A Health Question for the Democratic Candidates

Continued gridlock in Washington, D.C. over health care reform is forcing more and more states to devise their own plans in an effort to cover the uninsured and underinsured, and to fight increased costs on several fronts.

Massachusetts recently launched an ambitious program that is being closely watched as a possible model. Efforts to provide universal coverage to the uninsured in California failed. Now comes Pennsylvania, home to 800,000 uninsured residents. Governor Ed Rendell has put forward a responsible plan and the Pennsylvania legislature passed a scaled-back version on March 17 that Rendell seems inclined to support.

What has Rendell and his legislative colleagues proposed where others have struggled to find a workable solution?

First, consider that there are really only two major ways to responsibly reform health insurance and Pennsylvania has taken one of them. A state or nation can provide a single plan of financing—with set benefits, equal treatment of its citizens, and with a pool of all its citizens taxed to finance the care—and call it, say, Medicare for all.

The second option is to provide health insurance for all by “aggregation,” or patching together one by one the elements that can add up to a coherent whole. That is Rendell’s strategy. Pennsylvania lawmakers passed a similar, though less ambitious, version.

In almost all cases, states are attempting to create a universal approach by patchwork. That requires piecing together existing state and federal programs and employment-based insurance with new state pools and/or subsidies. It means adding regulatory requirements for employment-based health insurance plans and individual coverage.

Everyone recognizes that these schemes are fiscally ambitious. But the need for reform is great. And, if current public and private efforts can be maintained, a combination of cost controls and relatively modest new state spending has a reasonable chance of closing the widening gaps in existing health insurance coverage.

While this patchwork approach has obvious limitations—complexity, continuation of the high administrative costs of private insurance, and so on—it avoids the massive political obstacles to a complete overhaul of existing health insurance arrangements.

Rendell’s particular approach has much to like. Indeed, it is more serious about cost control and unified coverage than the Massachusetts program or the proposals of any of the current presidential hopefuls.

The Rendell plan includes significant regulatory limits on underwriting, administrative costs, and huge variation in insurance premiums. Insurers will not be allowed to avoid the sick, charge them exorbitant premiums for coverage, or fritter away too many precious dollars (although still a lot) on advertising and other non-health related expenditures.

Still the governor’s plan faces real challenges—even if adopted as proposed. The first is fiscal. If too many employers jettison their existing health insurance plans to take advantage of the subsidies available for new employment-based coverage—or decide to leave their workforces to the individual market—the state could find itself with very large financial promises to keep.

The second is legal. The very regulatory provisions that we have praised may well cause the plan to violate the preemption provisions of the Employee Retirement Security Act (ERISA), which prohibits state regulation of employer benefit plans where the firm bears financial risk and has other firms administer their health insurance.

It is enough to note that ERISA is the rock upon which most state attempts at universal coverage have foundered (and Massachusetts may yet). The only state with effective universal coverage is Hawaii, and the reason for that is simple. Hawaii has the only statutory exemption from ERISA, and that was done in 1974.

So here is the question that Pennsylvania primary voters should ask the presidential candidates: If your health reform plan fails at the federal level—as all others have—do you support the repeal of ERISA preemption so that responsible state governments can do the job that the federal government apparently cannot?

Theodore Marmor and Jerry Mashaw, along with Philip Harvey, are authors of America’s Misunderstood Welfare State: Persistent Myths, Enduring Realities.