The American Interest
Policy, Politics & Culture
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Ultra-liberal Massachusetts now has “universal” health insurance, under Republican Governor Mitt Romney.

Published on November 1, 2006

Health care reform is back on the national agenda, but there is a good chance the results will be different this time around. Nationwide initiatives for universal health insurance began in earnest with Harry Truman’s 1945 effort (proposed to be financed through Social Security taxes) and have resurfaced periodically ever since. While each attempt has its own history, echoes of “socialized medicine” helped sink them all. Today, however, less ambitious, less threatening and more bipartisan models for reform are emerging from several states. The passage of a plan in Massachusetts signed by Republican Governor (and presidential aspirant) Mitt Romney on April 12, 2006, all but ensures that the issue will be on the front burner in the 2008 presidential election. Potential Republican candidates such as Senate Majority Leader Bill Frist and Newt Gingrich, as well as other prominent Republicans like Florida Governor Jeb Bush, have also helped focus attention on health care reform. Because conservatives as well as liberals are now talking about health care reform, the odds that something will happen are higher than ever.

Pressure building from within American society raises those odds even higher. An NBC/Wall Street Journal poll conducted April 21–24, 2006, asked subjects to prioritize a list of items for Federal government action. Health care ranked third, just behind gas prices and the war in Iraq. But what, exactly, will happen once the American political system engages on this issue? Between growing attention from Republicans and more concern bubbling up from below, are we finally on the threshold of serious national health care reform? Or are the politics once again going to be just “too hard?”

The answer is unknown, but some important lessons for the future can be gleaned from earlier attempts at reform. A major health coverage expansion came in 1997 with the State Children’s Health Insurance Program (SCHIP). SCHIP gave new Federal dollars to the states in the form of block grants or lump-sum payments to cover low-income children. It won passage because it was explicitly not an open-ended entitlement program, and because its essential features had been both foreshadowed and trial-tested by activities in the states. By 1997 eight states already had coverage for children’s programs. Because of the new Federal money and flexibility, states rushed to take advantage of this program. SCHIP was and still is strongly supported by both Democrats and Republicans. Senators Orin Hatch (R-UT) and Edward Kennedy (D-MA) helped pass this legislation by securing an increase in the tobacco tax. During the SCHIP debate, Kennedy pointedly asked colleagues from the Senate floor whether they stood “with children or with Joe Camel and the Marlboro Man.” Pieces of legislation that enable politicians to say things like that are bound to be winners.

Thirty years earlier, the politics of health care reform were far different. When Medicare and Medicaid passed in 1965, one party, the Democrats, dominated both houses of Congress and held the White House. Since then, political power has been more often divided, and in a political system designed to make change difficult, this division created a stalemate: Neither party had enough power to push through reforms without support from the other.

Lyndon Johsnon, joined by Harry Truman, signs the bill creating Medicare, July 30, 1965.

When President Clinton’s health care reform plan was defeated in 1994, its failure and the broader political consequences of that failure became etched in the minds of legislators. Not only were Democrats reminded of the need for bipartisan support, the defeat of the Clinton Plan showed how powerful the health care industry can be. Many still remember “Harry and Louise”, the television commercial backed by the Health Insurance Association of America, which depicted a middle-class couple fretting about being forced to choose between a few health plans designed by “government bureaucrats.” The ad ends with, “We lose, when they choose.”

Health care represents 15 percent of the U.S. economy and engages very entrenched interests. Reform is difficult because the threat that families could lose what they already have weighs more heavily than a promise to cover the uninsured, or that the system might be better in the future. At the same time, health care reform that promises universal coverage, quality improvement and especially cost containment challenges health care industry interests.

From this brief history, we can deduce that major change in the near future is subject to two near iron laws of political reality. The first holds that major reform has to attract significant bipartisan support to pass. (There are exceptions, like the 55–45 Senate passage in 2003 of the Medicare prescription drug benefit legislation, but the exceptions prove the rule.) The second law states that powerful players and interest groups have to be accommodated. The two laws also reinforce each other, just as they do when it comes to tort reform, tax reform and a host of other politically encrusted issues. Based on these rules, neither a single-payer health care system run by the Federal government, pushed by the Left, nor a broad-based, tax-funded voucher system with medical savings accounts, favored by the Right, is likely to gain sufficient support for passage. Both options violate one iron law or the other—or both. On balance, then, Congress seems unlikely to move on its own anytime before the 2008 elections, despite rising health care costs and the surging number of uninsured Americans. But there is movement elsewhere. As before, the impetus for health care reform is coming from the states.

Massachusetts et al.

Health care reforms and expansions are germinating in several states. Florida Governor Jeb Bush is implementing a program to provide state Medicaid recipients with vouchers to buy their own health care. Vermont, with a Republican governor and a Democratic legislature, passed major reform on May 24, 2006, that provides subsidies for low-income residents to purchase health insurance. To curtail costs, the state will develop a public-private collaboration to manage chronic care conditions for all Vermonters. Other initiatives are being tried in Maine, Illinois, Utah and Maryland. A common denominator of all these reforms is that, unlike the Clinton plan, these plans build more firmly on the base of existing health care systems. (Among other things, the Clinton plan included both an employer and individual mandate, and established regional “health alliances” where people would select from competing health plans.) Florida’s program, with its plan to privatize portions of the state’s Medicaid program, is the most radical. In several Florida counties, the program now provides vouchers to low-income residents so they can purchase care in the marketplace. The vouchers pay proportionately more for people with significant health care needs, such as chronic conditions. Although the plans available are flexible, they must meet certain state-mandated standards. If the plan is successful on the county level, it will be implemented on the state level.

The northeastern group of reforming states—Maine, Massachusetts and Vermont—are all expanding the availability of private insurance to the uninsured as part of a wider program of reform. Maine created DirigoChoice (Dirigo is the state motto, meaning “I lead”); Massachusetts is developing the Commonwealth Health Insurance Connector; and Vermont is crafting the Catamount Health Plan. These programs will make one or a choice of health plans available to the uninsured, the self-employed and small businesses in their states. Although these measures can make insurance more reasonably priced, largely by combining the individual and small-group insurance markets, insurance may still remain out of reach for many. Enrollment in the Maine program has fallen far short of expectations. Even with subsidies, health insurance still turned out to be too expensive to encourage businesses not providing it to do so, or for most of the uninsured to purchase it on their own. Without a mandate or requirement for coverage (like in the Massachusetts plan), these types of insurance reforms might be most helpful in reducing costs for small businesses already providing health insurance, rather than in covering the growing number of uninsured. It is just bailing with a leaky bucket. Some progress can be made, but ultimately the boat is still going to sink.

These states have also devised additional insurance reforms and have extended state Medicaid programs to the working uninsured at higher but still modest income levels. The problem is that providing subsidies to people at higher incomes could encourage employers (especially small employers) to drop coverage altogether. This threatens to put more people into public programs and results in less employer and employee money in the system, increasing the burden on taxpayers. What is a state to do? Preventing these consequences is possible, albeit difficult, and any policy, no matter how carefully drawn, will produce some inequities. Ultimately, covering more than forty million uninsured Americans may take a national solution, but this won’t happen unless the states lead the way, as they did with the SCHIP program.

Like SCHIP, the Massachusetts plan adheres to both rules. It combines an individual mandate, obligating individuals to navigate the market and make choices (supported by conservatives), with an expansion of employer and government responsibility (favored by liberals), thereby gaining bipartisan approval. It was formulated by a consensus process that included all stakeholders—consumer groups, health plans, hospitals, community health centers, business and labor. And although all interest groups had their ox gored a little bit, the pain was perceived as a shared sacrifice and worth the payoff of expanded health insurance coverage. The plan is designed to cover 95 percent of the state’s 500,000 uninsured over the next three years.

Signing ceremony in Boston, April 12, 2006. [© Associated Press]

Now, it is true that the Massachusetts plan benefited from circumstances unique to that state. Massachusetts was in jeopardy of losing $385 million dollars a year in Medicaid waiver funds if it did not come up with a way to tie this funding to individual coverage expansion by a certain date. But it still demonstrates the types of policies and strategies that can be politically successful.

First of all, it passed the bipartisan test with flying colors. The plan was pushed by a Republican governor and passed overwhelmingly by an 85 percent Democratic legislature. When Governor Romney signed the Massachusetts plan, Senator Kennedy was by his side, and representatives from the conservative Heritage Foundation applauded. Second, while many of the details, including the long-term financing of the program, are still being worked out, the policy framework spreads responsibilities and costs in an undeniably innovative way. Here, basically, is how it works.

The individual mandate requires that people who can afford health insurance buy it. (The details on what constitutes affordable have been left to the state to decide.) This makes sense. People without insurance still get care. If they cannot pay their bills, these costs are passed along to everyone else. Initially, the penalty for non-coverage will be the loss of one’s state personal income tax exemption. Later on, fines will equal half the cost of “affordable” care for each month without insurance.

The idea of an individual mandate is not new. In the early 1990s, the late Senator John Chafee (R-RI) introduced such a mandate with a group of Republicans and moderate Democrats as an alternative to the Clinton plan. Governor Romney took a chance by including an individual mandate in his proposal to the Massachusetts legislature, since conservatives themselves are split on the notion. They like the idea of individual responsibility, but are generally leery of government mandates. Liberals and consumer advocates in the state swallowed hard to accept the individual mandate, only because business contributions and government program expansions were included as part of the delicate balance necessary for passage. A report by the Urban Institute commissioned by the Blue Cross/Blue Shield of Massachusetts Foundation concluded that universal coverage could not be achieved without an individual mandate. This, along with the “affordability” proviso, helped make this mandate palatable to the Left.

The employer contribution, however, not the individual mandate, turned out to be the most contentious element of the plan. Ultimately, the Massachusetts Taxpayers Foundation and the business community, including the major health plan and health care systems providers, negotiated a deal on this issue that broke a logjam and made the law possible. A health reform plan that had been considered in the State House, authored by Speaker Salvatore DiMasi, included a 5 percent assessment for companies with 11–100 employees and a 7 percent payroll tax for larger employers. The final compromise was an annual assessment of $295 per uninsured employee on businesses not making a “fair and reasonable” contribution to their workers’ insurance. This amount, quite modest compared to the DiMasi plan, is intended to ensure that employers contribute to the state’s free care pool in similar proportion to employers that offer health insurance coverage to their employees. Although Romney vetoed this provision, his veto was overturned by the legislature.

Mandates, however, are not reasonable if health insurance is unaffordable. With the average premium cost of family coverage in Massachusetts now in excess of $12,000 a year, and even more than that for individual or small group policies, this is a tricky proposition. Affordability is addressed in the Massachusetts plan in several ways. First, the Massachusetts Medicaid program, MassHealth, will be expanded to cover children from the current 200 percent of the Federal poverty level to 300 percent ($38,500 per year for a family of two). The new law also expands coverage for certain long-term unemployed adults with incomes below the poverty level under the MassHealth Essential program. It includes an additional $3 million for outreach and education targeted at the 60,000 people currently eligible for but not enrolled in MassHealth. The state will also increase Medicaid payments to providers and hospitals. Payment increases are tied to meeting quality standards and will place reimbursements more in line with what private sector insurance companies pay.

The Commonwealth Connector Authority, a new quasi-public agency, will be central to providing individuals and small businesses with health insurance. One of its roles will be to administer the Commonwealth Healthcare Insurance Program, which will provide insurance subsidies for adults earning up to 300 percent of the Federal poverty level ($27,000 for an individual; $60,000 for a family of four). Those with incomes below the poverty line ($9,600 for an individual) will not be charged any premium. People with incomes between 100 and 300 percent of the Federal poverty level will pay premiums on a sliding scale. Plans in the subsidized program will have no deductibles. For the first three years, the four existing Medicaid managed-care programs will be the only plans allowed to offer coverage for this group.

The Connector will also make a selection of certified quality plans available to higher-income uninsured people and small businesses. Premium costs will be reduced by combining the individual and small-group insurance markets, which is projected to reduce premiums by as much as 25 percent—especially helpful for individuals. The goal is a $300-per-month plan. The hope is that cost savings can be achieved by limiting the network of providers. Less attractive alternatives to keep costs low would be to reduce benefits or increase deductibles.

Additional insurance reforms will also help increase access to coverage. More flexible and affordable insurance packages will be available for young adults between ages 19 and 26, and the law allows children to be covered under their parents’ plan until age 25. Employers with more than ten employees will be required to offer “cafeteria plans”, which will allow employees to purchase health insurance on a pre-tax basis.

Lessons Going Forward

Some argue that this type of health reform could only happen in Massachusetts. It’s a solid blue state with a history of reform, including a mandate for employer-sponsored health care that passed in the late 1980s (but was repealed before implementation). There are relatively few uninsured—between 8 and 11 percent of the population, compared to 16 percent nationally. The state has a relatively large financial pool for uncompensated care to fund a major part of the reform. The state also already had strong, well-administered insurance regulations in place, and with Governor Romney running for president and the state legislative leadership publicly committed to reform, the political moment was ripe.

Even with these advantages, however, the Massachusetts plan has political and policy ramifications beyond its borders. The fact that one state has done this lends political cover and encouragement to others. Furthermore, while Massachusetts is a liberal state, its plan is not a liberal proposal. It is a bipartisan compromise pushed by a conservative governor who has garnered support from Left and Right. And while it doesn’t sharply upset the status quo, it does spread responsibility across business, government and individuals, and it will significantly increase access to health insurance. State and national health policy leaders can learn a great deal from the process and politics that produced it.

First, the process included the generation of new data. The Blue Cross/Blue Shield of Massachusetts Foundation sponsored forums and commissioned research that pushed things forward. Major events featured the research from the Urban Institute that included data and modeling of different state-specific options for universal coverage. Second, there was genuine leadership. The “Roadmap to Coverage” series included events with major addresses from Governor Romney, Senate President Robert Travaglini and House Speaker DiMasi. These leaders stood up and were willing to work together. Third, grassroots efforts supported them. A coalition of consumer and religious groups led by Healthcare for All collected thousands of signatures for a ballot initiative that helped put pressure on legislators. Finally, the ultimate compromise required active engagement from the business community, namely the major providers and hospital groups. Data, leadership, grassroots efforts, compromise and stakeholder engagement were crucial to progress and political success.

More broadly, we can learn from the Massachusetts example that the policy of shared responsibility, building on the current private system, is the best available incremental strategy for success. Simultaneously requiring more of individuals, businesses and government spreads the cost and limits the number of “free riders.” The biggest hurdles are mandates for individuals and employers, but they are essential if there is to be real and sustained health insurance expansion in the United States. No state will replicate Massachusetts exactly or completely, but these building blocks can be used to construct state-specific alternatives. States may want more ambitious employer contributions, or less expensive health plans. They may find different ways to structure insurance markets to make insurance more affordable. Stronger efforts may be developed to keep people healthy and to provide better and more efficiently managed care to high-cost, chronically ill patients (central to the Vermont plan, for example).

Creativity and experimentation on the state level constitute the best hope we have for dealing with a health care system that is clearly in crisis. Nearly forty million people are uninsured, costs are rising at double-digit rates, and serious questions remain about the quality of care being provided to many Americans. Something clearly needs to be done, and in the long term a national solution is probably required. In the meantime, between now and the inauguration of the next president of the United States, what is happening in Massachusetts, Vermont, Florida, Maryland and elsewhere demonstrates that political compromise and programmatic progress are possible. This is an important object lesson for the nation: It provides hope for a national solution and is an illustration of federalism at its best.

Michael Doonan is executive director of the Massachusetts Health Policy Forum and assistant professor at the Heller School for Social Policy and Management at Brandeis University. He served on the Clinton Health Care Task Force and worked as an aide to Senator John Kerry.