Insurance Reforms Spotlight States’ Failures

Published October 9, 2009

Experiences around the nation show many of the reforms supported by President Barack Obama with the intent of improving America’s health care system already have been tried and failed at the state level.

In Tennessee, which developed and launched a public option for health insurance in 1994, the program failed to reduce health care costs or increase competition.

The state’s Medicaid expansion program, called TennCare, was intended to make it easier for Tennesseans to get health insurance. Instead, it resulted in long waiting lines and threatened to bankrupt the state.

According to Brian Lapps, who served as director of TennCare in 1999, people consumed the “free” health care services without restraint, which led to huge cost overruns.

National ‘Rerun’ of Failure

Lapps says what’s being contemplated in Washington today “is in a lot of ways a rerun” of the measures Tennessee undertook, which eventually swallowed up 34 percent of the state’s budget, even with the federal government covering two-thirds of the cost.

“Nobody is talking about a bare-bones option for the government plan,” Lapps said. “In Tennessee, with TennCare—Medicaid—you had the richest option of all health insurance plans. Only the government could do that.”

Drew Johnson, president of the Tennessee Center for Policy Research in Nashville, said the TennCare failures “will likely return” under a similar federal system.

Community Rating

Other states have tried to expand coverage via “community rating” mandates, where insurance premiums must be set independently of an individual’s health status. This is typically combined with “guaranteed issue” mandates requiring insurers to take all applicants regardless of preexisting medical conditions, to ensure high-risk people can get insurance.

But according to a 2008 study by the National Bureau of Economic Research, while the mandates do make insurance more affordable for high-risk policyholders, the substitution of high-risk individuals for lower-risk ones in the insurance pool results in higher overall premiums, pricing more people out of the market and ultimately increasing the number of people without coverage.

In New York and New Jersey, the only states with pure community rating mandates in the individual insurance market, costs are substantially higher than elsewhere. Average insurance premiums in both states are nearly twice the national average, according to America’s Health Insurance Plans.

Finally, in Massachusetts, where many of the proposals now under consideration at the federal level already have been put in place, the number of uninsured has fallen but the state now has the most expensive family health insurance premiums in the country, according to a study published by the Commonwealth Fund in August.

Janet Neilson ([email protected]) is a health communications associate at the Mackinac Center for Public Policy in Michigan.

For more information …

“Mandates and the Affordability of Health Care,” by Sherry A. Glied, National Bureau of Economic Research, December 2008:

“State Health Insurance Premium Trends and the Potential of National Reform,” by Cathy Schoen et al., The Commonwealth Fund, August 20, 2009: