NCPA - National Center for Policy Analysis


April 14, 2006

Vermont Governor Jim Douglas (R) has managed to escape one of the pitfalls of health care policy by favoring a private market approach when many other politicians have cursed its existence, says the Ethan Allen Institute.

Even though there is zero evidence that a private market approach has failed, state and national government intervention -- like Medicare and Medicaid -- have prevented it from working. Since almost half of Vermont patients fall under one or both of these programs, providers' revenue shortfall is serious, forcing them to increase the prices to patients with private insurance, says Ethan Allen.

The core idea of health insurance is making premiums proportional to risk, but Vermont has seen a dramatic increase in premiums that makes coverage unaffordable, says Ethan Allen:

  • In 1991-1992, the Vermont legislature mandated guaranteed issue and community rating, which allows people to buy insurance after they get sick and eliminated age, gender and medical history from the calculation of risk.
  • Thus, healthy youngsters are forced to subsidize the premiums for their older, sicker, but much wealthier grandparents.
  • Also, since 20-year-olds usually don't have much income, they simply refuse to pay the high premiums and go without coverage.
  • These unwise laws drove out all but a couple of the 17 insurers doing business in Vermont in 1991.

The bottom line is that, absent unwise government intervention, the private market could efficiently satisfy virtually all of America's health care needs, says Ethan Allen.

But, it has been a long time since the private market model has had a chance to work, so before Vermont plunges ahead into taxpayer-financed, government-controlled universal coverage, the state ought to take another long look at how efficient markets work, says Ethan Allen.

Source: Editorial, "How Bad Laws Have Crippled the Private Health Care Market," Ethan Allen Institute, December 2005.

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