Reforming the U.S. Health Care System

Policy Backgrounders | Health

No. 149
Monday, April 26, 1999
by John C. Goodman & Merrill Matthews

X. The Role Of State And Local Governments

A. Defining Of State And Local Government Roles

  1. This is the first plan that defines the role of state and local governments in meeting the needs of the uninsured.
  2. By keeping the federal role purely financial, which largely continues current practice, the plan makes state governments responsible for regulating the terms and conditions under which health insurance will be bought and sold.

"Enabling people to buy private insurance will help make welfare reform work."

B. Creating Options For Local Health Care Safety Nets

  1. Although state governments are obligated to spend federal safety net money on the uninsured, they can discharge this obligation in many ways.
  2. One way is to set up clinics that dispense free services to the low-income uninsured.
  3. Another is to enroll the uninsured in an expanded Medicaid program (although, see the discussion below).
  4. A third option is to supplement the federal grant and assist people in obtaining private health insurance.

"Ultimately, low-income families should be given a private insurance alternative to Medicaid."

C. Allowing Discretion While Rewarding Good Choices

  1. Many states subsidize the purchase of private insurance by piggybacking on federal practice; they exclude employer payments from employee taxable income and/or create special tax relief for low-income families.
  2. These states could continue their current practices or adopt a tax credit at the state level; most will quickly discover that the latter is a better use of state resources.
  3. States also will be allowed to supplement the federal tax credit with a state tax credit they design, and many probably will do so.
  4. In general, states will find it in their interest to encourage private insurance, because private insurance will almost always involve an input of private resources through the family premium contribution, whereas the state burden will be greater if people depend on state and local funds to meet all their health care needs.
  5. Many states also have contributed to the growing number of uninsured through unwise regulations.
  6. These states could continue such practices, but they will pay a heavy (budgetary) price for doing so.
  7. Since the federal commitment under this plan is fixed, the federal government cannot be held hostage to vagaries of state law.

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