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A Question for Hillary

Tarren Bragdon
Wall Street Journal
January 5, 2008

Sen. Hillary Clinton is running for president, in part, on a platform that calls for more government health care. So let's ask a question that may hit a little too close to home: Why does New York spend more on Medicaid—a health-care program for the poor—than every other state but still have a larger portion of its population walking around without health insurance than states that spend far less?

Last year, New York spent $48 billion on Medicaid. That amounts to about $2,100 for every man, woman and child. Yet 13.5% of the state's population lacks health insurance. Pennsylvania, meanwhile, spent closer to $1,300 on Medicaid for every state resident and ended up with an uninsured rate of 10.5%.

New York is the third-largest state in the union and about as good a laboratory as we'll find for the national health-care market. It has 2.2 million adults and 367,000 children without health insurance. Over the past decade, the state has attempted to reduce the number of uninsured residents by expanding eligibility for government-sponsored health care. This approach is not solving the uninsured problem.

One reason is that New York has made private health insurance too expensive for many people by imposing a long list of mandates. For a policy not purchased through an employer, most individual New Yorkers have to pay about $500 a month, and most families about $1,400. That's about twice the national average.

Three mandates are largely responsible. Two—"guaranteed issue" and "community rating"—are closely linked.

Guaranteed issue hits those who are buying insurance on their own. It requires insurers to sell a policy to anyone who can pay for it, regardless of health status. It sounds fair, but drives up premiums for the healthy and induces them to drop out of the insurance pool. It also encourages people to wait until they are sick before they buy insurance. After all, if you can't be turned down, why pay in when you are healthy?

Community rating requires insurers to charge the same premium to anyone in a given plan, regardless of age, gender or health. This forces the healthy to subsidize the unhealthy, also driving up the cost of insurance.

Every state mandates that insurers cover basic care. But a third New York mandate goes well beyond the basics and requires insurers to cover 52 types of services, ranging from chiropractic to fertility treatment to mental-health services. This adds about 12% to the cost of insurance in the state.

Gov. Eliot Spitzer has decided to enter the health-care fray by pushing a new expansion of government health care—in this case for children in middle-class families. Or in the parlance of Albany, to extend Medicaid benefits to children living in families earning up to 400% of poverty level (about $80,000 a year for a family of four in New York).

Mr. Spitzer says he wants universal health care for New York. Yet 68% of children without insurance in the state are already eligible for government care, but haven't signed up. Instead of just reaching out to these children, the governor wants to make hundreds of thousands of middle-class children, many of whom already have private insurance, eligible for Medicaid. If this leads parents to drop their kids from their insurance and enroll them for government benefits, Mr. Spitzer will have succeeded at expanding the Medicaid rolls while doing little to solve the uninsured problem.

A better path would be to reinvigorate the private, direct-pay health-insurance market. Thirty-three states have created a new "risk pool" for high-cost patients without jeopardizing access to private insurance for everyone. This pool, which is often subsidized by a tiny surcharge on other policies, allows insurance companies to charge rates that more closely track the actual cost of providing health care to individuals. If New York had a similar risk pool, those in fair health could buy unsubsidized private coverage at competitive rates.

The evidence suggests, moreover, that almost everybody could buy private insurance if carriers were allowed to tailor plans to meet consumers' needs.

Consider WellPoint's "Tonik Health Plans," which are cheaper because they are tailored to the needs of the consumer. In Connecticut they allow people between the ages of 19 and 34 to buy insurance at a cost of $105 to $203 a month, depending on age, gender and plan selected. About 78% of those who buy Tonik plans were previously uninsured.

There is similar innovation underway with consumer-directed plans. These combine high-deductibles and low premiums with a tax-free Health Savings Account, and allow individuals to save for out-of-pocket costs. The best-selling HSA-eligible plans—costing $120 a month for singles and $270 for families—are sold to people in their 20s. For those 30 to 54, single coverage costs $176 a month, and family coverage is still an affordable $385. But in New York, HSA-eligible plans for individuals are illegal.

So-called temporary plans also help people find health-insurance coverage. In Washington, D.C., a 40-year-old person can buy a six-month health-insurance policy with a $500 deductible for just $119 a month. But in New York (and four other states) temporary plans aren't permitted.

If Mr. Spitzer freed the private health-insurance market and backed regulations that promote competition, affordable private health insurance would be available to nearly everyone. Precious taxpayer dollars could then be directed to the truly indigent and uninsured.

Tarren Bragdon is a health-policy analyst with the Manhattan Institute's Empire Center for New York State Policy.

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