Fix Health Care Policy

The End of Federalism: How Obamacare Will Impact States

More Medicaid

Mandated Expansions: All the health bills before Congress depend on a massive Medicaid expansion to expand coverage. If Congress raises eligibility to 133% of the federal poverty level, 33 states would see their Medicaid populations increase by 30%, and 10 states would see their Medicaid populations jump by 50%. Of course, this scenario is far worse if Congress moves eligibility to 150% FPL, as proposed by the Senate HELP Committee.

Less Flexibility: The Obama Administration and Congress have already taken numerous steps to roll back many of the flexibilities extended to the state Medicaid and SCHIP programs. The health care proposals would further restrict states ability to manage and stabilize their own programs.

Unknown Costs: State Medicaid spending is already outpacing projections. Recent surveys found that states saw an 8% increase in spending during Fiscal Year 2009. Governors and state officials should be skeptical of any promise from Washington that these reforms will not add additional costs to the states. Governor Bredesen (D-TN) warns that the costs to his state alone could be over $3 billion.

Gutting State Authority

Transferring State Power to Federal Regulators: The bills before Congress would place an unprecedented amount of power in the hands of the federal government, especially the Secretary of Health and Human Services, to determine health insurance rules and benefits. These powers have traditionally been held by state officials.

Minions to a Federal Bureaucrat: In place of its traditional role of regulating health insurance markets, the states would become merely an administrative arm of the federal government. State action on health care would be based on dictates and memoranda passed down from Washington.

Flexibility in Name Only: The federal one-size-fits-all approach of the bills before Congress would undermine state reform and innovation. Each state has its own demographic and political challenges, and no one federal solution can address the unique needs of each state.

A Better Approach to Health Care Reform

Promote True Federal-State Partnerships: Instead of the top-down approach of a federal health care reform, federal policymakers should embrace the principles of federalism and allow states to develop innovative ways to address their unique challenges to health care reform.

Preserve State Flexibility: Ease the burden on states by giving them greater flexibility to modernize and manage the Medicaid and SCHIP programs. This includes preventing the weakening of existing state flexibilities.

Tackle Fundamental Medicaid Reform: Expanding Medicaid is neither new nor innovative nor reform. Rather than expanding Medicaid, there should be a serious effort to reform it. Such policies would include moving healthy moms and kids into private health insurance through tax credits, premium assistance, and vouchers and adopting a “money follows the person” model for self-directing long-term care.

Tags: federalism, Medicaid, regulation, States

Rigging the System with New Regulation

As a follow-up to earlier posts on the so-called consumer protections included  in the bills backed by Congressional leadership, a state level survey by America’s Health Insurance Plans (AHIP) offers additional analysis of the effects of regulation on health insurance premiums.

The AHIP report shows that the states with the three highest premium averages all require community rating and guaranteed issue.  Of course, a range of other factors (such as demographics) affect the price of insurance, but these regulations do play a significant role in driving up costs.  As the report explains:

“…states with guaranteed issue and community rating rules tend to have higher than average premiums. Knowing that they could purchase coverage at any time, younger and healthier people may not do so in sufficient numbers to balance insurance pools.  When this happens, premiums reflect the higher average costs of older and less healthy people, and people with low- or moderate-incomes may not be able to afford coverage.”

In a new article in The American, Joseph Antos of the American Enterprise Institute and I argue that if Congress were to “up the regulatory ante” on private health plans by enacting such restrictive regulations nationwide it would stifle competition, leaving a new public plan with unfair advantages:
“The uniform set of federal rules outlined in the [House health care] bill raises the cost of insurance and dampens, rather than enhances, the scope of competition in the market. Worse yet, what competition is left between the public plan and private insurers would not be fair.”

We go on to write:

“By the very nature of its ‘public’ status, that plan would have serious advantages over its private competitors. Because it would be backed by the federal government, the public plan would be viewed by many consumers as safe and secure. Individuals could trust the public plan to ‘be there for them when it counts.’ The plan would benefit from billions in federal subsidies not offered to private plans. At first, there would be federal ‘seed’ money to force the public plan into established insurance markets. Later, Congress could be counted on to prop up the public plan if it faltered. The plan would be too important to fail regardless of the debt it accrued, since failure would mean millions of people losing coverage from a highly visible government program.”

The Obama administration and Democrats are selling their health reforms as “consumer protections.”  But these “protections” are actually new rules that would limit consumer choice, reduce private sector competition, and inflate insurance costs.  And, making matters worse, at the end of the day, the rules would be rigged to favor the public plan.

Tags: consumer protection, House health care bill, public plan, regulation

Imposing Costly Regulation Is Not Real Reform

President Obama and Democrats in Congress want to impose two costly health insurance regulations nationwide.

The first is community rating, which prohibits insurers from varying premiums based on an individual’s health status. The second is guaranteed issue, which forces insurers to sell policies to everyone at anytime, even individuals who wait until after they are sick to obtain insurance. Community rating and guaranteed issue are designed to raise healthy people’s premiums in order to subsidize the premiums of high-risk individuals.

It is important to work to ensure that high-risk individuals can access affordable coverage. However, community rating and guaranteed issue are such inexact, inflationary, and nontransparent efforts at achieving that goal that they can end up being counterproductive.

States currently regulate health insurance, so to see what effects these regulations could have nationwide, it’s important to look at their impact on state markets.

Dr. Bradley Herring of the Johns Hopkins Bloomberg School of Public Health and Dr. Mark Pauly of The University of Pennsylvania’s Wharton School recently conducted a study “test[ing] for differences…between states with both community rating and guaranteed issue and states with no such regulations.”

The Herring and Pauly findings should give Democratic policymakers pause:
“Overall, our results suggest that the effect of regulation is to produce a slight increase in the proportion uninsured, as increases in low risk uninsureds more than offset decreases in high risk insured.”

In other words, after the regulations were enacted, the number of high-risk individuals who purchased coverage because their premiums went down was somewhat less than the number of low-risk individuals who dropped coverage because their premiums went up.

An editorial in The Wall Street Journal elaborates on the lack of logic behind such regulatory “reforms”:
“ObamaCare would impose on all 50 states rules that have already proven to be failures in numerous states. Because these mandates would raise the cost of insurance, ObamaCare would then turn around and subsidize individuals to buy the insurance that the politicians made more expensive. Only in government could such irrationality be sold as ‘reform’.”

Tags: community rating, guaranteed issue, health insurance, health reform, markets, regulation, States