The Health of the States

Published December 18, 2006

The Weekly Standard, Volume 012, Issue 14

In early 2006, Massachusetts governor Mitt Romney gained national attention by negotiating a plan with the Democratic state legislature to pursue universal health insurance coverage in his state.

Romney’s scheme is easily the most ambitious health care reform effort since the failed Clinton plan of 1993-94. It requires all Massachusetts residents to sign up for coverage by July 2007 or face a penalty, and to make it easier to get coverage it creates an insurance marketplace where individuals or small business employees can get private insurance at large group rates. Workers getting their coverage through this “Connector” will also get the same substantial federal tax advantages that employees of large firms get today. The plan includes new subsidies to help cover the insurance premiums of residents with incomes under 300 percent of the federal poverty rate. Medicaid funds currently used to reimburse health care providers for uncompensated care for the uninsured will be redirected to the new premium assistance program, beginning the process of turning Medicaid dollars into vouchers for private insurance.

Reaction to the Romney plan among conservatives has been mixed. Some have welcomed the idea as a first step toward a free-market approach to expanded coverage, and the Connector in particular as a move toward private health insurance portability. Large numbers of Americans go for relatively short periods without coverage because they move through different low wage jobs, often with small employers, and often with spells of unemployment as well. The Connector aims to solve this problem by allowing many more workers to keep the same insurance plan even as they change or lose jobs.

Other conservatives, however, worry that Massachusetts has left in place a heavy regulatory structure for insurance, burdened with numerous state-mandated benefits that make coverage needlessly expensive. There is no good reason, for instance, to require every single insurance plan in the state to cover dental care and in vitro fertilization. Some also think the Connector will eventually need to control state costs by setting prices, at the expense of consumer choice. And the plan’s so-called “employer mandate” — a demand of the Democratic legislature — requires employers to contribute to the cost of their workers’ coverage or face a penalty, which can discourage hiring and come at the expense of wages, not profits.

But all this commentary on the details has tended to miss the larger meaning of the Romney plan for the health care debate. Rather than a model for other states to copy in its every detail, the Romney approach is most notable as an example of health care federalism — that is, of a state-level response to the larger problem of the uninsured.

Since at least the early ’90s, the health care debate has involved competing visions of federal policy. Republicans have fought for Health Savings Accounts, to slow rising costs by introducing market mechanisms. Democrats have pushed for a federally funded State Children’s Health Insurance Program, which has added more public subsidies for children in low-income families.

But given how much of the regulation and funding of health care occurs at the state level, there has been a dearth of attention to health care solutions that take federalism seriously. Conservatives, for the most part, have disparaged the state-by-state regulation of the health insurance market, arguing (correctly) that allowing insurance to be sold across state lines could create a larger and more efficient market. Last year, the Senate fell just five votes shy of passing legislation sponsored by Wyoming Republican Mike Enzi that would in essence have federalized the regulation of health insurance. Done right, an escape valve from oppressive state regulation would be helpful. But the political obstacles to passage of an approach that truly gets it right (especially in the wake of this year’s election) should point us to the states.

The need to stabilize and expand private coverage for low wage workers and those working for small businesses can be dealt with by states and would benefit from state-level experimentation. State efforts are also the most plausible means, for now, of advancing the cause of health insurance portability — a key concern for many families. The federal government can best play its part by enabling such experimentation.

It remains to be seen if the Massachusetts experiment will succeed; but even if it works, not every state will want to try it. The plan responds to a widely shared problem but in a way that builds on the state’s unique circumstances: a fairly positive budget, relatively few uninsured, an existing uncompensated care fund, and similar rating and benefit rules for the small group and individual insurance markets, among other factors. Other states, in other circumstances, may want to take different kinds of steps.

Indeed, other states are experimenting, too. In Florida, for instance, outgoing governor Jeb Bush has launched a Medicaid reform under which beneficiaries will get vouchers, with the amounts adjusted based on health risk factors, which they can use to buy private coverage from state-approved plans. The proposal is a radical departure from the traditional fee-for-service approach to Medicaid, injecting much-needed competition into the program, and giving the state more direct control over its Medicaid budget.

Because the Medicaid program is mostly run by the states but largely funded by the federal government, states seeking to innovate almost always need federal approval for their plans. Massachusetts and Florida both sought and received extensive federal Medicaid waivers. The most constructive role the federal government can play in helping provide greater and more stable and portable access to private insurance in the coming years would be to extend such waivers more broadly, or, through legislation, to remove the need for waivers altogether.

Some states may well implement bad health care reforms, of course. But part of the genius of the federal structure — as conservatives used to know — is that at least a bad state idea will be limited in application, and will provide a cautionary model to others. That is not the case with ill-advised federal laws.

Since no broader reform of the system seems plausible in any case in an era of divided government, such standing waivers or legislative reforms should be the focus of the federal approach, at least for now. Massachusetts has stepped up to address its health care problems its own way. In the coming years, the prospects for broader access to private health insurance, as opposed to a government takeover of the health care sector, rest on other states’ taking the initiative as well. The federal government should get out of their way.

–James C. Capretta is a First Focus fellow and Yuval Levin a fellow at the Ethics and Public Policy Center. Capretta also does policy research for the health insurance trade association.

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