Health Care Reform and
American Federalism:
The Next Inter-Governmental
Partnership
by Michael Sparer, J.D., Ph.D. with responses from state health policymakers

September 2009

1

With the election of President Barack
Obama, the issue of health reform returned to the national agenda. President
Obama has made comprehensive reform a high priority, emphasizing the need to get reform enacted during his first year in office. Congress has been tasked with developing the details. The goals include providing coverage to the uninsured, financing that coverage with some combination of new tax revenues and effective cost containment measures, and more generally slowing the rising cost of the nation’s health care bill. It is, of course, too soon to predict the outcome.
While there is a window of opportunity for reform, there are also significant obstacles, including uncertainty over how to pay for access expansions and partisan disagreement over a proposal that the uninsured (and perhaps those with private insurance as well) be offered the option of enrolling in a new publicly-administered health insurance plan.
Perhaps due to the speed of the current debate, however, federal policymakers have largely ignored two issues critical to the implementation of any new legislation: first, how will new federal rules fit with the nation’s complicated and entrenched set of inter-governmental health care partnerships; and second, how will those rules accommodate the extraordinary inter-state (and intra-state) variation in every aspect of the nation’s health care system? This issue brief addresses these issues. It begins with a review of the evolution of the nation’s intergovernmental health care partnership, followed by a discussion of how proposed federal reforms to expand Medicaid, to create a health insurance exchange, and to restructure the health care delivery system might impact that partnership. The brief concludes by encouraging policymakers to establish a task force, work-group, or some similar institutional mechanism that would focus on the federalism and implementation implications of both proposed and enacted reforms.

2

States and the InterGovernmental Health
Care Partnership
States play a key role in every aspect of the current health care system. Both
Medicaid and the Children’s Health
Insurance Program (CHIP), for example, delegate to the states broad authority to set eligibility criteria, develop benefit packages, and determine reimbursement rates. Equally important, states pay anywhere from 23-50 percent of the cost of these programs, more than $150 billion annually. States also regulate much of the nation’s private insurance industry and they fund and administer public employee health insurance programs. States operate medical education systems, license health care providers, supervise the quality of care delivered by those providers, and establish medical malpractice systems.
States own and operate hospitals for the mentally ill and developmentally disabled, operate worker-compensation systems, and have broad powers to establish and implement public health programs.
Importantly, however, states perform nearly every one of these tasks as part of an inter-governmental partnership with both federal and local officials. The federal government, for example, sets broad rules that constrain state discretion in both the Medicaid and CHIP programs. The federal Employee Retirement and Income
Security Act (ERISA) limits state discretion to regulate firms that self-insure. ERISA also precludes many consumers from using the state courts as a forum to challenge insurance decisions to deny medical coverage. The Health Insurance Portability and Accountability Act (HIPAA) imposes various regulations on the private health insurance industry. Meanwhile, the nation’s 3,000 local health departments are the linchpin of the public health system;