States of Health

While President Bush devoted a portion of his State of the Union address to the issue of health care, many Beltway observers expect federal gridlock for the next 20 months. "It's difficult to have dramatic change when the White House and Congress are controlled by different parties," says Edgar "Jed" Morrison Jr., a partner at Jackson Walker LLP in San Antonio.

But major changes are already brewing at the state level. According to Ted Nussbaum, director of health-care consulting at Watson Wyatt Worldwide, health-care legislation is pending in about 30 states. Those states, Nussbaum says, are motivated by the fact that they spend billions of dollars a year to cover the medical expenses of the uninsured.

In January, California governor Arnold Schwarzenegger proposed extending health-insurance coverage to the state's 6.5 million uninsured residents. To accomplish this, he would, among other steps, require individuals to carry health insurance, expand access to Medi-Cal (California's Medicaid program), and enhance tax breaks for employers and individuals purchasing insurance. Massachusetts, Minnesota, and Oregon have ambitious efforts under way, while many others have or are exploring a range of options (see map at the end of this article).

This could result in what Nussbaum calls "a compliance nightmare," as different states mandate different funding thresholds or tax penalties for failing to offer health insurance. Add in the confusion over whether certain state demands will be struck down as Employee Retirement Income Security Act violations and battles over whether stronger state laws can take precedence over federal laws (an issue affecting the Mental Health Parity Act of 2007) and health care could be a wildly moving target, gridlock or no.