An Arm and a Leg

History suggests expanding health coverage will be costly

By Peyton R. Miller

This year’s health care debate has seen countless allusions to universal health care abroad, with the implication that coverage in the United States is woefully inferior to that available in other modernized countries. Curiously, there has been far less discussion of domestic reform efforts at the state level. Privileged as I am to have spent most of my life in Tennessee and Massa­chusetts, two states that have experimented with the kind of foundational changes the Democrats have proposed, I can speak with some authority about the costs that accom­pany well-intentioned government-run plans and regulations to expand health care to the poor and uninsurable. The President is right when he argues that the United States can extend coverage to those who lack it; he is wrong when he claims we can do this for free.

Arguably the most ambitious aspect of Obama’s plan is the creation of a health insurance provider administered by the federal government, which would serve as an additional option and bring down costs by injecting competition into the market. A similar plan was enacted in my native Ten­nessee during my preschool years: in 1994, amid the Clinton administration’s push for national health care reform, Democratic Governor Ned McWherter signed a bill to expand Medicaid coverage to Tennesseans who could not afford adequate insurance or had been denied private coverage.

McWherter’s program, known as Tenn­Care, quickly fulfilled its objective, reduc­ing the state’s uninsured population to just six percent. In doing so, however, it ate up over a third of the state’s budget, as costs swelled from $2.6 billion at its inception to roughly $8 billion in 2004. The program became so expensive that Democratic Governor Phil Bredesen ’67 eliminated 170,000 TennCare recipients in 2005 and another 150,000 during the past summer.

President Obama makes much of the fact that no one would be forced to enroll in his government-run plan, that it would simply be an option for “those who don’t have insurance.” TennCare’s costs sky­rocketed in large part for the opposite reason: the program ultimately covered 24 percent of the state’s population, far greater than its intended scope.

Tenn­Care pro­vides com­prehensive coverage at a low price. Many who already had cheap plans were able to acquire more comprehensive coverage from the government at an even lower price. One University of California at San Diego study estimates that 45 percent of Tenn­Care recipients enrolled after leaving employer-provided insurance. Others who were uninsured but could have afforded private insurance surely signed up as well.

One of the ways the President intends to pay for his plan is by eliminating “waste and abuse” in the current system. In light of the Tennessee experience, he will be lucky to offset whatever waste arises as a result of the public option. A 1999 audit reported that the state had spent $6 million to insure 14,000 dead people, that 16,500 enrollees lived outside the state, and that a survey of 98,000 recipients found 20 percent of them ineligible to be in the program. TennCare estimates that it spends about $1.2 billion per year on enrollees of questionable eligibility.

All this is in addition to increased premiums of Tennesseans who remain on private insurance. TennCare often provides below-market reimbursement rates to health care providers, which pass along the cost of their TennCare patients to private insurers and their policyholders.

One could argue that ObamaCare will be administered more effectively than TennCare, or that the pitfalls Tennessee encountered are not relevant at the federal level. While I leave the former contention to the reader’s consider­ation, it is not hard to imagine that the public plan could be overwhelmed as businesses offloaded their employees to the government dole and private insurers were gradually edged out of the market, not to mention the possibility of fraud by illegal immigrants and others of dubious eligibility. Since Medicare’s reimbursement rates are often below market value, there is reason for concern that the public option may fall into this trap as well.

Another reform-minded state is Mas­sachusetts, which three years ago approved sweeping health care legislation. Like Ten­nessee, Massachusetts reduced its uninsured population substantially, from 8.3 percent in 2006 to 2.6 percent in June 2008. But it cost a pretty penny: the Massachusetts Taxpayer Foundation estimates the total cost to taxpay­ers to be $2.1 billion in 2009, and this was after cuts to care for illegal immigrants and funding for safety net hospitals. The Com­monwealth Fund, a nonprofit health care foundation, reports that the average fam­ily premium in Massachusetts increased 40 percent from 2003 to 2008 compared to the national average of 33 percent and that the av­erage premium in the state will nearly double, from $13,788 in 2008 to $26,730 in 2020, absent significant cost reforms. Though it should be acknowledged that Bay State costs were high to begin with in part because of the above-average quality of care and outstanding research facilities, the upward trend in state outlays and premi­ums since reform was enacted is in no way indica­tive of the cost reduction prom­ised by propo­nents of Obama-style regulations.

One simi­larity between ObamaCare and the Massachusetts reform is an indi­vidual mandate that makes health insurance com­pulsory for virtu­ally everyone. As Michael Cannon of the Cato In­stitute has noted, such a provision affords the gov­ernment the abil­ity to determine what constitutes adequate cover­age. Since the reform became law, providers have successfully lobbied to require sixteen specific types of coverage under the mandate, and the legislature is considering 70 additional ones. This requires those with low-cost plans to upgrade to more comprehen­sive—and more expensive—insurance.

Like Massachusetts, Obama’s plan would prevent insurers from varying pre­miums based on health status, increasing costs for the healthy. Though this expands access to those with preexisting condi­tions to a certain extent, it also encourages insurance companies to avoid customers whose coverage cost exceeds the premium.

Irrespective of the medical utopias of Europe, American universal health care initiatives hardly have an impressive track record when it comes to lowering costs. This is to say nothing of the attendant deterioration of the care itself. Such expensive measures are offered as if there were no alternative, when in fact there are measures that would likely expand access at little to no cost. The government could increase competition by lifting restrictions on interstate health insurance purchases, thereby requiring each insurer to compete with every other insurer in the country, rather than just the ones in the same state. It could limit malpractice awards, which impose a drain on health care providers that is passed along to consum­ers. It could eliminate the tax deduction for employer-based plans to make insurance more affordable and portable. It could relax licensure requirements so that low-level medical practitioners could provide services for which a doctor’s training is not necessary.

Or, the government could create and administer its own insurance plan and im­pose draconian regulations on the insurance market in spite of what has happened in Tennessee and Massachusetts. The Presi­dent is right that the wealthiest nation in the world can provide health insurance for all its citizens. The question is, will we still be the wealthiest nation after achieving this?