Editor’s Note: Economists Stuart Butler of the Heritage Foundation and Henry Aaron of the Brookings Institution have different worldviews when it comes to how best to allocate scarce health care resources, but on one subject they have come to strongly agree: a way to end the political impasse in Washington [free access article] and make progress on covering uninsured Americans is for states to experiment with widely different solutions to the problem. At the recent National Congress on the Un and Under Insured, held in Washington, D.C., Butler and Aaron made a strong pitch for other states to follow in the path of Massachusetts and Vermont in expanding insurance to individuals without it. In a follow-up to their joint presentation, Arkansas’ surgeon general, Dr. Joseph Thompson, pointed out that not all states are created equal when it comes to having the necessary resources to subsidize the coverage of all of their citizens without federal support.

As public and political debate once again focuses on strategies to stabilize and expand health care coverage in the U.S., hope for state “experimentation” to succeed and subsequently inform federal initiatives is strong. Optimists applaud Massachusetts for attempting to close the gap between publicly subsidized programs (Medicaid and SCHIP) and private sector coverage—a gap nationwide of 47 million Americans. However, despite state creativity, innovation, and pressure to resolve the problems of the uninsured, a critical factor is being ignored in the strategy of state experimentation: the dramatic differences in economic resources available between states.

For over four decades, the federal government through Medicaid and more recently through SCHIP has recognized this restriction and employed differential federal matching rates for state funds—ranging in FY2008 from 50 percent for the most affluent states (Massachusetts, New Jersey, and others) to 76 percent for the most impoverished, for SCHIP with enhanced matching rates from 65 percent to 83 percent, respectively. Arkansas matching rates are 73 percent and 82 percent, respectively.

Examining current median household incomes—an important marker for state gross domestic product, taxable income, and economic vitality—reveals marked variation between states ranging from Mississippi’s $35,261 to New Jersey’s $64,169 (Arkansas is $37,420; Massachusetts is $56,236). Uninsurance rates strongly correlate with these differences in household income and are a direct reflection of families’, employers’, and states’ abilities to afford increasingly expensive coverage.

This variation in economic substrate for state “experimentation” represents what may be the greatest deficiency in the federalism strategy of state-led innovation to achieve universal coverage. It is predictable that wealthier states that also have lower rates of uninsurance are more likely to achieve substantive improvements. If successful, will the strategies developed by wealthy state (e.g., an individual mandate) work in poorer states?

Income inequality between state populations must be considered prior to vesting federal policy development upon state experiences. Failure to do so, changes the question under consideration from “What state strategies could serve as a model for the nation?” to “Which states can do it on their own?”

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