A year ago the hype in healthcare was about state-based reform initiatives. Massachusetts was implementing its law, and several other states – including California – were considering their own proposals for increasing insurance coverage as a first step towards universal coverage and cost containment.

How things have changed in a year. Not only has California’s initiative crumbled under the expected costs to employers, but the economic downturn has undercut states’ healthcare expansion ideas, and may force them to cut back Medicaid enrollment and/or services. This week’s National Journal has an article titled “State’s Rapidly Shifting Gears,” that discusses these and other issues, including how a few years ago states cut their Medicaid payments to providers, so that on average Medicaid pays physicians 69% of Medicare levels, and how pending Federal Medicaid rules and proposals would reduce funding for State Medicaid programs making it difficult for states to reverse these payment reductions.

The importance of our current economic uncertainty for health reform initiatives is tremendous. Consider the following facts:

• Massachusetts’ Medicaid waiver is up for renewal this summer. If this isn’t successfully negotiated and renewed, it could mean the collapse of the state’s insurance expansion program – which is already running well over budget because of underestimates of the number of uninsured who would enroll.
• As the economy falters, not only do more people end up out of work, but they also end up uninsured – with about 40% of them enrolling in Medicaid or SCHIP.
• Medicaid costs represent about 20-24% of state budgets, and 49 states have requirements for balanced budgets.
• National Journal’s poll of political insiders (April 12th issue) showed that 83% of Democrats and 79% of Republicans believe that the economy is much more important issue national security for the 2008 presidential election. AND, these percentages are WAAAAY up from November 2007, when they were only 35% (D) and 34% (R), and national security were deemed more important at 56%(D) and 59%(R).
• The Kaiser Family Foundation’s analysis of public opinion polls found a similar dramatic rise in voters’ interest in the economy as an issue for the 2008 campaign:

The key factors that I believe will determine the fate of health reform intiatives over the next several years are:

• How deep the economic downturn goes
• How long it lasts
• What actions the states and the Federal government take to preserve or dismantle the healthcare delivery, financing and public health systems
• When the economy rebounds, how well prepared the states and the Federal government are to pursue health reform initiatives, and what resources are available for these initiatives

The economic drain imposed by the ongoing conflicts in Iraq and Afghanistan, and the inflationary ripple rising energy costs are sending through the world economy are also factors that may very well undermine anyones ability to expand coverage, while at the same time, increasing incentives and efforts to control healthcare costs.

As Homer Simpson might paraphrase James Carville from the 1992 Presidential campaign, “It’s the Stupid Economy.”