Timothy Stoltzfus Jost Law Professor at the Washington and Lee University :
Nov. 17, 2009: Health Care and Federalism
HR 3962, the health reform legislation adopted by the House earlier this month, and the Senate bill that will be released shortly share important common features–regulatory reform to end the denial of insurance based on risk, exchanges to promote insurance competition and availability, and mandates and subsidies to expand coverage. Nevertheless, the House and Senate bills will also differ in very significant respects. The most important of these, I would argue, is their approach to federalism–the relationship that the legislation will create between the federal and state government in implementing health care reform.
In this respect the bills could not be more different. The House bill contemplates a respectful partnership between the national and the state governments. HR 3962 would create a new federal agency, the Health Choices Administration (HCA), which, together with the Departments of Health and Human Services, Labor, and Treasury would have primary responsibility for administering the regulatory and subsidy programs established under the bill. The insurance reforms would be adopted as federal law and would be enforced by the HCA in conjunction with HHS, Labor, and Treasury. A national exchange would be established by the HCA, which would be responsible for negotiating and enforcing agreements with insurers to ensure that they met participation requirements. A national public plan would be established.
The House bill also, however, would recognize the continuing role of the states in regulating insurance. The federal law would not supersede state laws except insofar as they came in conflict. The HCA would be responsible for consulting and coordinating with the states. State law remedies against health insurers would be preserved. States would have input into the definition of the essential benefit package, could decide whether to enter into interstate insurance compacts, and could even operate their own exchange if they met federal requirements. The federal law will form a floor, not a ceiling. States would remain responsible for protecting their citizens, and will be allowed to do so as long as they do not come in conflict with the federal reforms.
The Senate bill, on the other hand, is likely to adopt the hierarchical arrangement represented by the Senate HELP and Finance bills. Congress would adopt a law establishing insurance reforms and an exchange framework and then require the states to implement the law. The Senate Finance bill, for example, begins “. . . each State shall provide that each health benefits plan which is offered in the individual or small group market shall be a qualified health plan.” The phrase, “each State shall” appears seventeen times in the Finance Committee Bill: “Each State shall” establish rating areas, adopt risk adjustment models, adopt federal insurance standards, establish insurance exchanges, and much else.
The primary responsibility of the federal government under the Senate bills is in fact to monitor state compliance with the law. If HHS determines that a state has failed to implement the federal reforms, for example, HHS will implement the reforms itself directly “until such time as the Secretary determines that the State has adopted and is substantially enforcing the requirements.” If a state fails to establish an exchange, the federal government will, under the Finance bill, contract with a nonprofit entity to do so. Basically, Congress will adopt the law, require the states to implement and enforce it, and then constantly look over their shoulders to see if they are doing it right.
It is hard to believe that this is going to work. Imagine for a moment the following scenario. Congress adopts the Senate approach. HHS drafts regulations to implement the exchanges. The states are invited to implement exchanges in compliance with the guidelines. A state agrees to do so. It receives federal start up funds. The state then proceeds to implement the exchange through an approach that totally fails to comply with the federal statute and guidelines, or attempts to comply but does a totally inadequate job, resulting in a failed program. The federal government realizes that the state exchange is failing. Will it in fact step in to terminate the exchange and replace it with an exchange run by a nonprofit? The whole situation will be terribly awkward. Most likely the federal government will instead allow the exchange to limp along, preferring to let health care reform fail rather than step in to deal with a recalcitrant or ineffective state. Given the active effort in a number of states to “nullify” national reform, this scenario is unavoidable and likely to be common.
We are not writing on a clean slate here. Congress used the fallback approach, with decidedly mixed results in 1996 when it adopted the portability provisions of the Health Insurance Portability and Accountability Act. HIPAA invited the states to adopt reforms in the group insurance market (guaranteed issue and renewability and limits on pre-existing conditions exclusions) and individual insurance market (guaranteed issue and limits on pre-existing conditions clauses under some circumstances and guaranteed renewability). HHS was designated to ensure that states implemented each of these specific requirements and given “fallback” authority to implement the requirements itself against insurers in states that failed substantially to implement any of the requirements or in states that in fact refused to do so. The states did implement the group insurance reforms, but several states failed or refused to adopt the individual market reforms. HHS attempts to obtain performance were half-hearted and ineffectual. And here we are back again 13 years later trying to reform the individual health insurance market.
Going back further into history, the Senate model is basically that of the Articles of Confederation. The national government tried to guide the states which were supposed to legislate for the citizenry. We rejected that model because it didn’t work. The genius of our Constitution is that it permits the national government to govern its citizens directly, not to depend on the states to do its will; but also leaves the states as parallel sovereigns, which have their own authority to govern directly.
Undoubtedly the Senate believes its approach to be more supportive of states’ rights. In fact, however, the Senate’s approach would be very destructive of federal and state relations, and a wholly ineffective and inadequate approach to implementing health care reform. The House approach is likely to result in a more harmonious relationship between federal and state regulators and in a much more effective health care reform. The federal legislation should create a floor, not a ceiling. States that want to go further than the federal law in protecting their residents should be allowed to do so. Reforming health care should be a cooperative effort. But states that want to drag their feet should not be allowed to drag reform down with them.