NCPA - National Center for Policy Analysis


March 2, 2010

Democrats continue to insist on a bureaucratic, top-down "reform" agenda imposed by Washington that expands the federal government's control of health care.  But Democrats have it backward, say Lawrence Mone, president of the Manhattan Institute, and Douglas Holtz-Eakin, former chief economic advisor to Sen. John McCain's 2008 presidential campaign and current president of American Action Forum. 

A better, bottom-up approach is to blend the states' role as laboratories of democracy with market competition to incrementally expand coverage, control costs and drive innovative reforms.  For this to succeed, however, the federal government must strip away the laws and regulations that inhibit competition and innovation in health care, say Mone and Holtz-Eakin. 

Since we often learn as much from policy failures as successes, it's worth recapping how many of the policies Democrats want have already failed in the states, say Mone and Holtz-Eakin. 

Expanding public programs: 

  • In 1994, Tennessee started a massive Medicaid expansion (eventually covering 500,000 additional residents).
  • A decade later, the state abandoned the experiment after costs more than tripled from $2.5 billion in 1995 to $8 billion in 2004, consuming one-third of the state budget.
  • When the experiment unraveled in 2005, 170,000 enrollees were dropped. 

Imposing heavy-handed insurance regulations: 

  • Starting in April 1993, New York state imposed two new regulations, intended to make insurance more affordable for older and sicker residents.
  • Instead, community rating (which forces insurers to charge one price regardless of age or health status) and guaranteed issue (which forces insurere to offer policies to all applicants) nearly obliterated the market for individual insurance.
  • The regulations drove up prices for young and healthy applicants, pushing them out of the market; today New York's individual insurance market is 4 percent of its size in 1994. 

Creating a new "public option": 

  • In 2003, Maine launched an ambitious plan to cover all its uninsured, in part by creating a government-run, "public option" insurance plan with taxpayer-subsidized premiums.
  • An expensive train wreck, less than 10,000 residents have enrolled since it started in 2005 -- at a cost of $155 million.
  • Today, enrollment is capped, due to budget constraints. 

Source: Lawrence Mone and Douglas Holtz-Eakin, "Use states as health care reform labs,", February 26, 2010. 

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