Proposed Program to Help States Provide Health Coverage for the Uninsured

On January 22, 2007, Secretary of Health and Human Services, Mike Leavitt, announced a new federal grant program to use existing health care funds to provide grants to the states so that they can provide basic health insurance coverage to their citizens. The grant program has been dubbed "The Affordable Choices Initiative," and its goal is to get every state to offer a basic and affordable health insurance plan to uninsured residents. This grant program was also included as one of the health care initiatives in the State of the Union address on January 23rd.¹

The Affordable Choices Initiative will be a voluntary grant program and is intended to provide additional momentum to the states, many of which have already unveiled their own health care reform initiatives.² States will be eligible for the grants if they agree to provide basic, affordable insurance plans. The size of the grants will not be determined until specific state programs are proposed.

Secretary Leavitt pointed out that the Department of Health and Human Services will have some power to determine what constitutes a "basic" health insurance plan, but that the content of the health insurance coverage will likely vary from state to state. Such plans could include:

Premium assistance to low-income or hard-to-insure populations;
Offering of only catastrophic coverage;
Establishing or expanding high-risk pools for extremely sick persons who cannot obtain coverage elsewhere;
Offering of coverage that is capped with annual spending limits; or
Facilitating the pooling of individuals and small businesses to purchase coverage on a collective basis.

No decisions have been made about where the money for the grants will come from, but Secretary Leavitt did say that some of it could be made available from Medicare and Medicaid disproportionate share (DSH) payments that are currently paid to hospitals that provide treatment to large numbers of uninsured patients. It remains unclear how use of DSH funds in support of the Affordable Choices Initiative will impact the hospitals that currently receive DSH funds.

In addition to this federal initiative, Governor Rick Perry has hinted that he will lay out a plan to address the uninsured population in Texas. Some pieces of this plan were circulated prior to Governor Perry's inauguration, but details will not be released until the State of the State address later this month.

Despite this absence of detail, the Texas Legislature is in session, and certain proposals to address the uninsured population are circulating. One such proposal involves a three percent (3%) tax/fee, or a "Quality Assurance Fee," on hospital bills.³ This fee would raise an estimated $800 million, which could then be used to draw down another $1.2 billion in federal Medicaid funds.⁴

The Quality Assurance Fee would be fully assessed against public and nonprofit hospitals. For-profit hospitals could possibly opt in or out of the fee in exchange for assessments under the new margin tax.

Proposed uses of the funds raised by imposition of the Quality Assurance Fee include:

Supplementation of Medicaid reimbursement rates to encourage additional providers to participate in the program;
Implementation of health savings accounts for some populations currently covered by the Medicaid program;
Development of a risk pool to help fund a "three-share" program whereby the State would join with employers and employees to share in premium costs three ways; and
Development of specially designed benefit plans for specific conditions such as diabetes or cardiovascular disorders.

Until details of this initiative are confirmed by the Governor's office, many issues or roadblocks could arise to derail this plan. Further, the Affordable Choice Initiative proposed at the federal level could impact the way in which the Texas plan could ultimately be structured to lower the number of uninsured. The key is for various stakeholders in the health care industry to remain aware of the types of initiatives under consideration and how they may impact current legislative activities. Health Industry Online will continue to monitor activities and report on further developments as the current sessions of the U.S. Congress and the Texas Legislature evolve.

¹In addition to the Affordable Choices Initiative, President Bush also proposed a sweeping change to the federal tax code that would offer a standard tax deduction to those who buy health insurance on their own rather than through their employers.
²For example, California Governor Arnold Schwarzenegger unveiled a health care reform initiative on January 8, 2007, that would provide health insurance coverage to all of California's 6.5 million uninsured residents. The initiative would rely on a combination of funds from individuals, health care providers, employers, and the state and federal governments to cover the $12 billion cost.
³This proposal was first reported in The Quorum Report. See "Piecing Together the Governor's Plan for the Uninsured," The Quorum Report (Jan. 22, 2007), www.quorumreport.com.
⁴While not expressly linked at this point, please note that funds raised by the Quality Assurance Fee could also be used in conjunction with any grant monies obtained by the State of Texas under the Affordable Choices Initiative discussed above.