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Health care reform, while federally mandated, will largely be managed by the states, and our current conversations don't fully reflect that fact. New Hampshire businesses, policy makers and individuals need to rethink the questions of state-based health care reform in light of the new health care reform law.

Understanding health care reform is a bit like playing three-dimensional chess (with the dimensions being time, geography and the required federal regulations that have yet to be made.) Each of the chess pieces represents a critical actor (individuals, health care providers, small business, big business, the state, and the federal government, among others.) Understanding the effect of this social legislation on NH requires understanding how all those elements will interact. Predicting the outcomes will be difficult and, I might argue, impossible at this point.

However, we can and should begin our collective attempt to understand the theoretical effects of this landmark legislation. In this policy note, we explore one potential implication of health care reform: the impact on small businesses due to provider cost-shifting.

Cost Shifting Dynamics

Cost-shifting is where health care providers-hospitals, physicians, and nursing homes-shift the unreimbursed expenses of federal programs (Medicare and Medicaid), uninsured individuals, and uncompensated care to private insurance premiums. The NH Center for Public Policy Studies' previous work on hospital cost-shifting in NH showed the amount shifted to private premiums has grown 15 percent annually. In fact, in 2007, the Center estimated that hospital-based cost shifting accounted for almost 16 percent of total private premium dollars. Without that, health care premiums for NH businesses might be 16 percent lower. But if cost-shifting increases, so would premiums.

Anything within the health care reform legislation that affects either the type of coverage (private, Medicare, Medicaid and the uninsured), or the amount of reimbursement will play a role in the cost-shifting dynamic.

The first and potentially most beneficial change is expanded coverage and the reduced uncompensated care hospitals must then provide. In 2007, hospitals provided $160 million in charity care. Assume, for the moment, that the health care reform package, which expands Medicaid and increases subsidies for private coverage, reduces the uninsured rate by 50 percent and total charity care by a similar percentage. In this hypothetical case, hospitals would cost-shift $80 million less. Based on the Center's 2007 analysis, this change-if it translated into the premiums paid by NH businesses and individuals-could result in a 3 percent one-time premium reduction.

An increase in the number of Medicaid enrollees or a decrease in Medicare reimbursement would increase pressure on health-care providers to cost shift. The health care reform legislation includes significant controls on Medicare reimbursements. One such change involves lowering the amount Medicare updates its acute-care hospital rates each year.

This amount represents an effective rate reduction, increasing possible cost-shifting onto private insurance premiums. To the extent that Medicaid expansions result in increases in the number of formerly privately insured individuals (rather than uninsured individuals), this will also increase the cost-shift. Both of these changes would potentially increase premiums paid by NH businesses and individuals.

NH's Role in Health Care Reform

The point here is not how much premiums will increase or decrease as a result of reform efforts, which are a function of complex decision-making yet to play out. Rather, the relevant question is how will changes be translated into the premiums paid by businesses and individuals in NH and what role the state should play, if any, in managing those effects. Does the state, for example, have an interest in ensuring that one-time savings from health care reform be transmitted to private insurance premiums and if so, how?

The question of the state's role will only become more important as health care reform evolves. Given the amount of uncertainty in how it will be implemented, the state needs to make sure it has the vision, means and resources to implement and monitor health care reforms and ensure their affects are in the best interests of NH businesses and individuals.

Rather than making debate about existing state-based reform efforts irrelevant-including a Medicaid managed-care proposal, a rate review commission proposal and a proposal to review insurance premiums- health care reform has made NH's role even more important. The realities of the landmark health care reform efforts will require extra vigilance and assessment of health care on behalf of NH's businesses and residents.

Steve Norton is executive director of the NH Center for Public Policy Studies, an independent, nonprofit, non-partisan organization that pursues data-driven public policy research. Its research includes the state budget, school funding and health care finance. Norton may be reached at snorton@nhpolicy.org.