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Sebelius’ Handling of Health Care in Kansas Budget Crisis May Serve as Test

By Drew Armstrong, CQ Staff

In a way, Kansas Gov. Kathleen Sebelius ’ handling of her state’s recent budget crisis could prove a telling test run if she is appointed to be President Obama’s secretary of Health and Human Services.

Facing a shortfall to the state’s $6.4 billion budget, Sebelius signed a bill on Tuesday cutting about $300 million from the budget, but in doing so largely spared health programs like the state’s Medicaid services.

Now, Sebelius is considered the leading candidate to head the Department of Health and Human Services (HHS), a position that would have her champion Obama’s efforts to overhaul America’s health care system in a time of financial austerity and tough budget choices.

In her several roles in state government, she has fought the insurance industry, protected state health programs, and boosted Medicaid pay to physicians.

“She’s somebody who understands the dynamics of health care very well,” said Tom Bell, president and CEO of the Kansas Hospital Association. “She understands how the system works and has a very good grasp of the moving parts.”

So far, White House officials have denied that any decision on a nominee has been made, though an HHS official did acknowledge that Sebelius is “one of” the top choices for the post.

Sebelius’ office has repeatedly said that she is focusing on her job as governor, but has not denied that she is under consideration.

Sebelius will be in Washington from Feb. 21-24, attending the National Governors Association conference, according to her spokeswoman. The conference ends Feb. 23, and Sebelius is scheduled to return to Kansas the next morning, leaving her with some extra time in Washington and generating speculation that Obama will announce Sebelius as his nominee then.

“I think there’s pretty broad opinion among the people in [Topeka] that some time by the end of the National Governors meeting there will be an announcement,” said Kansas State Rep. Melvin Neufeld, a Republican and a former speaker of the Kansas state House.

Sebelius brings a bipartisan approach to health care and appears to believe in a role for the private sector. At the same time, she has not been afraid to take on the insurance industry.

In a 2001 interview when she was still insurance commissioner, Sebelius walked the line between government regulation and a free market. “Competitive markets and solvent businesses and having people feel good about doing business in the state is not only good for industry, but for consumers, since it leads to better rates and services.”

And she also pushed to eliminate duplicate or cumbersome regulations. “What we’re trying to pull off is a balancing act between being effective protectors for the consumers of this country and not having lots of regulations and laws in place that impede the market,” she said in 2001.

While she lacks Washington experience, Sebelius, 60, has worked at almost every level of state government, serving as governor since 2003, state insurance commissioner and a state representative.

“I view the potential of her being secretary of Health and Human Services as a positive for Kansas and the nation,” said Kansas state Sen. Jim Barnett, a Republican who heads several health committees in the legislature and ran unsuccessfully against Sebelius for governor in 2006. Barnett said that Sebelius has been good at protecting services for the vulnerable, but also focusing on efficiency and cost control. “Our approach in Kansas has been to maintain those services and look in other areas for reductions and protect the most needy,” he said.

In 2005, she won an $85 million increase in Medicaid dollars for the state, boosting doctors’ pay for the first time in a decade. “The payments are still low, but it certainly helped shore up the safety net system,” said Barnett.

She has called for universal health care, a major theme for Democrats during the 2008 presidential campaign. “We must commit ourselves to universal coverage, improved quality of care, and increased affordability,” she said in her Jan. 10, 2007 state of the state address. It was not enacted.

There is praise in Kansas for her bipartisan approach, a theme Obama has emphasized.

“When you’re a Democrat in Kansas, you get nothing done if you’re not bipartisan?it’s the nature of the beast,” said Neufeld.

Any Obama health overhaul plan likely will demand sacrifices from the health insurance industry, which Sebelius knows well from her time as state insurance commissioner from 1994 to 2002.

She already has fought one major battle with the health insurance industry, at the state level, conducted during her gubernatorial election campaign. In 2001, Indiana-based health insurer Anthem announced it would buy Blue Cross Blue Shield of Kansas. Unlike private, for-profit health insurers, Blue Cross Blue Shield of Kansas is owned by its state policy holders.

Though Blue Cross Blue Shield of Kansas’ members approved the sale to Anthem, Sebelius used her power as insurance commissioner to block the move, taking the fight all the way to the state supreme court, where she eventually prevailed.

“The argument that was being made was that bigger is better. They said ‘we can bring some things to the state and make it better,’” Bell said. “She did it because, I think, she thought that was a bad thing for health consumers in Kansas. That was a politically courageous thing to do.”

But Neufeld and Barnett both said that in the end, the move hurt the insurance market and consumers. “What she did was kind of in line with ignoring the insurance industry’s need to have new capital injections,” Neufeld said. “I wasn’t particularly excited about Anthem, but blocking any outside money?.?.?.? we actually lost a number of insurers out of the state because of that.”

Obama’s original choice to head HHS, former Senate Majority Leader Tom Daschle (1987-2005), was forced to withdraw his name after revelations that he paid $140,000 in back taxes and interest in early January.