States seek to extend health care

CHICAGO (Reuters) - U.S. states want to provide health care coverage for the uninsured, but daunting costs could derail or shrink some of their plans.

"Everybody is for more health insurance, particularly when you're not paying for it. That's the trick. How are you going to pay for it?" said Robert Kaestner, a professor at the University of Illinois' Institute of Government and Public Affairs.

Proposals for broad expansion of health coverage have surfaced in 21 states and bills are pending in 16 legislatures, according to the National Conference of State Legislatures. Universal health care access was approved by Maine in 2003 and by Massachusetts and Vermont last year.

Health care expansion is gaining steam due to bipartisan support, a growing population of uninsured workers, healthier state budgets and the absence of federal action on the issue, according to Laura Tobler, a health policy analyst at the legislatures' group.

But Kaestner notes that states are already having trouble keeping up with Medicaid programs that provide health care to the poor. He says Medicaid costs are growing more quickly than states' revenues and eating up bigger shares of state budgets.

States are looking to "move up the income ladder" by offering programs for lower- and moderate-income residents or subsidizing a mandate that all residents be insured, Kaestner said.

"The jury is still out whether they're even going deliver on these promises in any significant way," he said.

Kaestner also questions whether if enough political will exists to enact some of the tax increases tied to the health care proposals. If funding falls below expectations, states' "grand plans are going to be modest programs," he said.

Massachusetts, which expects to spend $1.64 billion on its program in fiscal 2007, has become somewhat of a test case as to whether such a program could work on a large scale.

The new health care programs come as revenue growth in most states is perking up, according to Nicole Johnson, an analyst at Moody's Investors Service.

"States are just now recovered from the recent recession," she said. "Revenues are doing better, but (states) have a lot of pent-up demand."

Johnson added that if expanded health care programs change a state's budget picture due to inadequate revenue, they will work their way into the rating review.

"The big problem is, you create an expense, but have you offset it with a revenue stream that could hold up?" she said. Johnson noted that cigarette tax hikes or assessments against employers that do not provide health coverage for workers were emerging as potential revenue sources for these programs.

In Illinois, which passed a program to cover all uninsured children in 2005, Democratic Gov. Rod Blagojevich has proposed a coverage plan for 1.4 million uninsured adults at a cost of $2.1 billion annually once the program is fully implemented, a spokeswoman said.

Funding would come mainly from a payroll tax on businesses that do not offer health coverage to workers and a plan to replace the corporate income tax with a bigger revenue-generating gross receipts tax.

California Gov. Arnold Schwarzenegger, a Republican, has a $12 billion plan to insure 6.5 million people in his state. It would be funded with a $5.4 billion increase in federal funds and new taxes on doctors, hospitals and employers of 10 or more that do not provide health benefits.