Health Care Overhaul

…Congress Can Learn From the Costly Mistakes of the States

By Eric Fruits, Ph.D.

While many members of Congress have been heading to their home districts to face town halls filled with concerned citizens, some Americans’ thoughts have drifted overseas. As we find ways to overhaul the U.S. health care system, pundits have pointed to other countries’ experiences with government-run health care. Some say that Canada has the solution. Others look to the United Kingdom, France, Switzerland and even Cuba as a model for a U.S. overhaul. Little attention, however, has been paid to the lessons from several U.S. states. During the Congressional recess, I have crossed the country talking about the Oregon Health Plan while learning about the costly mistakes of other states’ experiences with government-run health care.

Oregon is one of a handful of states that have experimented with expanding government run health care to cover a larger portion of its population. Massachusetts, Maine, Tennessee and Hawaii each experimented with attempts to expand coverage and lower costs. All of these states have failed: They have not significantly increased coverage while their costs have ballooned and busted state budgets. Their failures provide some useful lessons for the federal overhaul Congress is considering.

Lesson 1: The illusion of increasing coverage. The Oregon Health Plan was born out of the observation that in the late 1980s, 18 percent of the state’s population was uninsured. Despite 20 years of efforts to increase coverage, 17.4 percent of the state’s population is uninsured. Hawaii’s uninsured population has almost doubled since the state imposed an employer mandate. Maine and Tennessee have discovered that the combination of generous benefits and subsidies cause people to drop their private sector insurance in favor of government insurance. Such crowding out does nothing to increase coverage to those who did not have insurance to begin with.

Lesson 2: Free health care is expensive. Government plans attract the most expensive and highest-risk groups of insured. While most people do not fully utilize their insurance (they pay more in premiums than they consume in services) a small group account for a disproportionate share of the costs. Tennessee found that about 80 percent of those covered by TennCare came from the highest cost group. The result was skyrocketing costs that caused the state eventually to close the system to new enrollees. Budget busting has caused Oregon, Maine and Hawaii also to close enrollment in their experimental programs at one time or another.

States can limit their losses because they must balance their budgets. Moreover, states cannot print money. The federal government does not have a balanced budget requirement, and it has the power to print money. That means that the costs of federal efforts to expand health care ultimately will result in a combination of higher deficits, more taxes and inflation. When Congress returns from its break, it either will learn from the costly mistakes of the states, or it will repeat them on a national scale. None of us can afford that latter result.


Dr. Eric Fruits is a consulting economist and president of Economics International Corp., and an adjunct scholar with Cascade Policy Institute in Portland. For more information, see http://www.econinternational.com/.

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  • Rupert in Springfield

    National health care in this country promises little certainty other than deficits in the future that would make the Obama deficits look responsible. I think most people know this and media coverage aside, that’s what I saw and experienced as peoples main concern at the town halls over the summer. Peter DeFazio sure seemed to think that was the mood.

    Sure, we will endlessly hear how Europe does national health care cheaper and with better results. They also do education cheaper and with better results but for some reason the national health care people tend to run from that comparison.

    The state comparison is a good one. Like so many other entitlements we have seen them go from their intended purpose of coverage for all, to a perk for the few. In that sense its a lot like public housing. A chosen few fill up the spots and once there see little point in working harder to pay their own way when it is so easy to let others do so.

    I think the bottom line for now is, it will be very hard to convince the American public there will be any savings when concern about saving money seems to be the last thing on the administrations mind. You simply cant be running up trillion dollar deficits, buying car companies and bailing out your Wall Street buddies and make people believe you really have a head for efficient money use.

  • Bob Clark

    National deregulation of healthcare would help make health insurance more affordable by taking away the ability of states to restrict the kinds of coverage folks can acquire and from whom. I would also increase co-pays from the nominal chump change amount of $5 per doctor visit or pharmacy visit to something more like $25. Folks need to put more skin in the game or else they’ll go to the doctor or pick up drugs even if their ailments are minor and temporary. Finally, for those really needing medical assistance but not having cash, the government should means test the provision of service with a very scrutinous eye – I don’t regard the $80,000 per year gross income benchmark for a family of four as being scrutinous. Check both income and assets, and put leins on their estates.

    P.S does anybody really believe Obama-care will not be provided to illegal immigrants? Carter and Reagan administrations made promises on illegal immigration but failed to deliver on these promises. By and large, Obama-care is one ugly trojan horse.

    • Rupert in Springfield

      >National deregulation of healthcare would help make health insurance more affordable by taking away the ability of states to restrict the kinds of coverage folks can acquire and from whom.

      Bingo. Having the state place mandates on insurance coverage is inane and usually done to satisfy special interest groups. I see no more reason for the state to mandate I have acupuncture coverage ( they do ) than to mandate my car have a sun roof. If I see people dropping dead in the streets because their acupuncture bills had forced them to sell their house and all worldly possessions I might change my mind.

      > I don’t regard the $80,000 per year gross income benchmark for a family of four as being scrutinous. Check both income and assets, and put leins on their estates.

      No one does. I am sure you know that the expansion of SCHIP did exactly that. I assume that’s what this is in reference to.

      >P.S does anybody really believe Obama-care will not be provided to illegal immigrants?

      No. Not a living soul out there believes that illegals wont be granted health care under the bill, or that a wacky Supremes decision wont force it. It simply is not a credible argument that the Supremes would force illegals to be covered in ER’s ( they did ) or force illegals to be granted education ( they did ) but somehow would stop when it came to national health care. Sure, congress could restrict the Supremes authority to interpret the bill, they have that authority. However if anyone thinks Nancy is going to do that and offend one of her larger voting constituencies you can forget it.

      Either way there are only two classes of people in this world – People who are enraged illegals will be covered, and people who deny it because they know acknowledging it would kill any bill.

      • v person

        “No. Not a living soul out there believes that illegals wont be *granted health care* under the bill…”

        Where to start? Illegal aliens are already “granted health care” when they show up at an emergency room, because they don’t ask for green cards or proof of citizenship. They can also buy health insurance now if they want it and can afford it, and they will still be able to after a reform bill passes. No change except they may have more options, like the rest of us.

        As for what the supremes may or may not rule, how does that have anything to do with the proposed bill? And what “national health care” would they say illegal residents are entitled to? There is no ‘national health care” in the bill, since it is not a single payer system. There is a big reform to the insurance industry, a requirement that citizens buy insurance, a requirement that businesses offer insurance or chip in, and subsidies for some families who will have to buy insurance. Private insurance companies will still provide most insruance in a private, though regulated market. There may or may not be a public insurrance option for a few. And companies will have to take all comers and can’t kick anyone out of their pool after the fact, as they do now with great regularity.

        The “illegals” issue is a classic red herring. It has zip to do with Obama’s proposal, which is about Americans, not illegal aliens.

        “Either way there are only two classes of people in this world – People who are enraged illegals will be covered, and people who deny it because they know acknowledging it would kill any bill. ”

        There are 2 classes of people in this world. Those who divide people into classes and those who don’t.

        • v person

          And by the way Rupert, did you know that the Republican 2003 Medicare bill included a provision that paid your tax dollars to hospitals who cared for illegal aliens in emergency rooms? Right there in black and white, Sec. 1011 authorized money for government reimbursements to hospitals who provide treatment for uninsured illegal immigrants.

          What a bunch of hypocrites!

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