Rather Than Expand Entitlement Programs, Let’s Loosen Regulation, Energize the Private Market
PERSPECTIVE – A Public Policy Journal from the Oklahoma Council of Public Affairs
By Grace-Marie Arnett
Oklahoma faces special challenges in trying to increase access to affordable health insurance for its citizens. Compared to national averages, fewer of its citizens receive health insurance at work, and they are more likely to work for smaller firms that do not offer insurance. The state’s low per capita income rate also means fewer people can afford to purchase coverage on their own.
A special joint task force of the Oklahoma legislature, co-chaired by Sen. Angela Monson (D-Oklahoma City) and Rep. Bill Mitchell (D-Lindsay), is conducting a series of hearings to investigate the problem and explore solutions. It is charged with producing a report early this year with recommendations for action.
At the invitation of Sen. Grover Campbell (R- Owasso), I was invited to testify before the task force November 29, 1999, and I suggested that a fresh approach is needed. For decades, state and federal legislators have created and expanded government entitlement programs and imposed more and more regulation on the health sector. Yet the number of uninsured continues to rise, reaching 44 million last year, according to the U.S. Census Bureau.
Political leaders and the public have been frustrated in learning more about what doesn’t work than what does. For much of the decade, legislators at both the federal and state levels have tried to help more citizens gain access to affordable health insurance through regulation. The U.S. General Accounting Office (GAO) studied the states that were most active in passing health insurance regulations affecting their individual and small-group markets. These states mandated what insurance must cover, to whom and when it must be sold, and what the premiums could be.
The Galen Institute, in a study published by The Heritage Foundation, looked at the experience in the early 1990s of 16 states that had been identified by GAO as having been most active in passing regulations. Unfortunately, the efforts backfired. Regulations to require insurers to sell policies at politically determined prices with mandated benefits and guaranteed access to insurance – even if people wait until they are sick to buy coverage – had the effect of driving up prices and driving health insurance out of reach for more and more of their citizens.
Legislators that design Cadillac plans when most people can afford only a Ford condemn their citizens to going without coverage at all. We found that the uninsured rates in the 16 states that were the most aggressive in passing health insurance regulations rose eight times faster than the other states the year after all the regulations went into effect.
Fortunately, Oklahoma was not one of the 16, and it has a better chance than other states of taking steps that can bring a fresh approach to improving its health insurance profile. In order to make real progress, however, a federal/state partnership is needed, one that gives more people an opportunity to purchase private health insurance rather than expanding government entitlement programs. These were my recommendations to the Oklahoma Joint Legislative Task Force on Expansion of Health Insurance Coverage:
State Children’s Health Insurance Program (S-CHIP). This joint federal-state program provides funds to give children health insurance coverage. Several states have found that they can cover more children through private insurance rather than expanding Medicaid, the health program for the poor. Utah, for example, asked private insurers in the state to bid on providing coverage to children through the program. Four private insurers are participating, and the parents of uninsured children have their choice of plans. Gov. Michael Leavitt (R-UT) says children on S-CHIP get “health insurance that’s just as good as the governor’s children get, and we are covering twice as many kids as if we had expanded Medicaid.”
Oklahoma could create a similar program and also could take advantage of a provision in the S-CHIP legislation that would allow families to be covered by private health insurance if it would cost no more than covering the children in that family. And the state could submit a request to the administrators of S-CHIP in Washington that would give lower income working parents a voucher to add their children to health plans they may receive at work, as Massachusetts has done.
Tax credits. A number of legislative proposals have been offered in Congress which would give those without health insurance a tax credit toward the purchase of insurance. Providing tax credits for the uninsured has bicameral, bipartisan support in Washington. House Majority Leader Dick Armey (R-TX) would offer a tax credit of $1,000 per adult and $500 per child, up to $3,000 for a family. Rep. Pete Stark (D-CA) would offer tax credit worth 30 percent of the price of a policy for individuals and families earning up to $40,000 a year.
To get a jump on the federal government, Oklahoma could create its own tax credit program for the purchase of private health insurance, and it could make the credit “refundable.” If someone owes less in taxes than the amount of the tax credit for which they are eligible, they could get the full amount toward the purchase of health insurance. A state tax credit could be especially valuable for working parents whose children don’t qualify for S-CHIP but could use the money to add their children to their coverage at work.
Medicaid Reform. A big picture change that is gaining attention in the presidential debate is reform of the troubled and expensive Medicaid program, the joint-federal health care entitlement program for the poor. Steve Forbes has suggested giving Medicaid recipients the dignity of obtaining private health insurance by providing the value of their Medicaid benefit toward private insurance. This is not the same as Medicaid managed care, in which insurers have to provide a very rich package of benefits at set prices. This would allow insurers to compete on both price and benefits, within a range established by the Legislature.
Oklahoma can be a partner in solving its unique problems by focusing the dollars where they are most needed?by helping people who are trying to get off welfare but are fearful if they make too much they will lose their health benefits?by helping parents to add their children to their health plans at work?and by giving people in rural areas dispensation from the regulations and mandates that drive up the cost of insurance and drive insurers out of the market.
Managed care has hit and passed its peak; a new kind of health plan could emerge to meet the demand if consumers are more active in forcing the market to meet their demands for quality, affordable coverage. But that means loosening regulation and energizing the private market.
Oklahoma could lead the way in encouraging federal action by showing that it is taking complementary steps toward legislation that empowers people to obtain private health insurance that is affordable and meets their needs.
Grace-Marie Arnett is president of the Galen Institute, a public policy research organization based in Alexandria, Virginia. She is the editor of Empowering Health Care Consumers through Tax Reform, published in 1999 by the University of Michigan Press.