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City Journal Spring 2006.
Spring 2006
Table of Contents
New Book From Steven Malanga:
Shakedown: The Continuing Conspiracy Against the American Taxpayer.
The Immigration Solution:
A Better Plan Than Today's

by Steven Malanga, Heather Mac Donald, Victor Davis Hanson
The Immigration Solution.
The New New Left: How American Politics Works Today
by Steven Malanga
The New New Left.
 
  S oundings

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How Not to Fix Health Care
Steven Malanga

Mandating private-sector health-care coverage is a bad idea.

In January, the Democrat-dominated Maryland state legislature overrode Republican governor Bob Ehrlich’s veto and enacted the country’s first so-called Wal-Mart bill. The measure requires employers with 10,000 or more workers—Wal-Mart is the only one in Maryland—to spend at least 8 percent of their payroll on health insurance. The new law has prompted the introduction of similar health-mandate bills in dozens of other state capitals, many targeting not just Wal-Mart but other firms, as well. In Maryland itself, legislators followed passage of the Wal-Mart law with proposed legislation that would expand health-care mandates to all businesses. Smaller firms would have to spend at least 4.5 percent of their payrolls on health insurance. The head of New York’s Republican-controlled state senate said he’d seriously mull over a Democrat-sponsored measure that would compel all businesses with 100 or more workers to offer health insurance.

It’s easy to see why politicians are jumping on the health-mandate bandwagon. Surveys show that a growing number of low-wage workers are enrolling in government-subsidized health-care plans like Medicaid and its offshoots. A study in Washington State, for instance, found that thousands of workers from Wal-Mart, Safeway, Target, and other large retailers had signed up for Medicaid and a similar state program, Basic Health. The flood of new recipients, in Washington and elsewhere, is driving up state costs, crowding out other spending. Health mandates seek to move such costs back to the private sector.

Yet while rushing to embrace mandates, legislators ignore how their own state policies have encouraged the shift to government insurance. By expanding government health coverage, first of all, states have made it easier for workers to leave private insurance plans. Economists have long recognized that increasing government health care reduces private insurance rolls. A 1995 study by Harvard and MIT economists estimated that the dramatic expansion of Medicaid from 1987 through 1992—a period that saw broadened eligibility for children—spurred a flight from private insurance, as workers joined employer-sponsored plans less often and some already-enrolled workers dropped their private plans.

More recently, after the Clinton administration and a Republican-controlled Congress allowed states to double the income level at which one can qualify for Medicaid, thousands of private-sector workers migrated over to government plans in California, New Jersey, Washington State, and other states. States also crafted insurance programs to cover workers at even higher income levels, with similar results. The Maine Heritage Policy Network, a state think tank, reports that some 6,000 of the first 7,600 enrollees in Maine’s subsidized Dirigo health plan “simply traded their private health insurance” for the state plan, at taxpayer expense.

The trade-off is easy to understand, because many public insurance plans simply offer better deals—requiring no contribution on workers’ parts, for instance, while 85 percent of private workers with employer-provided health coverage must pay a portion of premiums. Most businesses, especially small firms or those in low-margin industries like retailing, can’t compete with the benefits now offered in government plans—all the more so because states are doing so much to jack up the cost of private insurance. Health-care-related tax hikes and regulations requiring private plans to offer specific services have squeezed bottom lines and thus forced firms to scale back benefits and increase co-payments.

Take New York State, where regulations and taxes impose a particularly heavy burden on private insurance costs. New York State subsidizes the cost of graduate medical education at the state’s big teaching hospitals by levying a tax on private insurance policies. In New York City, that tax comes to about $400 per policy—a gift to the hospitals. The state also levies an 8.18 percent tax on hospital bills to subsidize charity care in hospitals. (Health insurers must also pay their own separate taxes, including a special assessment to subsidize the operations of the state’s insurance department.)

More onerous still, New York, often responding to political pressure from special interests, piles on regulations that force businesses to offer specific treatments, at added cost. Several years ago, for example, the state began requiring all policies to pay for expensive treatments for infertile couples—hardly a life-threatening condition—because of pressure from New York’s Orthodox Jewish community, heavy users of those services. But the fertility mandate is just one of 35 such regulations in the state. Together with the health-care taxes, they enlarge the cost of private insurance in New York by some 15 to 20 percent, a huge additional bill in a state where the average cost of family insurance is over $10,000 a year.

Legislators remain unsympathetic to the load they’re imposing on employers. In announcing his willingness to consider a broad health-coverage mandate, New York state senate majority leader Joe Bruno excoriated businesses that he claimed were living off the public dime by not offering health benefits. A former business owner who once sympathized with the plight of firms in overtaxed and regulated New York, Bruno should acknowledge where the real problem lies. But like too many lawmakers seeking union support, Bruno proved willing to bash businesses while disregarding real solutions. America’s health-care crisis won’t get any better until legislators own up to how they’ve helped create it.

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More by Steven Malanga:
The Cost of New York
A Tale of Two Scandals
Borrowing Trouble
More . . .
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To Have or to Be?
Follow the Money
Brennan’s Revenge
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