Monday, September 24, 2007

What happened when New Jersey and Kentucky tried Hillary's idea on health care

Kevin Hassett looks at what happened when two states, Kentucky and New Jersey, tried elements of the plan that Hillary Clinton is proposing. The results weren't good.
Although Massachusetts is the only state to try out the individual mandate, there have been a variety of experiments with community rating and guaranteed issue by state governments. States with these regulations tended to experience higher premiums and lower rates of coverage, particularly among the healthy.

Failure in Kentucky

In 1995, Kentucky implemented community rating and guaranteed issue for individuals. Two years later, the market for individual insurance collapsed, as almost all the non-group insurers chose to leave the market. In response, these regulations were abolished in 2000.

In 1993, community rating and guaranteed issue were introduced in New Jersey's non-group health-insurance market. Premiums skyrocketed and coverage rates declined precipitously. In 2003, in order to counter this trend, the government approved high-deductible ``basic and essential'' plans, permitting adjustable premiums, which immediately became popular.

Today, in the tiny New Jersey non-group market, consumers have two choices: purchase a ``basic and essential'' plan with minimal coverage or buy a standard health-insurance plan they can't afford.

Forced Into Pools

The lesson: individuals with costly health problems will want to gravitate toward generous and costly plans. Healthy individuals, especially the young, will want to avoid getting stuck with big insurance bills, either by purchasing the narrowest coverage possible, or by avoiding the purchase altogether.

If we want to avoid the New Jersey experience writ large, government will have to force many people into pools they don't want to be in, or stick taxpayers in general with the soaring costs of the plans that attract the sick.

The hand of government will have to be heavy indeed. The most likely outcome is that federal law will require proof of insurance of every individual, even those without a job. Penalties for those without insurance would likely be monetary, and steep enough to force many individuals to purchase insurance products they otherwise would avoid.

It would probably take a little while for Hillary's plan to make a complete mash out of the current health-care universe. When it does, you can bet that the ``fix'' will be something that looks very much like her 1993 plan. The difference is, this time voters might not see it coming.