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The holes in universal health care plan

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The holes in universal health care plan

March 25, 2008
Health PolicyOther

So goes Boston, so goes Trenton? Last week, New Jersey legislators proposed a Massachusetts-style universal health care plan that would cover everyone by 2011. State legislators, however, should be careful. There is no Boston miracle. Instead, New Jersey should look to market reforms—and Massachusetts is not the place to find them.

Two years ago, the Bay State seemed to offer visionary health care reform. A sweeping plan by a conservative governor drew on ideas from both the right-leaning Heritage Foundation and left-leaning academics.

His proposal to end the problem of the uninsured won approval from a Democratic legislature and received the blessings of liberal Sen. Ted Kennedy. It's no surprise that people in Trenton have been inspired.

And make no mistake, the New Jersey proposal feels very Bay State: subsidies for low-income applicants, an expansion of children's health insurance, a requirement that eventually all citizens get health insurance. It's not about spending more money, its proponents insist, it's about spending better.

Those promises must contend with the reality of MassCare. For one thing, the program has exploded in costs, now 85 percent over budget. Health insurance premiums rose 12 percent last year; individuals complain of being left with a choice of just seven government-approved health policies; clinics and hospitals feel squeezed by reimbursement rates; the total number of uninsured has moved down slightly.

The cheapest plan available for a middle-class couple in their 50s would push $10,000 a year. As Shikha Dalmia observed in the Wall Street Journal: "They might well find it cheaper to pay the penalty—up to half the price of a standard policy—than purchase insurance. That is, pay to remain uninsured. This is legalized extortion: TonySopranoCare."

Why are plans so pricey? Over the years, Bay State politicians have added numerous procedures and services—some 40 in all, including hair prosthetics and chiropractic care—that must be covered in every health plan.

Other states have followed the regulation trend. In 1965, only seven benefits were mandated by the states; today, according to the Council for Affordable Health Insurance, there are almost 2,000. The list varies from state to state but includes birthing centers with midwives, dental anesthesia and second surgical opinions. "Many people can't afford the gold-plated health plans that are the only options available in their states," observed former Democratic presidential candidate George McGovern. "It's as if states dictated that you had to buy a Mercedes or no car at all."

Unfortunately, Massachusetts and New Jersey, have gone even further, introducing guaranteed issue (no one can be refused a policy) and community rating (everyone pays a similar price). Together, these policies are disastrous, allowing people to wait until they've fallen sick before buying a policy at no added cost—pushing up prices for everyone else.

In 1994, a New Jersey family policy with a $500 deductible and a 20 percent copayment cost between $504 and $1,076 a month. By January 2002, after the introduction of various "reforms," that same policy cost between $3,085 and $17,550 per month, making it more affordable for a family to lease a Ferrari, let alone a Mercedes. In the past few years, things have gotten modestly better. But only modestly.

What needs to be done with New Jersey's health care system? Listening to state legislators, it seems the answer is more government—to subsidize, among others, children of the middle class. But, in fact, the opposite is true. New Jersey needs less government. In particular, the health insurance market should be deregulated. Call it the McGovern proposal.

Additionally, legislators should allow small business owners to join together (through associations) to purchase health insurance for their employees - not only within the Garden State but throughout the region.

As for government programs, if Jersey is looking for a model, there are better states to visit. Reform Medicaid by introducing choice and competition as they have done in Florida and South Carolina, and allow the disabled to manage their own health dollars, as has been achieved in Colorado. These steps would give individuals more options and help the bottom line of both businesses and the state treasury.