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* Grants will help states evaluate insurance rate hikes
* Other grants to help end smoking, increase exercise
* Kaiser Foundation finds some savings under plan
By Lisa Lambert
WASHINGTON, Feb 24 (Reuters) - The federal government on Thursday announced funding to help U.S. states evaluate health insurance rates and run preventive medicine programs, just as many state officials worry they cannot afford to carry out reforms included in the massive healthcare law.
Starting in August, states can apply for three-year grants worth $3 million to create or enhance their reviews of the premiums health insurance companies charge, said Steve Larsen, director of the Health and Human Services Center for Consumer Information and Insurance Oversight.
A year later, they can apply for a second round of two-year grants worth $2 million, Larsen told a conference call with reporters.
The federal government is also offering about $50 million of grants to help states with the extra workload that comes with increased rate evaluations and to reward states that have authority to block unjustified insurance rate hikes.
The healthcare reform law passed past year aimed to make the health insurance market more transparent. But surges in insurance rates caused the federal government to call for more scrutiny on how rates are set and for stronger oversight by states, which regulate insurance.
Many states could not afford to beef up their oversight or make information about insurance accessible, said Larsen.
"We are confident that states will have effective review processes. This absolutely helps them to get there," he said of the new grants.
They were announced on the same day the federal government said it will put $100 million into state efforts to prevent chronic health problems, with the hope of driving down the costs of covering those problems.
States can use the money to encourage those enrolled in the Medicaid program for the poor to quit smoking, eat better or exercise more, the agency said.
States are charged with carrying out numerous provisions in the plan President Barack Obama championed to help Americans afford healthcare. They also must establish insurance exchanges and expand the Medicaid program to include more people.
After the financial crisis and 2007-2009 economic recession caused historic revenue collapses in almost all states, many officials are worried they cannot cover costs of the reforms.
"States are concerned about the new costs that accompany their enhanced responsibilities, particularly as their revenues are only now beginning to to recover from very troubled fiscal times," the Kaiser Family Foundation said in a report released on Thursday.
"While all estimates show some new costs for states associated with the large expansion of Medicaid, the [healthcare law] also creates new savings and revenues for all states, along with opportunities for states to achieve further, often longer-term savings," it added.
The grant announcements come just days after the federal government said it would send states money to provide home healthcare to Medicaid enrollees.
Still, not all states believe they should have to carry out the reforms. More than half are challenging the law in federal court, saying it threatens individuals' and states' rights.
The Republican majority in the House of Representatives is also questioning costs put on states as members seek to repeal all or part of the healthcare law. The House Energy and Commerce Committee will hold a hearing next week on the law's impact on Medicaid and the states.
Kaiser said there were many areas where states can realize substantial savings and gains under the healthcare reforms.
For example, some individuals who have relied on Medicaid will instead buy their insurance from private companies through the exchanges and states will not have to pay for their healthcare.
At the same time, because many states tax insurance premiums, their revenues will rise as more people purchase insurance, it said. (Reporting by Lisa Lambert; Editing by Dan Grebler)