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Federalism and Health Reform

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For academics, federalism (the enduring tension between the states and the federal government for primary in formulating and implementing policy) is an endlessly fascinating source of debate and the focal point for constitutional analysis. But federalism is far more than an academic or intellectual exercise. Which level of government takes responsibility for a given issue determines the scope and shape of the policy response. As such, federalism is embedded with important policy implications for addressing contemporary health care policy in the United States.

Tim Jost’s recent posting on “Returning to the Articles of Confederation?” and Mark Hall’s response illuminate why federalism in the context of health insurance reform is so important. One reason is a very practical issue: given some type of state-federal cooperative relationship, how will it be structured and which level will retain ultimate conceptual and regulatory authority? This is the question that Tim and Mark have raised. Another is a normative question as to which level of government should take the leading role in health reform? A third is the tangential issue of regulatory reform in health care regardless of the shape or even the enactment of the current legislation.

In this posting, I will comment briefly on the first two issues. A subsequent post will focus on regulatory reform.

Taking the normative aspect first, I share Tim’s statement that a robust federal response is preferable. In a forthcoming article in the Journal of Health Politics, Policy and Law, my colleague Scott Greer and I set forth a set of criteria for assessing whether the locus of responsibility for health reform should reside at the sate or federal levels. Based on our analysis of the criteria, we firmly conclude that the federal government is best positioned to enact and implement the reforms. Despite the apparent success of the 2006 Massachusetts health reform legislation, it is doubtful that many other states can achieve similar results.

At the same time, I agree with Mark that a federalist solution is defensible, even if difficult to operationalize. With all of its faults (see Sara Rosenbaum’s recent New England Journal of Medicine perspective on Medicaid and National Health Reform), Medicaid works as a cooperative state-federal program to deliver services to low-income populations. The federal government assures a minimum amount of required services while allowing states to offer optional services if they desire and can afford to do so. (To be sure, few states can afford optional services in the current economic climate, a practical reality that speaks to Tim’s concerns about federalist approaches. In a sense, this tracks with Tim’s final point about federal legislation creating a floor, with states permitted to expand coverage beyond federal legislation.)

Given the current policy environment, it seems that some variation of a federalist response is politically inevitable. If so, what is the appropriate balance of regulatory responsibilities between the sates and the federal government? As surprised as I am to say this, the sates may have some advantages in regulatory oversight. (After all, the federal government has not distinguished itself in the current health care regulatory regime. Just look at the mess federal regulatory oversight of the collective fraud and abuse laws has created for an example of how not to regulate.) States have responsibility for professional licensure and health insurance. As inconsistent and sometimes ineffectual as state regulatory enforcement has been, it’s at least arguable that states have done no worse than the federal government (which is hardly a rousing endorsement).

Herein lies the basic conundrum, as Tim’s second posting on this issue suggests. If neither level of government has a distinguished track record of either regulatory oversight or of program implementation and enforcement, how can we determine whether the Senate’s or the House’s approach is better? Even though both governmental levels have glaring regulatory weaknesses, my sense is that the uniformity offered through federal regulatory oversight is ultimately the deciding factor. What’s most important, of course, is that health reforms must be enacted at the federal level.

Nonetheless, one reason why I think the Senate’s approach of delegating regulatory oversight to the sates might be acceptable conceptually and structurally is that Liz Selvin and I proposed a similar approach several years ago to encourage the expansion of telemedicine. One of the barriers to the expansion of telemedicine across states has been states’ unwillingness to relax state licensure requirements. In part because of political feasibility, we proposed a policy of national telemedicine licensure that states would enforce. While not necessarily an optimal or perhaps achievable strategy, we argued that the federal government should issue telemedicine licenses with the states retaining jurisdiction over professional standards and conduct. In our view, the advantage of this approach would be to establish uniform licensure standards that would permit easy transferability of telemedicine across states while still allowing states to regulate the practice of medicine within its borders.

Even if the telemedicine example is roughly analogous to the health reform debate, it suffers from one fundamental disadvantage that clearly shifts the balance in favor of federal uniformity for regulatory oversight. Under the Jacobson and Selvin proposal, states have an incentive to monitor how medicine is practiced within its birders, especially for a new innovation. Under health reform, some states have already “seceded” from the health reform strategy Congress is considering. The likelihood that there will be anything remotely resembling reasonable state-based implementation seems remote.

In sum, therefore, I favor the House’s approach as likely to result in better regulatory policy. It may not be disastrous to delegate regulatory authority to the states, as the Senate bill does, but I doubt that it will be as effective as federal regulation. For all of the current deficiencies of the federal government’s health care regulatory regime, national uniformity is an important value and adjunct to national health reform.

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  • Thomas Hou says:

    I wonder how federalism treats current proposals, especially in the Senate, that allow states to opt out of programs such as the public option. Given that national uniformity is so important, wouldn’t an opt-out clause in a measure as important as the public option go against national uniformity? I do not think a public option would get passed unless a opt-out or a similar clause is included. In that case, how effective would national regulation, whose power I imagine would be invested in an agency like the MA Connector, be in controlling states and keeping insurance premiums within states down.

    • Peter Jacobson says:


      That’s an excellent observation. I expect only a handful of states to opt out at the beginning. Over time, much will depend on the public option’s success. If it is successful, political pressure will build for states to opt back in. But if it isn’t successful, I would expect to see additional states opting out.

      At this point, since the public option has been so weakened from its initial strong version, the number of people actually using it will be much smaller than if the robust version were enacted. With regard to national regulation, there are many other provisions in the bills under consideration that will not include an opt-out opportunity for the states. Hence, if the Senate bill is adopted, federal regulation will facilitate national uniformity.


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