Healthcare reform – history of fiscal folly

As statesman and philosopher Sir Edmund Burke once said, “Those who know not history are destined to repeat it.” This quote speaks volumes when you put into perspective the current health care reform fiasco in Massachusetts and past health care reform efforts in Tennessee.

As spectacular failures go, it’s hard to do worse than Tennessee. The Volunteer State’s early effort to dramatically increase health insurance coverage, called TennCare, started off promising, says Peter Suderman, an associate editor at the Reason Foundation.

In 1994, the system’s first year of operation, the system added half a million new individuals to its registers.

· Premiums were cheap — only $2.74 a month for people above the poverty line — and liberal policymakers loved them.

· For example, the Urban Institute gave it good marks for “improving health insurance coverage for uninsurable or high-risk individuals who have very limited access to private health insurance.”

· At its peak, the program covered 1.4 million people—nearly a quarter of the state’s population and more than any other state’s Medicaid program—leaving only 6 percent of the state’s population uninsured.

But those benefits came at a high price, says Suderman. In 2001, the cost of the system grew faster than the state budget. The drive to increase coverage was not matched by the drive to control costs. Vivian Riefberg, a partner at consulting firm McKinsey & Company, described it as “almost across the board, no limits to scope and duration of coverage.” In particular, drug coverage expenses had spiraled out of control:

· The state topped the nation in prescription drug use, and the program placed no limit on the number of prescription drugs a patient could receive.

The result was that TennCare’s 2004 drug benefits cost the state more than the entire higher education program.

· Meanwhile, in 1998, the program was opened to persons twice as poor, even if they had access to employer-provided insurance.

In other words, the costs of the insurance program were uncontrolled and unsustainable, Suderman says:

· In 2004, the budget had increased from $2.6 billion to $6.9 billion and accounted for a quarter of government borrowings.

· A McKinsey report predicted that the cost of the program could reach $12.8 billion in 2008, consuming 36 percent of the state’s credits and 91 percent of the state’s new tax revenue.

Source: Peter Suderman, “Health Care’s History of Fiscal Folly; Expanding health care coverage killed state budgets. Will it wreck the federal budget, too?” Wall Street Journal, April 23, 2010.

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Health insurers take advantage of you and you let it happen. 92% of Americans pay 30-40% higher health insurance premiums than they need to. The higher health insurance premiums equate to an average of $2,208.44/year.