By Peter Suderman the Reason Foundation
Expanding health coverage busted state budgets. Will it bust the federal budget too?
The Affordable Care Actotherwise known as ObamaCareisnt the first attempt to expand health insurance coverage in America. Before Washington passed its law a number of states took smaller-scale cracks at the jobeach of which proved far more expensive than planned. As the nation dives further into debt the destabilizing fiscal effects of those programs dont bode well for how ObamaCare will shape the U.S. budget.
As spectacular failures go its hard to do worse than Tennessee. This early state attempt to dramatically increase health coverage dubbed TennCare started off promisingly. In 1994 the first year of its operation the system added half a million new individuals to its rolls. Premiums were cheapjust $2.74 per month for people right above the poverty lineand liberal policy wonks loved it.
The Urban Institute for example gave it good marks for improving coverage of the uninsurable or high-risk individuals with very limited access to private coverage. At its peak the program covered 1.4 million individualsnearly a quarter of the states population and more than any other states Medicaid programleaving just 6 percent of the states population uninsured.
But those benefits came at a high price. By 2001 the systems costs were growing faster than the state budget. The drive to increase coverage had not been matched by the drive to control costs. Vivian Riefberg a partner at consulting firm McKinsey & Company described it as having almost across the board no limits on scope and duration of coverage.
Spending on drug coverage in particular had gone out of control: The state topped the nation in prescription drug use and the program put no cap on how many prescription drugs a patient could receive.
The result was that by 2004 TennCares drug benefits cost the state more than its entire higher education program. Meanwhile in 1998 the program was opened to individuals at twice the poverty level even if they had access to employer-provided insurance.
In other words the programs costs were uncontrolled and unsustainable.
By 2004 the budget had jumped from $2.6 billion to $6.9 billion and it accounted for a quarter of the states appropriations. A McKinsey report projected that the programs costs could hit $12.8 billion by 2008 consuming 36 percent of state appropriations and 91 percent of new state tax revenues.
On the question of the systems fiscal sustainability the report concluded that even if a number of planned reforms were implemented the program would simply not be financially viable.
Democratic Gov. Phil Bredesen declared the report sobering and rather than allow the state to face bankruptcy quickly scaled the state back to a traditional Medicaid model dropping about 200000 from the program in a period of about four months. Though the state still calls its Medicaid program TennCare Bredesens decision to scale back effectively shut the program down.
In 2007 he told the journal Health Affairs The idea of TennCare as it was implemented failed.
Maine took a different route to expanding coverage but it also resulted in failure. In 2003 the state started Dirigo Care which it was promised would cover each and every one of the states 128000 uninsured by 2009. The program was given a one-time $53 million grant to get things started but was intended to be eventually self-sustaining.
It wasnt.
Indeed the program managed the neat trick of drastically overshooting cost projections while drastically undershooting coverage estimates.
In 2009 the year in which the program was to have successfully covered all of the uninsured the uninsured rate still hovered around 10 percenteffectively unchanged from when the program began. Taxpayers and insurers however had picked up an additional $155 million in unexpected costsall while the state was wading deeper into massive budget shortfalls and increased debt.
The program has not been shut down but because expected cost-savings did not materialize its been all but abandoned. As of September 2009 only 9600 individuals remained covered through the plan.
And then there is the Massachusetts plan the model for ObamaCare. The states health care program has successfully expanded coverage to about 97 percent of the states population but the price tag may be more than the state can bear.
When the program was signed into law estimates indicated that the cost of its health insurance subsidies would be about $725 million per year. But by 2008 those projections had been revised. New estimates indicated that the plan was to cost $869 million in 2009 and $880 million in 2010 an upwards increase of nearly 20 percent.
More recently the governors office announced a $294 million shortfall on health care funds and state health insurance commissioners have warned that on its current course the program may be headed for bankruptcy. According to an analysis by the Rand Corporation in the absence of policy change health care spending in Massachusetts is projected to nearly double to $123 billion in 2020 increasing 8 percent faster than the states gross domestic product (GDP).
The states treasurer a former Democrat who recently split with his party says that the program has survived only because of federal assistance.
Defenders of the program argue that its not really a budget buster because the states budget was already in trouble. But for those worried about ObamaCares potential effects on the federal budget thats hardly comforting. The Congressional Budget Office (CBO) has warned that without significant change the U.S. fiscal situation is unsustainable with publicly held debt likely to reach a potentially destabilizing 90 percent of GDP by 2020.
Democrats managed to get the CBO to score ObamaCare as a net reduction in the deficit but those projections are tremendously uncertain at best.
As Alan Greenspan warned last weekend if the CBOs estimates are wrong the consequences could be severe.
The history of health coverage expansion should make us worry. If ObamaCares actual fiscal effects look anything like previous efforts to expand health coverage the federal budget is in for a world of hurt.
Mr. Suderman is an associate editor at Reason.
By Peter Suderman the Reason Foundation
Expanding health coverage busted state budgets. Will it bust the federal budget too?
The Affordable Care Actotherwise known as ObamaCareisnt the first attempt to expand health insurance coverage in America. Before Washington passed its law a number of states took smaller-scale cracks at the jobeach of which proved far more expensive than planned. As the nation dives further into debt the destabilizing fiscal effects of those programs dont bode well for how ObamaCare will shape the U.S. budget.
As spectacular failures go its hard to do worse than Tennessee. This early state attempt to dramatically increase health coverage dubbed TennCare started off promisingly. In 1994 the first year of its operation the system added half a million new individuals to its rolls. Premiums were cheapjust $2.74 per month for people right above the poverty lineand liberal policy wonks loved it.
The Urban Institute for example gave it good marks for improving coverage of the uninsurable or high-risk individuals with very limited access to private coverage. At its peak the program covered 1.4 million individualsnearly a quarter of the states population and more than any other states Medicaid programleaving just 6 percent of the states population uninsured.
But those benefits came at a high price. By 2001 the systems costs were growing faster than the state budget. The drive to increase coverage had not been matched by the drive to control costs. Vivian Riefberg a partner at consulting firm McKinsey & Company described it as having almost across the board no limits on scope and duration of coverage.
Spending on drug coverage in particular had gone out of control: The state topped the nation in prescription drug use and the program put no cap on how many prescription drugs a patient could receive.
The result was that by 2004 TennCares drug benefits cost the state more than its entire higher education program. Meanwhile in 1998 the program was opened to individuals at twice the poverty level even if they had access to employer-provided insurance.
In other words the programs costs were uncontrolled and unsustainable.
By 2004 the budget had jumped from $2.6 billion to $6.9 billion and it accounted for a quarter of the states appropriations. A McKinsey report projected that the programs costs could hit $12.8 billion by 2008 consuming 36 percent of state appropriations and 91 percent of new state tax revenues.
On the question of the systems fiscal sustainability the report concluded that even if a number of planned reforms were implemented the program would simply not be financially viable.
Democratic Gov. Phil Bredesen declared the report sobering and rather than allow the state to face bankruptcy quickly scaled the state back to a traditional Medicaid model dropping about 200000 from the program in a period of about four months. Though the state still calls its Medicaid program TennCare Bredesens decision to scale back effectively shut the program down.
In 2007 he told the journal Health Affairs The idea of TennCare as it was implemented failed.
Maine took a different route to expanding coverage but it also resulted in failure. In 2003 the state started Dirigo Care which it was promised would cover each and every one of the states 128000 uninsured by 2009. The program was given a one-time $53 million grant to get things started but was intended to be eventually self-sustaining.
It wasnt.
Indeed the program managed the neat trick of drastically overshooting cost projections while drastically undershooting coverage estimates.
In 2009 the year in which the program was to have successfully covered all of the uninsured the uninsured rate still hovered around 10 percenteffectively unchanged from when the program began. Taxpayers and insurers however had picked up an additional $155 million in unexpected costsall while the state was wading deeper into massive budget shortfalls and increased debt.
The program has not been shut down but because expected cost-savings did not materialize its been all but abandoned. As of September 2009 only 9600 individuals remained covered through the plan.
And then there is the Massachusetts plan the model for ObamaCare. The states health care program has successfully expanded coverage to about 97 percent of the states population but the price tag may be more than the state can bear.
When the program was signed into law estimates indicated that the cost of its health insurance subsidies would be about $725 million per year. But by 2008 those projections had been revised. New estimates indicated that the plan was to cost $869 million in 2009 and $880 million in 2010 an upwards increase of nearly 20 percent.
More recently the governors office announced a $294 million shortfall on health care funds and state health insurance commissioners have warned that on its current course the program may be headed for bankruptcy. According to an analysis by the Rand Corporation in the absence of policy change health care spending in Massachusetts is projected to nearly double to $123 billion in 2020 increasing 8 percent faster than the states gross domestic product (GDP).
The states treasurer a former Democrat who recently split with his party says that the program has survived only because of federal assistance.
Defenders of the program argue that its not really a budget buster because the states budget was already in trouble. But for those worried about ObamaCares potential effects on the federal budget thats hardly comforting. The Congressional Budget Office (CBO) has warned that without significant change the U.S. fiscal situation is unsustainable with publicly held debt likely to reach a potentially destabilizing 90 percent of GDP by 2020.
Democrats managed to get the CBO to score ObamaCare as a net reduction in the deficit but those projections are tremendously uncertain at best.
As Alan Greenspan warned last weekend if the CBOs estimates are wrong the consequences could be severe.
The history of health coverage expansion should make us worry. If ObamaCares actual fiscal effects look anything like previous efforts to expand health coverage the federal budget is in for a world of hurt.
Mr. Suderman is an associate editor at Reason.
