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Lee Dixon, Deputy Director, Intergovernmental Health Policy Project, Washington, D.C.

Despite Federal lawmakers promises to revive the discussion, it's unlikely the Congress will take up health care reform in any serious comprehensive manner next year. The issues that made health care the focus of intense debate over the past 3 years have not been resolved, but concern for them has waned.

Concern Diminishes, But Issues Remain

To the American public, the problems that made health care a national priority are not as critical as they once were. Why? First, there is no economic recession driving up the number of uninsured, especially among middle class Americans. Second, the country is experiencing the unusual combination of a low in the normal cycle of insurance and premium costs, a low inflation rate, and the delayed effect of lower or capped salaries in the health care industry. Last, we have witnessed the creation of highly competitive insurance and managed care markets that have contained cost increases. The confluence of these forces has taken the pressure off national health care reform.

However, the problems in the health care system that caused nationwide concern still remain. A significant number of people are still without health insurance. For many people, access to health care continues to be through the hospital emergency room. Dissatisfaction among providers and consumers with managed care strategies continues to grow. Physicians and other health care providers will strengthen their efforts to enact " any willing provider " provisions.

Health policy analysts believe that much of the savings in implementing managed care strategies has been realized. They hypothesize that the current confluence of low premiums, low inflation, and low unemployment will be followed by normal economic cycles that will bring about a new recession at the same time as we are experiencing high premium and health care costs. Economists believe that if this does happen, the number of uninsured could reach 25 percent of the population.

We may not have seen national health care reform enacted in 1994, but States have and will continue to reform the health care system, addressing the unresolved issues of access, cost containment, and benefit coverage. What actions can we expect the States to take and what effect will they have on the delivery of alcohol and other drug abuse treatment services?

State Actions: Past, Present, and Future

During the recent debate over health care reform in Congress, the role of States in our Nation' s health care system was often overlooked, if not forgotten. Concurrently, in 1994 the States put their reform aspirations on hold to see what the Federal government would do. Now, no fewer than 15 States stand ready to take significant, though perhaps incremental, steps towards health care reform. " There is the growing feeling that if you [Congress] can' t do it, then get out of our [States '] way," said one House staff person. However, many States began their efforts with the expectation of achieving universal coverage based on single-payer or multiple-payer plans. The demise of national reform will likely shift their strategy to incremental approaches.

The incremental track States may take includes:

• Expanding – perhaps universal – coverage for children

• Seeking waivers for " TennCare " -style Medicaid expansions

• Taking insurance reform to the limit: expand up to large groups, down to individuals, tighten rating restrictions to modified community rating

• Responding to market consolidations, taking up alliances, " anywilling provider " proposals, and other measures in response to changes in the marketplace

• Looking into individual mandates, medical savings accounts, and other schemes that avoid the ERISA obstacle course.

Structuring of AOD Benefits

Representative John Cosgrove chairs Florida' s House Committee on Insurance. He is a legislative leader who is involved in health care reform and concerned about substance abuse treatment. He recently stated: " A significant number of State legislators and executives understand that the costs of treatment and early intervention are far less expensive than the cost of lost productivity or incarceration. Though support [for the benefit] is there, treatment will be available at a minimum level in most State plans, and won' t be as much coverage as needed. Substance abuse treatment advocates must keep the pressure on to get a full range of benefits."

When asked about caps and limits on AOD treatment benefits, he replied: " Right now caps and limits are necessary to attain the advocates' political objectives. Many legislators are wary of uncontrolled costs. But after savings are achieved through managed care and other cost containment initiatives, resources can be reallocated and treatment benefits enhanced. " There are ample studies that prove the cost offset that comes from providing treatment. However, the dilemma in Representative Cosgrove 's statement is how to ensure that the savings are not siphoned off for purposes other than substance abuse treatment.

Cosgrove 's words are ringing true in many States. Even in the face of actuarial data that demonstrates that caps and limits are not necessary to control costs, State commissions and legislatures are imposing arbitrary limits. Of greater concern are co-pays so high that they discourage a person from seeking treatment.

To counter these actions, the AOD treatment field must continue to provide State executives and legislators with information about treatment protocols, cost-offset benefits, the efficacy of treatment, and the ability to control treatment costs.

Integrating Public Programs into Reform Efforts

In addition to benefit structure in single- payer, multiple-payer, or small group plans, there is the issue of integrating public grant and Medicaid programs into reform efforts. Some States, such as Washington, are integrating the Medicaid population with other publicly financed populations (e.g. State employees and Basic Health Plan enrollees). Others, such as Tennessee, are modifying their Medicaid program to rely on managed care and expanding it to uninsured low-income persons via subsidy arrangements.

The major implementation decisions facing States on the question of integrating public programs into the private insurance market are related to:

1. Defining the risk pool

2. Helping public providers to compete with the private sector
3. Streamlining administrative functions such as enrollment and consumer education

A recent report from Lewin-VHI, Inc. provided insights about how States may make these decisions.

Integrating Medicaid into the broader risk pool will affect premiums. If a policy decision is made to mainstream the Medicaid population, States will need to determine whether the population remains in its own risk pool or is included in a broader risk pool.

Public providers will need to make the transition to compete with the private sector. Health care reform may threaten the viability of public clinics that may not be able to compete in a new environment marked by managed care, stiffer price competition, and less opportunity for cost shifting. To the extent that these providers (e.g., AOD facilities) are considered essential, States may have to financially assist these institutions in making the transition to a more competitive environment. In some cases, States may require health plans to contract with essential community providers as part of the certification process.

States may find it necessary to maintain separate enrollment and consumer education functions for different populations. A principal goal of integration of public programs is to gain greater efficiency by streamlining health insurance administrative functions. Some States have found that the responsibilities for enrollment and consumer education increase significantly as previously uninsured populations become insured.

Integration of Medicaid acute care will still require States to administer a separate Medicaid program. With about 50 percent of State Medicaid budgets devoted to long-term care, States will still administer a significant Medicaid program even if the acute care portion is integrated with other populations.

Every State policymaker and stakeholder responds differently to the set of issues that person confronts concerning health care reform and substance abuse treat- ment. The concluding section reviews recent actions in seven States, and the article on the Medicaid 1115 waiver program describes actions of five additional States. These summaries provide the State administrator, legislator, or treatment provider with a range of issues to be aware of as his or her State tackles health care reform.

Medicaid Reforms

In the absence of national health care reform, Section 1115 Medicaid waivers may become the most widely used tool to accomplish reform of the health care system. Delaware and Rhode Island are in the initial stages of applying to the Health Care Financing Administration (HCFA) for a Section 1115 waiver that would provide limited substance abuse and/or mental health services through an HMO or other managed care entity. South Carolina 's waiver application was recently approved in principle. In each proposal, a patient would be entitled to a certain dollar value or number of days of inpatient and outpatient care by an HMO. If a patient exhausted his or her benefits, the HMO would transfer responsibility for care to the appropriate State agency. Treatment advocates have pointed out that, as initially proposed, the benefit structure has a serious flaw. The HMO assumes no risk. There appears to be no quality assurance or utilization review. The HMO could exhaust the benefit and pass the patient on to the State system.

In States where the Medicaid agency plans to submit a waiver to HCFA, the State AOD agency and treatment providers should review the experiences of Oregon, Florida, Ohio, and Tennessee. These State programs, as well as the Medicaid waiver program in Massachusetts, are summarized under "Medicaid Reform: Selected States With 1115 Waivers".

Universal Coverage: Implementation and Commissions

Last January, Vermont, Minnesota, Florida, Oregon, Washington, and Colorado were considered the bellwether States for health care reform and universal coverage. As we look to 1995, these States are still out front and indeed have been joined by three others – Montana, New Mexico, and North Carolina. However, the demise of Federal reform, disapproval in the legislatures, and caution within reform commissions has slowed their pace to reform and universal access. The activities in seven of these States, summarized here, range from implementing enacted laws to finalizing their commissions ' recommendations.

Washington

Implementation of last year' s reform law is proceeding one step at a time. In September 1994, Washington 's Health Services Commission approved recommendations for the uniform benefits package; these will be incorporated into the commission' s final proposal to be submitted to the legislature by December 1, 1994.

Under the plan, there are no deductibles and no annual or lifetime maximum benefit limitations. The annual out-of-pocket maximum is $1,250 for individuals and $2,500 for families. Exclusions based on preexisting conditions are permitted, but limited to three months. According to actuarial estimates, premium costs range from $148 for a single adult ($259 with children) to $296 for a couple ($406 with children).

The uniform benefits package includes the following substance abuse coverage:

• 30 inpatient or residential days

• 30 outpatient visits per year for case-managed care, including nicotine addiction treatment

• Co-payments for inpatient and outpatient care that are the same as for other illnesses

• Co-payment for residential care of $30 per day up to 5 days

Advocates in Washington were disappointed in the commission 's action. A State-sponsored actuarial study by William Mercer, Inc. examined data from public and private treatment systems and found that it would cost only $1.50 per member per month to provide a managed care substance abuse treatment benefit with: 1) no caps or limits; 2) a $50 a day inpatient co-pay; and 3) a $10 a visit outpatient co-pay. The $1.50 per member cost would be approximately 1 percent of the total benefit. Despite this convincing evidence, the commission chose to place limits on the benefit because it did not want to " have a benefit that appeared too rich. "

In January 1995, the legislature will debate the benefit structure and substance abuse treatment advocates hope to enhance the benefit during the session.

Minnesota

Health care reform in Minnesota will change the way health care is delivered, what services people get, and how much providers will be paid. Mental health and substance abuse treatment advocates believe that reform gives them an excellent opportunity to push treatment into the mainstream of the health care system. The 1994 legislative session moved the State closer toward a new system, which is slated to guarantee health insurance for every Minnesotan. The new system is expected to be operational by 1997.

Patients would get their insurance through one of two ways:

• An Integrated Service Network (ISN); the ISNs would be something like HMOs in that payments to providers would be capitated.

• A regulated " All Payer " system; under the Regulated " All Payer " system, providers would have their fees directly regulated by the State.

This legislative session was the third year in the evolution of Minnesota health care reform. In 1992, MinnesotaCare broke new ground when it established a program for the uninsured. In 1993, MinnesotaCare increased the mental health and chemical dependency treatment benefit in the program for the uninsured to:

• Unlimited outpatient visits

• Up to $10,000 a year for inpatient treatment

The legislature also called for recommendations from the Minnesota Department of Health and Minnesota Health Care Commission on just what the standard benefit set will cover. Legislative language requires the State to consider cost offset data as well as how much the actuaries say a benefit will cost. This means that when the State considers a chemical dependency (CD) benefit, it will have to consider what impact CD treatment has on reducing the utilization of other health care services. Cost sharing, co-pays, and deductibles for mental health and chemical dependency treatment have to be the same as for other medical services.

Vermont

Although debate over how to finance universal coverage derailed Vermont 's attempt to enact comprehensive health care reform in 1994, lawmakers did agree on the creation of a Joint Committee on the Public Interest in Competitive Practices in Health Care (SB 341). The committee– comprised of four members of the House and four members of the Senate – will study and make recommendations to the 1995 general assembly concerning structural and economic changes that are necessary to improve the State 's health care insurance, financing, and delivery systems.

In addition to this activity, one State official reports that a separate proposal urging incremental reform will also be on the legislative agenda in 1995. The plan, to be put forth by Governor Howard Dean, would concentrate on phasing in universal coverage for special populations (e.g., children or pregnant women). In its preliminary stages, this proposal is very similar to the initial phase of MinnesotaCare. In the substance abuse arena, this move would likely result in enhanced prevention programs for children.

Montana

Following a series of six public hearings throughout the State during September 1994, the Montana Health Care Authority is preparing its final recommendations for achieving universal coverage under a single-payer and regulated multiple-payer system.

Both plans offer a broad range of mental health and alcohol/drug abuse benefits, including inpatient, intensive nonresidential, and outpatient services. The following durational substance abuse benefits were recommended:

• The single-payer system (with fee for service and HMO options) provides 30 inpatient days and 30 outpatient visits per year.

• Additional outpatient visits are available at a cost of 1 inpatient day for every four outpatient visits.

• Intensive outpatient treatment also is available, up to 60 days, by trading 1 inpatient day for two intensive care visits.

For the multiple-payer system, the Commission chose to offer the same level of benefits as found in the States mandated benefit laws – 30 inpatient days with an $8,000 lifetime limit and an outpatient limit of $1,000 per year.

Due to relatively high cost sharing, the premium costs for the basic package are relatively low: actuarial estimates put the monthly cost at $100 for a single adult; $188 for a single adult with child(ren); $200 for a married couple; and $306 for a family. The multiple-payer plan would guarantee coverage regardless of health, although a one-time 12-month exclusion due to preexisting conditions would be permitted.

Under the multiple-payer plan, additional State costs attributed to new public premium subsidies and enhanced Medicaid coverage are estimated to be $110 million in 1996. Such a plan would be financed through roughly equivalent revenues from increased " sin " taxes and combinations of increases in personal, payroll, and corporate income taxes.

These well-intended plans may go awry, however, according to an Authority staff member. Citing the demise of national health care reform efforts, the official predicted by January 1995, a third alternative to universal coverage will be developed – one such as a sequential market-based reform system that relies less on Federal action and requires no additional State spending. She indicated that valuable elements from both plans will be selected and incorporated into a new approach. The mandate to develop single- and multiple-payer plans came at a time [2 years ago] when Federal reform appeared more certain," she said. Given the latest developments in Washington, D.C., this may no longer be the best approach, she added.

North Carolina

The North Carolina Health Planning Commission is charged with developing a plan by February 1995 to provide universal access to quality health care that is comprehensive and affordable. The plan is to be presented to the general assembly in May. To ensure involvement by a broad range of constituencies, the 16-member commission created 13 advisory committees which conducted a series of public hearings throughout the State. The Benefits committee is comprised of four subcommittees: Mental Health and Substance Abuse (MH/SA) Services; Preventive Services; Primary, Acute, and Chronic Care Services; and Long-Term Care.

In developing its recommendations, the MH/SA subcommittee approved the following criteria to be used in evaluating which services and/or procedures should be included in the comprehensive benefits package:

• Effectiveness, particularly over the long term

• Cost, with regard to cost-benefit, cost-effectiveness, and cost offsets

• Quality of life, for both individuals and families

• Community values, such as equitable access to treatment, family preservation, public safety, self-reliance, dignity, and nondiscrimination

The Benefits committee endorsed the MH/SA subcommittee 's recommendations of a three-tiered level of coverage. All three include preventive, primary, acute, and chronic MH/SA treatment. The basic plan offers coverage with durational limits; the intermediate plan covers MH/SA treatment on a par with that for other illnesses; and the expansive plan mimics the intermediate plan benefits with the addition of long-term care coverage.

Commission members subsequently chose to single out the intermediate plan for discussion purposes because, as one staff member explained, " They are in the process of building a system and need to work with one model for the time being. "

New Mexico

Established in 1993 and subsequently extended to December 1995, the Joint Interim Legislative Health Care Task Force is charged with developing plans to achieve universal coverage by October 1, 1997. In conjunction with the New Mexico Health Policy Commission, it is currently crafting three plans:

1. A single-payer plan– with either statewide or regional delivery systems and both fee-for-service and managed competition options for consumers
2. A multiple-payer plan that uses health insurance purchasing cooperatives (HIPCs) and subsidies for people with low incomes
3. A voluntary plan

In order to project costs, the consulting firm Lewin-VHI, Inc. is currently conducting an economic analysis of President Clinton 's Health Security Act as it would have applied to New Mexico. The report will be used by the task force in formulating their recommendations, which are due to the legislature by early December.

David Ricks, deputy director for the commission, reports that " many members of the commission thought that the MH/SA benefits in the Health Security Act were too restrictive," and asked that different scenarios be used in evaluating costs for the proposals being developed. To this end, the single-payer plan will be analyzed based on the MH/SA coverage proposed by Senator Paul Wellstone (Minnesota) and Representative Jim McDermott (Washington). Costs for the multi-payer plan will be based on the MH/SA package proposed by Senator Edward Kennedy (Massachusetts).

Ricks also posited that, given the lack of national health care reform, the only feasible proposal may be based on a voluntary approach. Rather than comprehensive reform, lawmakers may consider a structure that could adapt to one of these proposals, he said. Such incremental steps may possibly entail insurance reform, pooling of State employees, and merging the State 's Medicaid managed care system with the pools under a section 1115 waiver.

Colorado

Colorado Governor Roy Romer this year delayed discussion on comprehensive health care reform, citing caution about creating a system that could subsequently need to be dismantled because of conflict with a plan enacted nationally. Colorado did adopt several incremental measures this year, including those that created voluntary purchasing alliances and medical savings accounts.

Moved to the back burner was the proposal known as ColoradoCare. Initially suggested in 1989 by a private, not-for-profit citizens group, the plan aims to achieve universal coverage by reorganizing the State' s health care system. Based on a managed competition approach, ColoradoCare would be financed through a combination of employer, employee, and tax-funded contributions. After examining the program 's cost, benefit design (including MH/SA coverage), financing options, quality assurance provisions, and the likelihood of achieving universal access to care, analysts concluded in September 1993 that the plan was economically feasible.

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