Although Hillary Clinton and Barack Obama try to distinguish between their plans, both are variants of the Massachusetts model. That scheme requires everyone to get health coverage, and it imposes tax penalties on people who don't -- the so-called "individual mandate." In both Obama's and Clinton's plan, people do not have a right to health insurance, as is the case in truly universal national health insurance systems, such as in France and Canada, where everyone is guaranteed coverage, with care paid for through a broad-based tax.
Instead, both candidates have used the word "universal" to describe a potpourri of options that could bring coverage to some portion of the population currently not covered while keeping commercial insurance in the game. Clinton's plan includes an individual mandate. Obama would require coverage only for children and touts cost-control measures that he says would lower premiums so much that the uninsured could afford them, obviating the need for a coercive mandate. Clinton would boost coverage by requiring large employers to cover their workers, giving incentives to smaller ones to do the same. Obama would make employers provide "meaningful" coverage or contribute to a public plan. Both proposals call for some sort of public alternative that people can buy into if they don't like the market choices, and both try to control medical costs with weak remedies like improved information technology and better care coordination.
Significantly, the premium subsidies and tax credits that Clinton, Obama, and John McCain support to help low-income families buy insurance are a traditional Republican strategy that President Bush has pushed for years. But at least 55 percent of the uninsured already pay no taxes, so unless the credit is made available to non-tax filers, this approach would leave lots of people without coverage. To be useful, subsidies must be high enough to help families pay the annual premiums -- now averaging about $12,000 -- but low enough so the government doesn't go broke. And therein lies the devil that killed reform in California and could do in the much-hailed Massachusetts plan as well: The money just wasn't there.
States of Confusion
After a year of acrimonious wrangling among Governor Arnold Schwarzenegger, Democrats in the General Assembly, unions and consumer groups, the California Assembly passed a reform bill late last year only to see it shot down in the Senate health committee a few weeks later. By then it was obvious that the measure, which called for an individual mandate and massive subsidies to help low-income people buy insurance, would have cost California far more than the contemplated revenue sources would provide. And even with the subsidies, only 70 percent of the state's 6.5 million uninsured would gain coverage. The state's independent Legislative Analyst's Office found that by the fifth year, the program's costs would exceed revenues by $300 million, and by as much as $1.5 billion a year further down the road. Add those numbers to the $14 billion budget deficit the state currently faces, and health reform died aborning.
"The financing mechanism was kind of a mirage," says Charles Idelson, communications director for the California Nurses Association, which supports national health insurance, often called "single-payer." "They were trying to pretend the state could pay for it, when clearly they didn't have enough resources."
The funding, subject to approval by a public referendum, was to come from federal matching dollars for Medi-Cal (the state's Medicaid program), contributions from employers who didn't offer health insurance, assessments on hospital revenue and a raise in the tobacco tax to $1.75 per pack, a potentially declining revenue stream that would be undermined by public health initiatives to get people to quit smoking. While increasing tobacco taxes seemed like a winning strategy, the tobacco industry is well-equipped to fight it: In Oregon last fall, a stealth campaign by tobacco companies helped defeat a ballot initiative to expand coverage for kids that would have increased the tax by 85 cents a pack.
Meanwhile, the Massachusetts plan, passed in 2006 with the support of then-Governor Mitt Romney, is stumbling financially because far more people need help than Romney originally estimated; the state now believes there may be as many as 650,000 uninsured, not 400,000. And there's a shortfall in funds to cover the subsidies those people have been promised. The uninsured have come out of the proverbial woodwork to buy insurance rather than face tax penalties, and since many of them cannot afford coverage, the state is on the hook for their premiums.
"Romney won acceptability by obscuring how much money is really needed in the absence of genuine cost controls," says Boston University professor Alan Sager, who specializes in health care costs.
Massachusetts had budgeted $472 million for the current fiscal year, but it needs an additional appropriation of $150 million, which will come out of the public purse. Next year could be bad, too. When the law was passed, a legislative conference committee projected that $725 million would be needed for subsidies in the third year. Now it looks like the program will need $869 million to cover premiums for those who can't afford them.
"I wouldn't characterize the situation as dire," says Jon Kingsdale, chief executive of the Commonwealth Health Insurance Connector Authority, which administers the program. "The affordability issue has always been there."
Leslie Kirwan, state budget director and chair of the authority, says the program next year will cost "significantly" more than $869 million. Money counted on by the law's architects has not materialized. Lawmakers had counted on getting about $500 million to $600 million from the state's free-care pool, which paid hospitals to treat the poor. The theory was that more insured residents would mean less need for free care. But apparently people are still uninsured and need care, so that money is not available. And assessments from employers are not adequate either. Instead of requiring them to cover their workers, the law allows employers to pay $295 per employee per year to help cover the uninsured. The sum was a compromise to keep employers from fighting a mandate that would have required them to spend upwards of $9,000 a year on real insurance for each employee. The state has collected only $6 million so far. One reason: Before he left office, Romney changed the rules so fewer employers would be subject to penalties.
All people eligible for the subsidies pay co-payments, which are increasing this year from $5 to $15 for doctor visits. Those whose incomes are above 150 percent of the federal poverty level -- about $31,000 -- also pay premiums, and last week the Connector board approved hikes of 10 percent. The lowest premiums will now range from $39 to $116 a month.
"We have closed some of the fiscal gap here, but we have not closed most of it," Kirwan says.
The state has to pursue a delicate balancing act. Officials are well aware that poor people have trouble paying even what seems like a nominal increase, but -- ever mindful of the power of the insurance lobby -- the state feels compelled to raise premiums enough to prevent "crowd-out," that is, they must be priced comparably to private market coverage so people won't be tempted to use the state's plan instead of buying from an insurance company.
The insurance industry has long worried that attractive, low-cost state programs will take business away from them, and conventional wisdom among politicians holds that governments must not do that. (Crowd-out was at the crux of opposition to expanding the State Children's Health Insurance Program last fall.)
In Massachusetts, though, there's another reason officials worry about crowd-out: If 1 percent of the 625,000 people who have employer-provided insurance but are eligible for state subsidy (those with incomes below 300 percent of the poverty level, or about $63,000) choose the public plan because it's cheaper, that's about 6,000 more people the state has to subsidize.
"If that happens," says Kingsdale, "I worry whether this program will be financially sustainable three or four years from now."
It's ironic that those who favor market-based health coverage want to keep people from seeking lower-priced insurance -- which is exactly what the market says they should do.
Any national program based on the troubled Massachusetts and derailed California plans will have to address another major, perhaps insurmountable, problem central to the market-based model, in which insurance companies run the show: how to cover everyone when insurers can turn away those who are sick and likely to file claims -- a standard profit-making practice of insurance companies known by the Orwellian euphemism "risk selection."
Massachusetts didn't have to deal with this question, because since 1997 it has required insurers to take all comers, even those with serious health conditions. In the political horse-trading over the California bill, most of the state's insurers had agreed to offer "guaranteed issue" policies, that is, ones available to everyone even if he or she is in bad health. But they still insisted on conditions like limiting policyholders' ability to switch to more comprehensive plans in the individual market.
Even so, Blue Shield vice president Tom Epstein told me: "The [universal] mandate would have to be well enforced to make this work. It would have to be effective for us to support elimination of medical underwriting."
Translation: everyone must be in the pool to spread the risk among the sick and healthy, or insurance companies won't go along. Indeed, this has been at the core of the mandate versus no-mandate argument between Clinton and Obama, and why Clinton has pushed hard for a punitive mandate to cover everyone. She knows this is the only way to get insurance companies to give up risk selection.
In California, Blue Cross did not go along. According to one insider who insisted on anonymity because of his sensitive position in the industry, "They said privately they will spend whatever it takes" to defeat any law that limited the company's ability to select risk. "Blue Cross is the best at risk selection," he says. "They would take a big hit to their profits."
Throughout last year, Blue Cross, whose parent corporation is WellPoint, the largest health insurer in the country, geared up for the battle. It created the Coalition for Responsible Health Care Reform, with a $2 million investment aimed at organizing employers, insurance agents and individuals to sign on to the company's efforts to make sure it controls the substance of reform. One of the ads it ran to sway public opinion said: "Unintended consequences do happen. Other states have tried health care reforms like 'guaranteed issue' that sounded good. They now have the highest premiums in the country while California has the lowest." (One reason it has the lowest is that Blue Cross and others are selling cheap policies with skimpy benefits, shoving a lot of costs onto policyholders.)
A state that Blue Cross no doubt had in mind is Massachusetts, where premiums are high not only because companies have priced them to account for claims made by sick people, but also because medical care there is the costliest in the nation. The one bit of good news from Massachusetts is that premiums for policies that can be purchased from private carriers through the state's insurance connector by people who don't qualify for subsidies will go up only 5 percent, a smaller increase than in recent years. Not only did jawboning by the current governor, Deval Patrick, help, but the fact that more people -- both sick and well -- entered the risk pool made it possible for companies to hold the line on prices.
That is exactly what is supposed to happen, and why any effective reform will have to bring everyone into the insurance tent. But no one knows what will happen next year, and frustration with the rising cost of premiums led Patrick to tell reporters at the Berkshire Eagle earlier this year that the next administration in Washington should give serious consideration to a single-payer universal health care solution. Unless Massachusetts slows down the relentless rise in healthcare costs -- or imposes a big tax increase -- its grand experiment will fail.
Says Kingsdale: "If we don't find a way to tame health care inflation, then near-universal coverage is not sustainable."
At least it isn't in the models that are now on the table.
Trudy Lieberman is director of the health and medicine reporting program at the Graduate School of Journalism at City University of New York. This article first appeared in The Nation.