Manhattan Institute for Policy Research.
search  
 
Subscribe   Subscribe   MI on Facebook Find us on Twitter Find us on Instagram      
 
 
   
 
     
 

Politico

 

Use States As Health Care Reform Labs

February 26, 2010

By Douglas Holtz-Eakin, Lawrence Mone

Yesterday’s White House summit produced the expected sound bites and not much else.

Democrats continue to insist on a bureaucratic, top-down “reform” agenda imposed by Washington that expands the federal government’s control of health care. But Democrats have it backward.

A better, bottom-up approach is to blend the states’ role as laboratories of democracy with market competition to incrementally expand coverage, control costs and drive innovative reforms.

For this to succeed, however, the federal government must strip away the laws and regulations that inhibit competition and innovation in health care.

Since we often learn as much from policy failures as successes, it’s worth recapping how many of the policies Democrats want have already failed at in the states:

Expanding public programs. In 1994, Tennessee started a massive Medicaid expansion (eventually covering 500,000 additional residents). A decade later, the state abandoned the experiment after costs more than tripled: from $2.5 billion in 1995 to $8 billion in 2004, consuming one-third of the state budget. When the experiment unraveled in 2005, 170,000 enrollees were dropped.

Imposing heavy-handed insurance regulations. Starting in April 1993, New York State imposed two new regulations, intended to make insurance more affordable for older and sicker residents. Instead, community rating (which forces insurers to charge one price regardless of age or health status) and guaranteed issue (which forces them to offer policies to all applicants) nearly obliterated the market for individual insurance. The regulations drove up prices for young and healthy applicants, pushing them out. Today New York’s individual insurance market is 4% of its size in 1994.

Creating a new “public option.” In 2003, Maine launched an ambitious plan to cover all its uninsured, in part by creating a government-run, “public option” insurance plan with taxpayer-subsidized premiums. An expensive train wreck, less than 10,000 residents have enrolled since it started in 2005 – at a cost of $155 million. Today, enrollment is capped, due to budget constraints.

Democrats allege that Republicans have brought no ideas to the health-care reform debate. This is not true. For example, in 2007 Indiana Gov. Mitch Daniels created the Healthy Indiana Plan, or HIP, with bipartisan support from the state legislature. The program covers uninsured residents who don’t qualify for the state’s Medicaid program.

Coverage is modeled after Health Savings Accounts that residents use to pay for out-of-pocket costs, up to a $1,100 deductible. After that, 100% insurance coverage kicks in. The state contributes on a sliding scale based on income; covering 100% of the deductible for the poorest residents. It also covers many routine preventive services —like mammograms — at no charge.

Today, more than 50,000 formerly uninsured Indiana residents are enrolled, and patient satisfaction is high. Unlike many Medicaid program expansions, HIP is fiscally sustainable, funded, in part, by a new cigarette tax. Florida and Louisiana are exploring similar reforms.

But states can only do so much. Conservatives know that the federal government has a critical role to play in leveling the playing field for competition by enabling families and individuals to purchase their own portable insurance policies, energizing a national health insurance market and taking steps to ensure that those too poor or too sick to afford traditional policies get the coverage they need.

Tax reform. Congress should reform the open-ended subsidy created by the tax exclusion for employer-provided health insurance with a uniform tax credit, or deduction, for anyone who buys at least catastrophic coverage. This would allow individuals to purchase their own portable health insurance. States could then create local or regional insurance exchanges, where families could shop for affordable coverage.

Interstate insurance competition. Allowing companies to offer insurance across state lines would energize competition in sclerotic state insurance markets, where two or three companies tend to dominate. Cheaper plans could be sold in high-cost states like New York, where insurance mandates for services like chiropractors drive up costs. States would finally have a powerful incentive to use insurance regulation to benefit consumers, not special interests.

Medicare and Medicaid reform. Entitlement spending through Medicare and Medicaid are strangling state and federal budgets, threatening massive tax increases or spending cuts to other priorities. Worse yet, they create incentives that fragment our health care system and discourage hospitals and physicians from offering innovations.

Medicare payments must be reformed to reward quality care at lower cost. Medicaid should give states latitude in designing coverage mechanisms. Some states might expand Medicaid; others could offer vouchers. We can then judge what works best. But state policymakers must answer to their own voters for the cost and effectiveness of Medicaid reforms.

High-Risk Pools. Democrats’ reforms would drive up costs for private insurance to ensure coverage for the small number of applicants with expensive pre-existing conditions. It’s more effective to subsidize these people directly. We can do this by increasing federal funding for state high-risk pools. Some states – like Minnesota – have effective risk pools now, but others lack a stable financing mechanism. Federal funding would encourage all 50 states to create effective programs.

While opposing the current legislation, we believe health care reform is imperative – to control entitlement spending that may otherwise cripple our economy with high taxes; increase access to affordable and portable private health insurance, and drive cost-effective medical innovations.

The reforms here won’t solve our woes overnight, but they will unleash competition and innovation to lower costs without relying on bureaucrats to ration care. They should also defuse criticisms of a “death spiral” from deregulation of insurance markets by giving healthy applicants an incentive to stay insured. Finally, they’d expand coverage without committing us to trillions of dollars in new taxes and spending, as Democrats want now.

The genius of the American form of government has always been that states can experiment with different policies and learn from each other. Our economy is the most powerful in the world because the federal government has promoted a national market with clear rules that encourage entrepreneurship across state lines. By combining these principles – federalism and market competition – our nation can find the right prescription for health care reform.

Original Source: http://www.politico.com/news/stories/0210/33596.html

 

 
PRINTER FRIENDLY
 
LATEST FROM OUR SCHOLARS

The Real Challenge When Police Use Lethal Force
Stephen Eide, 12-15-14

Why Cops Need To Sweat The Small Stuff
Nicole Gelinas, 12-08-14

A Bill To Loosen Police Discipline
E. J. McMahon, 12-08-14

More Subsidies For Big Wind
Robert Bryce, 12-08-14

Bill Slanders His Cops
Heather Mac Donald, 12-07-14

What The Numbers Say On Police Use Of Force
Steven Malanga, 12-04-14

Detroit's Bankruptcy and Its Painful Reforms
Stephen Eide, 12-04-14

The EPA Pours On The Pain With New Ozone Regulations
Diana Furchtgott-Roth, 12-03-14

 
 
 

The Manhattan Institute, a 501(c)(3), is a think tank whose mission is to develop and disseminate new ideas
that foster greater economic choice and individual responsibility.

Copyright © 2014 Manhattan Institute for Policy Research, Inc. All rights reserved.

52 Vanderbilt Avenue, New York, N.Y. 10017
phone (212) 599-7000 / fax (212) 599-3494