To Make a Difference in Health Policy, Look First to the States

In March, while the eyes of the world were focused on the COVID-19 pandemic, the Affordable Care Act (ACA) quietly turned ten years old. This historic law set out to reform and improve healthcare, but rather than growing the supply of healthcare goods and services to meet a new, higher level of demand, the law simply expanded access to an already-hobbled system. This action stretched providers, lengthened wait times, and did arguably little to contain costs. The result has kept the American healthcare system in a precarious position, primed to be overrun by the first crisis it faces.

As a federal reform, the ACA could never be a panacea. That’s because many of the most important elements of the American healthcare system are determined at the state level, not directed from Washington, DC.

For instance, consider health insurance, the centerpiece of the ACA. Health insurance regulation is primarily the province of states. State insurance commissions regulate what services must be covered by insurance companies (mandated benefits), and they regulate pricing through various forms of rate review.

Beyond insurance, state policy regulates the activities of healthcare professionals, institutions, and entrepreneurs. Through certificate-of-need laws, states restrict the opening of new facilities and the offering of new services and technologies. Through scope-of-practice laws, states determine what, for example, nurse practitioners can and cannot do for patients. Through occupational licensing laws, states decide whether professionals and companies located in other states can compete to offer their services to in-state residents.

If lowering costs and improving care was the goal of reform efforts ten years ago, America would have done better to overhaul these state policies: Trimming the lists of mandated benefits could bring premiums down. Unshackling healthcare professionals from occupational licensing restrictions and freeing institutions from supply-limiting certificate-of-need laws would allow people and resources to be more efficiently allocated. Broadening scope-of-practice regulations would allow nonmedical professionals to work to the top of their licenses (i.e., to the extent of their training) so that physicians can dedicate their time to providing services that require their unique expertise.

Instead, because insurance coverage is so often conflated with care and was made the top political priority, the country got the rather blunt and uncreative policy of handing money to states to expand their Medicaid programs.

The best example of the importance of state reform is that, without any help from the ACA, some states have managed to position their healthcare systems to have more flexibility than others, thereby enhancing access to care.

Our research team at the Mercatus Center at George Mason University created the Healthcare Openness and Access Project (HOAP), which catalogues 41 different areas in which states exercise regulatory control over healthcare professionals, institutions, and patients. We found that some states allow for a relatively large amount of leeway to design the best healthcare goods and services they can, while other states allow far less.

In the newest edition of the study, released in March 2020, Colorado, Arizona, and Utah topped the ranking, allowing the greatest amount of flexibility. In all three of these states, out-of-state doctors can easily come and practice, making it more likely that there won’t be shortages of physicians. All three also don’t get in the way of doctors who want to open a direct primary care (DPC) practice—which can make primary care services more accessible and affordable for the insured and uninsured alike. In Colorado and Arizona, nurse practitioners can practice at the top of their license. Colorado and Utah do not have certificate-of-need laws, which require healthcare providers to obtain state permission before expanding services and are often used to shield incumbents from competition.

The opposite is true of New York, Massachusetts, and New Jersey, the three states that score at the bottom of our most recent ranking. These states make it difficult for physicians to practice across state lines. They set up artificial limits on medical professionals’ practice, impose several certificate-of-need laws, and make it difficult for physicians to set up DPC clinics.

State legislators looking to make their system more responsive would be well-advised to follow the lead of states like Colorado, Arizona, and Utah.

Indeed, anyone generally interested in impacting health policy should look to the states. By contrast, federal regulations are notoriously difficult to alter, and political considerations often prevent adequate solutions from being turned into law. At the federal level, experimentation with new policy ideas is less possible and often less prudent, since the stakes are higher when setting policy for 50 states than for one state. Because much of the decision-making related to healthcare is left up to the states, states have the opportunity to make meaningful changes that will result in healthier communities.

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