Why do the states seem to be pursuing different types of policy innovation in their health reform? Why so some seem to follow a “solidarity principle,” while others seem guided by a commitment to “actuarial fairness”? Our analysis highlights the reciprocal influence of stakeholder mobilization and public policy over time. We find that early policy choices about how to achieve cost containment led the states down different paths of reform. In the 1970s and 1980s, states that featured oligopolistic or near-monopolistic markets for private insurance (usually dominated by Blue Cross) and strong urban-academic hospitals tended to adopt regulatory strategies for cost containment that led to broader forms of pooling and financing the costs of health risks—which subsequently positioned them to pursue major, solidaristic reform on favorable terms. On the other hand, states with competitive markets for private insurance and weak, decentralized hospitals tended to adopt market-based strategies for cost containment that led to the hypersegmentation of risk and the uneven financing of costs—thereby encouraging the proliferation of incremental policies that reinforce the principle of actuarial fairness. We illustrate our analysis with a brief comparison of Massachusetts and California, and we conclude with some thoughts on what our findings imply for the federal role in catalyzing health reform.

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