Vermont's Badly Managed Care
From the January 12, 2004 issue: Dean's health care record as governor is nothing to brag about.
by David Gratzer
01/12/2004, Volume 009, Issue 17
URL:http://www.weeklystandard.com/Content/Public/Articles/000/000/003/565ovukj.asp?pg=2
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While these mandates may appear innocuous in and of themselves, when combined, they create perverse incentives for people to game the system. People can buy insurance after they get sick--and yet they still pay the rates of other people their age. A downward spiral for private insurers follows. Faced with massive rate hikes, small employers drop coverage for younger workers. With an insurance pool of older and sicker workers, those left face high premiums.
Vermont isn't the only state to achieve such results with guaranteed issue and community rating. In New Jersey, according to the Coalition Against Guaranteed Issue, it now costs more to buy a family health insurance than it does to lease a Ferrari.
One of Dean's first initiatives as governor was to champion Bill 160, sweeping legislation meant to address the health care problems he inherited. But instead of undoing the price regulation that had been slapped on the insurance industry, Bill 160 went further. The legislation aimed to establish state control over hospital budgets, create a statewide insurance pool, and form a new health authority to coordinate it all. Instead of scrapping community rating, the legislation expanded it. Premiums wouldn't be based on age at all, but would be one-size-fits-all. Thus, a 20-year-old worker in perfect health would pay the same premium as a 60-year-old man with heart disease and emphysema. Much of the legislation was eventually dumped, but not community rating. "We fought that tooth and nail," recalls Tory Bunce of the Council for Affordable Health Insurance, an
advocacy group for small businesses and insurance carriers. "We predicted that premiums would go through the roof."
They did. And no wonder. If homeowners' insurance were regulated the way Dean regulated health care, residents could insure their houses after they caught fire. As a result, young, healthy people dropped their insurance, numerous insurance carriers left the state, and the percentage of uninsured Vermonters approached 14 percent.
Various ideas were floated in the mid-1990s to cope with the collapsing market for private health insurance. Some Vermont legislators proposed a single-payer plan. In a daring display of political calculation, Dean urged them to vote for such a proposal--which he also promised to veto. The strategy collapsed so spectacularly that the resulting stalemate received a detailed report in the New York Times.
Dean's alternative was simply to expand government programs. In particular, he grew Medicaid, the federal-state program for poor Americans, with Washington footing the majority of the new bill. He expanded eligibility, going so far as to allow children in families with incomes up to $51,000 to be enrolled. (His office even approached the Clinton administration about expanding Medicaid further, but the request was denied.) By the end of Dean's term, the Medicaid rolls had doubled to roughly 20 percent of Vermont's population. Today, Vermont ranks ahead of almost every other state in Medicaid enrollment; neighboring New Hampshire is last.
To pay for it all, Dean hiked taxes, including those on cigarettes and gasoline. He also shifted costs. However, Medicaid's reimbursement to doctors, hospitals, and dentists is low. Consider that a typical Burlington psychiatrist makes $125 an hour from private insurance. Medicaid pays about 75 percent of that. Hospital fees are even stingier, with the state paying 50 cents on the dollar in some cases. Some physicians and dentists stopped taking Medicaid patients altogether. For hospitals and clinics now facing a shortfall, fees for non-Medicaid patients increased.
What does Vermont health care look like today? It's a mixed picture. The percentage of insured citizens is relatively high, but so are Medicaid rolls. It's not clear that Vermonters can sustain the state government's spending. Projections suggest that in Vermont Medicaid will run a $98 million deficit by 2008. And insurance premiums are sky high. "I'm paying a lot and getting little choice," a self-employed Burlington resident told me. He wasn't kidding: To cover his wife and himself, he pays $5,000 a year for a plan with a $1,000 deductible. Because most carriers have left the state, there are only a few insurance companies left in business.
Vermont, though, isn't unique. As much as Dean's supporters suggest his zeal for health reform distinguishes his record, regulating health insurance has become a hobby for activist politicians around the country. Consider: State legislators have passed more than 1,500 mandates that direct health insurance companies to cover specific diseases or procedures. In Vermont, jaw-joint disorders must be covered; New York insists on podiatric care. Add to this mix guaranteed issue and community rating, and it's clear why some small businesses and self-employed individuals find health insurance unaffordable.
Ironically, Dean may end up benefiting from the health insurance debacle he helped create. He promises to do in Washington what he did in Vermont: have government fill the role that private companies once did, another step along the road to single-payer health care. With premiums sky high across the country and many Americans fretting the possibility of losing their insurance, Dean's promise of expanded government programs offers a tempting panacea. Worse yet, Republicans seem lost on the issue.
How to beat the former governor at his own game? The White House should champion a competitive market for health insurance, allowing citizens more choice and lower premiums. This could be accomplished very simply. Give Americans the ability to buy health insurance from other states. If people in Vermont or New York can buy a mortgage from a less regulated state, why can't they buy an insurance plan in another jurisdiction?
The federal McCarran-Ferguson Act of 1945 empowers states to regulate "the business of insurance." But nothing stops Congress from passing legislation allowing the interstate sale of health insurance. Indeed, such a bill would reflect the principle of the Constitution's Commerce Clause. And it would also be consistent with free market principles since interstate restrictions leave many Americans at the mercy of a small number of local health insurance carriers--which for Dean's former constituents can be counted on one hand.
In 1992, Dean said: "There is no such thing as an informed consumer of health care." Republicans need to present voters with a less paternalistic vision. They can start by empowering Americans to buy affordable health insurance. The Burlington man spending $5,000 a year on insurance would, in Connecticut, pay less than half that. Washington should give him the option to buy the out-of-state plan. This would help stave off the disastrous scenario predicted by Service Employees International Union president Andy Stern when he said: "After November 2, there will be a doctor in the house--the White House."
David Gratzer, a Toronto-based physician, is a senior fellow at the Manhattan Institute.
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