States Battle with Federal Government on Health Care

WASHINGTON, Nov. 22, 2010— -- The story of Randy Shepherd, 36, who was denied a new heart because Arizona cut some organ transplant coverage for Medicaid patients, grabbed national headlines.

At a time when Medicaid enrollment is on a steady rise and the economy remains weak, it has also unearthed old tensions between states and the federal government that lie at the heart of the health care debate.

Faced with a budget deficit of more than $1 billion, Arizona's majority Republican legislature has slowly been cutting Medicaid benefits.

At the same time, the newly elected president of the Arizona State Senate, Russell Pearce, has said he would reject federal grants, even though it means the state would lose about $7 billion in federal help.

The expansion of the Medicaid program under the new health care law, and additional measures like the requirement that every American must carry health insurance and states must set up health insurance exchanges -- where the uninsured would be able to shop for coverage and compare rates -- have aroused rebellion from states.

Republican lawmakers in Texas are threatening to eliminate Medicaid altogether.

Minnesota Gov. Tim Pawlenty signed an executive order in August forbidding state agencies to apply for grants under the new health care law.

Twenty states have filed a joint lawsuit against the Department of Health and Human Services, challenging the constitutionality of the provision that requires all Americans to purchase health insurance by 2014.

The feud over health care between states and Washington is not new. It has existed since the program was created in 1965, but the current partisan climate in which political jockeying is on the rise just further exacerbates that tension.

"This is not exactly a new issue when states feel fiscally pressed," said Gail Wilensky, an economist and a senior fellow at Project Hope, an international health education foundation.

"But because of the enormity of the change for some states in terms of the number of people who are going to be coming on, in addition to the current budgetary holes that many states find themselves in, it has made them particularly stressed," she said.

Medicaid has been particularly hard hit by the budget crisis and the weak economy. Spending on Medicaid rose an average of 8.8 percent this year, the highest rate of growth in eight years, according to the Kaiser Family Foundation. The federal stimulus program gave some relief to states, providing roughly $87 billion in October 2008.

Medicaid Cuts Unearth Historic Tensions on Health Care

Under the new health care law, the federal government will provide funding to expand Medicaid to Americans whose incomes are at or below 133 percent of the federal poverty line.

But that has done little to appease states, many of which say the new law will increase their costs in the long term even though it expands coverage to more citizens.

The blame game is likely to continue in an issue that is growing increasingly complex, experts say.

"There's not an easy villain," said William Roper, dean of the school of public health at University of North Carolina, Chapel Hill. "We as Americans want people to be covered by health insurance and get health services that they need, but we have a much greater appetite for public services than we have an appetite for the taxes that pay for them and that has produced over years -- and more recently over the last few years -- a gigantic budget deficit."

Parts of the new health care law are popular with Americans, such as tax credits for small businesses and insurance companies being barred from denying coverage to those with pre-existing conditions. But overall, Americans' view on health care reform is mixed.

A Kaiser Family Foundation poll conducted after the mid-term election found that more than half -- 56 percent -- of those who voted would like to see the law repealed entirely or in parts, but among Americans generally, only a quarter wanted to repeal parts of it.

Last week, Massachusetts Republican Sen. Scott Brown and Democrat Sen. Ron Wyden of Oregon introduced a bill that would allow states to get waivers by 2014 exempting them from some of the new requirements, such as health exchanges and insurance mandates.

"States shouldn't be forced by the federal government to adopt a one-size-fits all health care plan. Each state's health care needs are different," Brown said in a statement.

Supporters of Brown's and Wyden's provision say it will give some leeway to states as they try to figure out how to tackle their budget deficits.

"The greater challenge for states right now is how can we give people everything and stay solvent and do what the federal government wants," said Sreedhar Potarazu, an ophthalmologist and chief executive of Vital Spring Technologies. "States are on the verge of going over the cliff and health care is the last straw."