Supreme Court Justice Louis Brandeis famously envisioned the states serving as laboratories, trying “novel social and economic experiments without risk to the rest of the country.” On health care, that’s just what they’ve done. Like participants in a national science fair, state governments have tested variants on most of the major health care reforms Congress is considering. The results include dramatically higher premiums in the individual market, spiraling public costs, and reduced access to care. In other words, the reforms have failed.
New York is Exhibit A. In 1993 the state prohibited insurers from declining to cover individuals with pre-existing health conditions, a policy called “guaranteed issue.” New York also required insurers to charge everyone enrolled in their plans the same premium, regardless of health status, age, or sex, an idea known as “community rating.” The goal was to reduce the number of uninsured by making medical coverage more accessible, particularly to those who don’t have employer-provided insurance.
New York’s reforms haven’t worked out very well, according to a 2009 Manhattan Institute study by Stephen T. Parente, a professor of finance at the University of Minnesota, and Tarren Bragdon, CEO of the Maine Heritage Policy Center. In 1994 just under 752,000 individuals were enrolled in individual insurance plans, about 4.7 percent of the nonelderly population. This put New York roughly in line with the rest of the U.S. Today that figure has dropped to just 0.2 percent. By contrast, between 1994 and 2007 the total number of people insured in the individual market across the U.S. rose from 4.5 percent to 5.5 percent.
The decline in the number of people enrolled in individual insurance plans, the authors say, is “attributable largely to a steep increase in premiums” because of the state’s regulations. Parente and Bragdon estimate that repealing guaranteed issue and community rating could reduce the price of individual coverage by 42 percent.
New York’s experience with guaranteed issue and community rating is not unique. In 1996 similar reforms in Washington state preceded massive premium spikes in the individual market. Some premiums increased as much as 78 percent in the first three years of the reforms—10 times the rate of medical inflation—according to a study presented at the annual meeting of the Association for Health Services Research in 1999. Other results included a 25 percent drop in enrollment in the individual market and a reduction in services offered. Within four years, for example, none of the state’s major carriers offered individual insurance plans that included maternity coverage.
A 2008 analysis by Patricia Lynch of Kaiser Permanente, published by Health Affairs, noted that in addition to Washington and New York, the individual insurance markets in Kentucky, Maine, Massachusetts, New Hampshire, New Jersey, and Vermont “deteriorated” after the enactment of guaranteed issue. Individual insurance became significantly more expensive, and there was no significant decrease in the number of uninsured.
Supporters of federal health care reform argue that the problems associated with these regulations can be addressed with the addition of an individual mandate, a requirement that everyone purchase health insurance. Guaranteed issue alone, the argument goes, results in slightly more expensive premiums, which drives healthier individuals out of the risk pool, which in turn further drives up premiums. The end result is that many healthy people opt out, leaving a small pool of sick individuals with very high premiums. An individual mandate, however, would spread those costs across a larger, healthier population, thus keeping premiums down.
The experience of Massachusetts, which imposed an individual mandate in 2007, suggests otherwise. Health insurance premiums in the Bay State have risen significantly faster than the national average, according to the Commonwealth Fund, a nonprofit health foundation. At an average of $13,788, the state’s family plans are now the nation’s most expensive. The Boston Globe reports that insurance companies are planning additional double-digit hikes, “prompting many employers to reduce benefits and shift additional costs to workers.”
Meanwhile, Massachusetts health care costs have continued to grow rapidly. According to a 2009 RAND Corporation study, health care spending is “projected to increase about 8 percent faster than the state’s GDP over the next decade.” The Globe recently reported that state health insurance commissioners are worried that medical spending could push both employers and patients into bankruptcy and may even threaten the continued existence of the state’s universal coverage system.
On top of that, survey data from the Massachusetts Medical Society indicate that the state’s primary care providers are being squeezed. Family doctors say they are taking fewer new patients and seeing increases in wait time.
Reform measures in other states have proven to be expensive duds. Maine’s 2003 reform plan, Dirigo Health, included a government insurance option resembling the public option supported by many House Democrats. This public plan, DirigoChoice, was supposed to expand care to all 128,000 of Maine’s uninsured by 2009. But according to the U.S. Census Bureau, the 2007 uninsured rate was roughly 10 percent—essentially unchanged. DirigoChoice’s individual insurance premiums increased by 74 percent during its first four years—to $499 a month from $287 a month—according to an analysis of Dirigo data by the Maine Heritage Policy Center. The cost of DirigoHealth to taxpayers so far has been $155 million.
Tennessee’s plan for universal coverage, dubbed TennCare, fared even worse after it was launched in the 1990s. The goal of the state-run public insurance plan was to expand coverage to the uninsured by reducing waste. But the costs of expanding coverage quickly ballooned. In 2005, with the government bankruptcy, the state was forced to cut 170,000 individuals from its insurance rolls.
Despite these state-level failures, President Barack Obama and congressional Democrats are pushing a slate of similar reforms. Unlike most high school science fair participants, they seem unaware that the point of doing experiments is to identify what actually works. Instead, they’ve identified what doesn’t—and decided to do it again.
Peter Suderman (email@example.com) is an associate editor at reason. A version of this article appeared in The Wall Street Journal. This column first appeared at Reason.com.