key player at senior levels of health policy, and someone who understands the politics and policy of health reform at the federal and state level better than almost anyone in the country.

He sees the variation we describe here across the states. But he made two key observations. First, based on his experience as the head of Health and Human Services in New Jersey, serving a Republican governor, he reacted to my sweeping generalization that ideology seemed to be trumping economics, where states like Oklahoma were sending back money that might help them. He reflected that, at the state level, “eventually state cabinet members, like I was, have to tell the governor that while he might not agree with the federal direction there are enormous financial implications for the states by not complying with the law.”

However, Altman went on to say: “This time it could be different, because of the extreme ideological polarization; but the economic plight of the states is so dire, they may have to come around.”

His final point was intriguing: “We may see governors rebrand health reform in their own image.” Particularly if President Obama is re-elected with a Republican Congress, a not unlikely scenario, it is conceivable that health reform will be scaled back with more latitude provided to the states. This could provide a golden opportunity for governors to use the federal funds but rebrand health reform as a state-based solution that reflects the wide variation across the Four Americas.

And maybe that’s the right answer for all those cab drivers out there. We’ll see.