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/.