The skeleton key: will the federal health care reform legislation unlock the solutions to diverse dilemmas arising from the state health care reform laboratories?

• Author: Smith, Christopher R.

1. INTRODUCTION II. HAWAII A. The Hawaii Prepaid Health Care Act B. Hawaii's Coverage Outcomes C. The Impact of the National Health Reform Law on Hawaii III. MAINE A. The Dirigo Health Reform Act B. Maine's Coverage Outcomes C. The Impact of the National Health Reform Law on Maine IV. VERMONT A. The Health Care Affordability Act B. Vermont's Coverage Outcomes C. The Impact of the National Health Reform Law on Vermont V. CONCLUSION I. INTRODUCTION

   Almost two years ago, the late Senator Edward Kennedy declared:

   For me, this is a season of hope, new hope for a justice and fair prosperity for the many and not just for the few, new hope. And this is the cause of my life, new hope that we will break the old gridlock and guarantee that every American--north, south, east, west, young, old--will have decent, quality health care as a fundamental right and not a privilege. (1) Today, Senator Kennedy's "new hope" for universal health care coverage is a reality. In March 2010, Congress finally enacted nationwide health care reform and an overhaul of the United States health insurance system, which aims to deliver near-universal coverage for all Americans. On March 23, 2010, President Barack Obama signed the Patient Protection and Affordable Care Act (2) ("PPACA") and, on March 30, 2010, he signed the Health Care and Education Reconciliation Act of 2010 (3) ("HCERA") (collectively the "Reform Law"), together representing the biggest overhaul of the United States health care system in the last 50 or 60 years. (4) The Congressional Budget Office has predicted that the final legislation "will provide coverage to more than 95% of all Americans." (5)

   The significance of the federal health care reform legislation cannot be understated; the 111th Congress has succeeded where so many before have failed. (6) Still, Congress has arrived "late to the health care reform ball," as a number of states, starting with Hawaii in the 1970s, and more recently, Maine, Vermont and Massachusetts, have been progressing towards universal health care coverage for many years. These states have often been described as laboratories of innovation for health care reform efforts. (7) In fact, Massachusetts' recent health care reform legislation is seen as a model for the Reform Law. (8)

   Given that the Reform Law is not operating on a blank slate, this article examines its impact on the health care reform efforts of three states: Hawaii, Maine, and Vermont. More specifically, this article examines each state's health care reform plan, the outcomes of each plan in terms of achieving universal coverage or near-universal coverage, and the likely impact of the federal health care reform legislation on these plans, with a particular focus on how the federal legislation and state laws will or will not work together to achieve near-universal coverage. The article aims to determine whether the Reform Law unlocks the solutions to some of the dilemmas resulting from state health care reform efforts, or whether the Reform Law fails to do so or even exacerbates existing problems.

   This article focuses on the health care reform efforts of Hawaii, Maine and Vermont for three reasons. First, each of the three states has taken different approaches toward achieving universal coverage. Second, all three rank highly in terms of their low rate of uninsured residents, but have yet to achieve near-universal or universal coverage. (9) Third, Maine and Vermont were chosen because the Kaiser Family Foundation has identified those two states as two of three states, Massachusetts being the third, which have enacted universal health care coverage legislation. (10)

2. HAWAII

   1. The Hawaii Prepaid Health Care Act

      Hawaii may be viewed as the "grandfather" of state health care reform in the United States, given that it first implemented health care reform over 30 years ago. In 1974, Hawaii passed the Hawaii Prepaid Health Care Act ("PHCA"), which ties health care reform to an employer mandate. (11) Hawaii's employer mandate provision is unique among the states because state employer mandates are generally preempted by the federal Employee Retirement Income Security Act ("ERISA"). (12) In fact, Hawaii was forced to obtain a Congressional waiver to implement its employer mandate, and no other state, to date, has obtained such a waiver. (13) Significantly, the Hawaii ERISA exemption only applies to the PHCA as it existed in 1974, when ERISA was first enacted, and Hawaii may not modify the PHCA in any way. (14)

      The PHCA employer mandate requires all Hawaiian employers to provide coverage to any employee who is paid monthly wages that are 86.67 times the minimum hourly wage, works more than twenty hours per week for four consecutive weeks, and does not have an alternative source of health insurance. (15) The PHCA also requires employers to meet certain minimum benefit standards, defined as "health care benefits equal to, or medically reasonably substitutable for, the benefits provided by prepaid health plans of the same type, ... which have the largest numbers of subscribers in the State." (16) The minimum benefit requirements specified within the statute include hospital benefits, surgical benefits, medical benefits, diagnostic laboratory services, maternity benefits, and substance abuse benefits. (17) Notably absent is any requirement that employers' plans provide mental health benefits, other than substance abuse benefits, dental or vision benefits.

      Along with benefit requirements, the PHCA also imposes cost requirements on employers. The PHCA requires covered employers to contribute at least one-half of their employees' premium costs, and "in no case shall the employee contribute more than 1.5 per cent of the employee's wages." (18) Although the employer foots a large share of the premium costs, "an employer who employs less than eight employees ... shall be entitled to premium supplementation ... if the employer's share of the cost of providing such coverage ... exceeds 1.5 per cent of the total wages payable to such employees and if the amount of such excess is greater than five per cent of the employer's income before taxes." (19)

      Although the PHCA addressed coverage for most employed Hawaiians, it failed to address coverage for the unemployed. Accordingly, in 1994, Hawaii obtained a Medicaid waiver to create the QUEST program, which "stands for Quality of care, Universal access, Efficient utilization, Stable cost, and Transformation." (20) QUEST began as a demonstration project and operated to shift Medicaid enrollees onto private managed care and to offer a limited benefits package to low income, uninsured, adult Medicaid ineligible Hawaiians who earn up to 300% of the Federal Poverty Level ("FPL"). (21) Although QUEST is designed to fully cover parents and childless adults who earn up to 100% of the FPL, enrollment is presently closed for childless adults. (22) For those with family incomes above 133% of the FPL and pregnant women with incomes above 185% of the FPL, QUEST requires the payment of premiums on a sliding scale basis. (23)

      Beyond the PHCA and QUEST, Hawaii's Blue Cross/Blue Shield organization, the Hawaii Medical Services Association ("HMSA"), has also played a significant role in Hawaii's progress toward universal coverage. (24) HMSA is essentially a monopsony and has established a de facto private single payor system in Hawaii. (25) It is responsible for administering Medicare and provides administrative services for some Hawaiian managed care organizations and enrolls almost half of Hawaii's non-government employees. (26) Some scholars contend that Hawaii's low health care costs are due in part to HMSA's monopsony power. (27)

      Another angle to Hawaiian health care reform is Hawaii's focus on primary health care and its "large, strong network of community health centers." (28) Hawaiian health centers have proven important because they help to identify sectors of the population without health insurance and provide assistance to individuals with applying for coverage. (29) The health centers also lower health care costs by providing less costly preventive care to vulnerable populations and by shifting patients' reliance on care away from more costly hospital out-patient clinics and emergency rooms. (30)

   2. Hawaii's Coverage Outcomes

      Since enactment of the PHCA, Hawaii's coverage outcomes have resembled a roller coaster. In the beginning, Hawaii's employer "mandate had dramatic effects ... reducing Hawaii's uninsured population from 30% in the early 1970s to as low as 5% in the 1980s." (31) However, there were a number of unintended negative consequences of the employer mandate, as 55% of employers restricted wage increases, 33% reduced other benefits, 40% reduced the number of employees, 10% hired part-time employees to replace full-time employees, and 60% raised prices to offset health care costs. (32) Moreover, Hawaii's initial success waned by the early to mid 2000's, as the percentage of uninsured Hawaiians increased to 10% of the population and the percentage of uninsured workers or employees stood at 58%. (33) Analysts attribute the increased uninsured rate to a combination of "sharply rising insurance rates, [increased] hiring [of] part-time workers, and an increase in the number of self-employed workers." (34) Generally, employers shifted their workforce to a part-time workforce, and even laid off employees for a few days every four weeks in order to have them categorized as part-time employees. (35)

      The most recent statistics show a slight improvement in health care coverage rates for Hawaii, but they have still not returned to their 1980s levels. In 2008, an average of 7.8% of Hawaiian residents remained uninsured, which is the second best uninsured rate in the country behind Massachusetts. (36) By comparison, in 1994, Hawaii's uninsured rate was 9.4% and from 2005 to 2008, Hawaii decreased its uninsured rate by .9%. (37) Accordingly, Hawaii seems to...