Hopes Fade for State-by-State Health Care Reform : Legislation: Statehouses aren’t picking up the pieces of Clinton’s failed initiative as expected. Instead, efforts are being slowed, and repealed in some cases.

When President Clinton’s health care reform initiative collapsed last year, many experts saw a silver lining: State governments, they predicted, would enact major reforms of their own to address the twin problems of runaway costs and rising numbers of people without insurance.

Instead, the opposite is happening.

From Florida to Massachusetts, Minnesota to Washington, states are sharply slowing or halting their reform efforts, with some even repealing the measures they had adopted.

Amid such reversals, the afflictions of the nation’s $1-trillion-a-year health care system have only worsened--and once again are exerting pressure on Congress to act. And despite the traumatic collapse last year of Clinton’s top-to-bottom reform initiative, there are signs of movement on Capitol Hill. A few tenuous, narrow proposals are being advanced by Republican lawmakers, and Clinton weighed in last week with his own package of limited reforms.

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A record 41 million Americans, predominantly women and children, are currently uninsured. The trend was exacerbated by the sixth consecutive annual decline in the percentage of Americans with employer-based coverage. At the same time, medical costs continue to rise at more than double the rate of inflation.

“The two big problems that put this issue on the agenda in the first place--the uninsured and rising health care costs--are still here,” said Drew Altman, president of the Kaiser Family Foundation, a health philanthropy in California.

Moreover, if the economy begins to slow dramatically, as many believe is happening, those problems could accelerate.

As it is, the grim scenario already has dashed the hopes of politicians who thought barely six months ago that a combination of state initiatives and private-sector cost-containment measures would take the pressure off Washington to find cures.

Now there is a growing realization among the Republican majority that Congress must devise reforms that transcend the current GOP plan to make steep cuts in the rate of growth in Medicare and Medicaid.

“There are a number of things wrong in the private sector that need to be fixed,” conceded Sen. Robert F. Bennett (R-Utah), a former business executive who heads the Senate GOP task force on health care.

For all the rush by Washington to return power to the states, he said, it is Congress that must come up with federal solutions to health care problems.

A central reason for the demise of statehouse-inspired health care reforms is skepticism about government’s ability to dictate sweeping reforms in what is one-seventh of the economy--an enduring lesson of Clinton’s failed initiative.

Richard Merritt, director of George Washington University’s intergovernmental health policy project, said the GOP sweep in November’s elections tilted many statehouses to the right. “What happened at the national level also happened at the state level--and then some. Legislatures now in session are much more conservative, much more market-oriented and much more anti-government.”

A second reason is the growing reluctance on the part of these fiscally conservative lawmakers to expand coverage at a time of growing budgetary pressures. “What we’re seeing is the implementation of the popular will,” said Uwe E. Reinhardt, a Princeton University professor of political economy.

Also feeding into the mix is emerging data that some reforms have fallen short of expectations, most notably the projected savings from channeling Medicaid patients into managed-care networks.

In Florida, Democratic Gov. Lawton Chiles’ Health Security Act is said to be “dead on arrival” now that the GOP has taken control of the state Senate. Contributing to its demise are studies indicating that pushing Medicaid recipients into managed care will not produce the estimated $3.2 billion in savings needed over five years to subsidize coverage for low-income workers, according to State Health Notes, a monthly newsletter edited by Merritt.

“We expected a 15% reduction in costs. We had a 6% increase,” state Sen. John McKay, a Republican, told the publication. “So the basis of the governor’s plan is moot.”

In Massachusetts, lawmakers for the third time since 1988 have delayed--this time until January--the start-up of an employer mandate that requires businesses to pay a portion of employees’ insurance premiums.

In Minnesota, lawmakers recently repealed key elements of the landmark 1993 MinnesotaCare law, including a requirement on all individuals to have insurance as well as state subsidies to the needy to help them buy such insurance.

In Oregon, lawmakers have taken an employer mandate off the table.

The most notable setback occurred last month in Washington state, where veto-proof majorities in both houses of the Legislature repealed the Health Services Act, which had been approved in 1993 amid much hoopla and expectation of national reforms. It bore striking similarities to the plan Clinton proposed, complete with a standard benefits package, government authority to set insurance prices, consumer purchasing cooperatives and a requirement for employers to pay at least 50% of the cost of workers’ health coverage.

A major factor in the demise of health care reform in Washington state is the 1974 federal Employee Retirement Income Security Act, or ERISA, which looms as an all-but-insurmountable barrier to most state initiatives. The law bars states from regulating health plans set up by the growing number of self-insured companies, thus seriously hampering the ability of states to mandate reforms.

Even though state initiatives assumed new importance last fall after the death of Clinton’s agenda, Congress adjourned without granting Washington or any other state an ERISA waiver, thus all but guaranteeing further deterioration of the system.

Analysts therefore are not surprised by emerging evidence of what they believe is a reawakening public desire for health care reform. As a Wall Street Journal/NBC News poll found last week, for all the current emphasis on federal deficit reduction, Americans ranked health care reform as the most important of six legislative priorities. The poll said 45% wanted health care reform, up from 29% just five months ago, while 38% cited a balanced federal budget as the next most important priority.

The explanation for such surprisingly strong public support for health care reform appears to lie in an array of recent data.

Medical inflation is forcing more employers to cut health care benefits to workers and dependents, often by channeling them into less expensive managed-care plans or health maintenance organizations. By 1994, a record 51.1 million Americans were members of such networks, a 13% increase from 1993, the Group Health Assn. of America, an industry organization, reported last week.

In the worst-case scenario, employers simply stop providing coverage altogether--first to dependents and then to the employees themselves. And in 1994, an additional 1.1 million Americans younger than 65 became uninsured, primarily after losing employer-provided coverage, according to Deborah Chollet, associate director of the Alpha Center, a health care think tank in Washington.

The squeeze on working families was also documented recently by Foster Higgins, an employee benefits consulting firm. In a national survey of employers, it said the average per-employee health care cost fell 1.1% in 1994--due mainly to cost-cutting measures such as shifting workers into managed-care networks and trimming retiree health benefits.

“We understand there’s urgency and that it will take big change,” Rep. Nancy L. Johnson (R-Conn.) said in a recent interview.

But rather than try to overhaul the system in one fell swoop, as was Clinton’s approach, the GOP is designing legislation for specific problems, such as ending insurance industry biases against the aged, the ill and small-group purchasers.

Rep. Bill Thomas (R-Bakersfield), chairman of the House Ways and Means health subcommittee, has introduced a bill to allow workers moving from one job to another to maintain their group coverage.

Separately, as a part of the budget process, Republicans want to save $256 billion to $282 billion by cutting the rate of growth of Medicare over seven years, from about 10% to 7%.

They also want to cut the rate of growth for Medicaid, the health program for the indigent, from 10% to 4% or less--and turn the program over to the states.

But many experts warn that the proportionately deeper cuts in the rate of growth for Medicaid, a $158-million-a-year federal-state program, will lead financially pressed states to impose new restrictions, thus eliminating coverage for more people.

The fate of the GOP reform efforts are far from clear, given the strong opposition from a phalanx of interest groups, most notably the elderly. What is clear, though, is that the problems will worsen unless Congress acts.