State health insurance: a catalog of failed experiments

Peter Suderman (H/t: Insty) gives a very nice survey of state-level experiments with socialized medicine in the USA.

Supreme Court Justice Louis Brandeis famously envisioned the states serving as laboratories, trying “novel social and economic experiments without risk to the rest of the country.” On health care, that’s just what they’ve done.

Like participants in a national science fair, state governments have tested variants on most of the major health care reforms Congress is considering. The results include dramatically higher premiums in the individual market, spiraling public costs, and reduced access to care. In other words, the reforms have failed.

New York is Exhibit A. In 1993 the state prohibited insurers from declining to cover individuals with pre-existing health conditions, a policy called “guaranteed issue.” New York also required insurers to charge everyone enrolled in their plans the same premium, regardless of health status, age, or sex, an idea known as “community rating.” The goal was to reduce the number of uninsured by making medical coverage more accessible, particularly to those who don’t have employer-provided insurance.

What happened? Just 0.2% of the population is now insured. The “community rating” drove insurance premiums up, leading to more young and healthy people dropping coverage, leading to a further increase in premiums, rinse and repeat. Eventually the system stabilized with a small pool of mostly high-risk patients.

In 1996 similar reforms in Washington state preceded massive premium spikes in the individual market. Some premiums increased as much as 78 percent in the first three years of the reforms—10 times the rate of medical inflation—according to a study presented at the annual meeting of the Association for Health Services Research in 1999. Other results included a 25 percent drop in enrollment in the individual market and a reduction in services offered. Within four years, for example, none of the state’s major carriers offered individual insurance plans that included maternity coverage.

The seemingly obvious solution is an “individual mandate”, i.e., requiring everybody to purchase insurance. This too has been tried. So how did that work out?

The experience of Massachusetts, which imposed an individual mandate in 2007, suggests otherwise. Health insurance premiums in the Bay State have risen significantly faster than the national average, according to the Commonwealth Fund, a nonprofit health foundation. At an average of $13,788, the state’s family plans are now the nation’s most expensive. The Boston Globe reports that insurance companies are planning additional double-digit hikes, “prompting many employers to reduce benefits and shift additional costs to workers.”

Meanwhile, Massachusetts health care costs have continued to grow rapidly. According to a 2009 RAND Corporation study, health care spending is “projected to increase about 8 percent faster than the state’s GDP over the next decade.” The Globe recently reported that state health insurance commissioners are worried that medical spending could push both employers and patients into bankruptcy and may even threaten the continued existence of the state’s universal coverage system.

On top of that, survey data from the Massachusetts Medical Society indicate that the state’s primary care providers are being squeezed. Family doctors say they are taking fewer new patients and seeing increases in wait time.

And that isn’t all:

Reform measures in other states have proven to be expensive duds. Maine’s 2003 reform plan, Dirigo Health, included a government insurance option resembling the public option supported by many House Democrats. This public plan, DirigoChoice, was supposed to expand care to all 128,000 of Maine’s uninsured by 2009. But according to the U.S. Census Bureau, the 2007 uninsured rate was roughly 10 percent—essentially unchanged. DirigoChoice’s individual insurance premiums increased by 74 percent during its first four years—to $499 a month from $287 a month—according to an analysis of Dirigo data by the Maine Heritage Policy Center. The cost of DirigoHealth to taxpayers so far has been $155 million.

Tennessee’s plan for universal coverage, dubbed TennCare, fared even worse after it was launched in the 1990s. The goal of the state-run public insurance plan was to expand coverage to the uninsured by reducing waste. But the costs of expanding coverage quickly ballooned. In 2005, with the government bankruptcy, the state was forced to cut 170,000 individuals from its insurance rolls.

As W.C. Fields put it so aptly: “If at first you don’t succeed, then try, try again. Then give up — there’s no use being a damn fool about it.”

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