Vermont's Badly Managed Care
From the January 12, 2004 issue: Dean's health care record as governor is nothing to brag about.
Jan 12, 2004, Vol. 9, No. 17 • By DAVID GRATZER
HOWARD DEAN'S campaign wants you to know that he used to be a practicing physician. Campaign literature refers to him as "Gov. Howard Dean, M.D." At public events, his supporters wave signs proclaiming "The Doctor Is In." Dean often addresses issues--mainly non-health care issues--by referring to his former occupation. "As a doctor, I know that failure to act on the environment has devastating consequences," he recently told a crowd. During one rally, he even brandished a stethoscope.
Stories about Dean's commitment to medicine reach mythical proportions. In Vermont, people talk about the afternoon Dean's predecessor died. Dean, then serving in the part-time job of lieutenant governor, was seeing patients in his medical office. He received the call, but finished examining his patient before driving off to be sworn in as governor. The message is unmistakable: Even from day one as governor, he put patients first.
"As a physician, I've seen the suffering caused by this nation's health care crisis," his website explains. "As Governor, I know it can be solved." It's a bold claim. Too bad it doesn't hold up on examination. As a look at his 11-year gubernatorial record shows, the doctor administered some pretty bad medicine to the people of Vermont.
Children's health is supposed to be Dean's signature issue. His campaign cites statistics on children's health coverage in Vermont: Ninety-six percent have insurance. If that sounds good, there are other seemingly impressive accomplishments: Nearly 90 percent of Vermonters have health coverage; in Vermont, Medicaid assists the poor and the working poor. And Dean managed to create this health nirvana while balancing the state budget.
Put in perspective, though, the picture seems less awesome. According to the Census Bureau, 9.5 percent of Vermont's population lacked insurance when Dean assumed office in 1991. About 9.7 percent lacked coverage at the end of his term (average of 1999-2001). Over the Dean years, Vermont fell from second to tenth in share of population with total health coverage. Such minute differences could easily be statistical noise, but if Dean claims to be the man who did something about the uninsured in Vermont, it seems there wasn't much of a problem to begin with.
From a distance, then, Dean's health care record seems marked by inactivity--after all, the percentage of people covered hardly changed. But this obscures dramatic changes under Governor Dean in who provides coverage to Vermonters. "Every governor has his obsession," notes John McClaughry, a former state senator who runs the free-market Ethan Allen Institute. "Health care was his. He worked on it until he lost sight of the big picture." The Dean years saw a sustained effort to increase public insurance coverage while hampering the spread of private insurance.
First, Dean meddled in the private insurance market. Before his swearing in, Vermont's legislature passed a bill mandating "community rating" and "guaranteed issue" for health insurance. Community rating means that premiums are based on age, rather than health status. It aims to reduce premiums for the chronically ill. Guaranteed issue requires insurance companies to sell policies to all applicants. Again, the aim is to improve access for those who aren't healthy.
While these mandates may appear innocuous in and of themselves, when combined, they create perverse incentives for people to game the system. People can buy insurance after they get sick--and yet they still pay the rates of other people their age. A downward spiral for private insurers follows. Faced with massive rate hikes, small employers drop coverage for younger workers. With an insurance pool of older and sicker workers, those left face high premiums.
Vermont isn't the only state to achieve such results with guaranteed issue and community rating. In New Jersey, according to the Coalition Against Guaranteed Issue, it now costs more to buy a family health insurance than it does to lease a Ferrari.
One of Dean's first initiatives as governor was to champion Bill 160, sweeping legislation meant to address the health care problems he inherited. But instead of undoing the price regulation that had been slapped on the insurance industry, Bill 160 went further. The legislation aimed to establish state control over hospital budgets, create a statewide insurance pool, and form a new health authority to coordinate it all. Instead of scrapping community rating, the legislation expanded it. Premiums wouldn't be based on age at all, but would be one-size-fits-all. Thus, a 20-year-old worker in perfect health would pay the same premium as a 60-year-old man with heart disease and emphysema. Much of the legislation was eventually dumped, but not community rating. "We fought that tooth and nail," recalls Tory Bunce of the Council for Affordable Health Insurance, an advocacy group for small businesses and insurance carriers. "We predicted that premiums would go through the roof."
They did. And no wonder. If homeowners' insurance were regulated the way Dean regulated health care, residents could insure their houses after they caught fire. As a result, young, healthy people dropped their insurance, numerous insurance carriers left the state, and the percentage of uninsured Vermonters approached 14 percent.
Various ideas were floated in the mid-1990s to cope with the collapsing market for private health insurance. Some Vermont legislators proposed a single-payer plan. In a daring display of political calculation, Dean urged them to vote for such a proposal--which he also promised to veto. The strategy collapsed so spectacularly that the resulting stalemate received a detailed report in the New York Times.
Dean's alternative was simply to expand government programs. In particular, he grew Medicaid, the federal-state program for poor Americans, with Washington footing the majority of the new bill. He expanded eligibility, going so far as to allow children in families with incomes up to $51,000 to be enrolled. (His office even approached the Clinton administration about expanding Medicaid further, but the request was denied.) By the end of Dean's term, the Medicaid rolls had doubled to roughly 20 percent of Vermont's population. Today, Vermont ranks ahead of almost every other state in Medicaid enrollment; neighboring New Hampshire is last.
To pay for it all, Dean hiked taxes, including those on cigarettes and gasoline. He also shifted costs. However, Medicaid's reimbursement to doctors, hospitals, and dentists is low. Consider that a typical Burlington psychiatrist makes $125 an hour from private insurance. Medicaid pays about 75 percent of that. Hospital fees are even stingier, with the state paying 50 cents on the dollar in some cases. Some physicians and dentists stopped taking Medicaid patients altogether. For hospitals and clinics now facing a shortfall, fees for non-Medicaid patients increased.
What does Vermont health care look like today? It's a mixed picture. The percentage of insured citizens is relatively high, but so are Medicaid rolls. It's not clear that Vermonters can sustain the state government's spending. Projections suggest that in Vermont Medicaid will run a $98 million deficit by 2008. And insurance premiums are sky high. "I'm paying a lot and getting little choice," a self-employed Burlington resident told me. He wasn't kidding: To cover his wife and himself, he pays $5,000 a year for a plan with a $1,000 deductible. Because most carriers have left the state, there are only a few insurance companies left in business.
Vermont, though, isn't unique. As much as Dean's supporters suggest his zeal for health reform distinguishes his record, regulating health insurance has become a hobby for activist politicians around the country. Consider: State legislators have passed more than 1,500 mandates that direct health insurance companies to cover specific diseases or procedures. In Vermont, jaw-joint disorders must be covered; New York insists on podiatric care. Add to this mix guaranteed issue and community rating, and it's clear why some small businesses and self-employed individuals find health insurance unaffordable.
Ironically, Dean may end up benefiting from the health insurance debacle he helped create. He promises to do in Washington what he did in Vermont: have government fill the role that private companies once did, another step along the road to single-payer health care. With premiums sky high across the country and many Americans fretting the possibility of losing their insurance, Dean's promise of expanded government programs offers a tempting panacea. Worse yet, Republicans seem lost on the issue.
How to beat the former governor at his own game? The White House should champion a competitive market for health insurance, allowing citizens more choice and lower premiums. This could be accomplished very simply. Give Americans the ability to buy health insurance from other states. If people in Vermont or New York can buy a mortgage from a less regulated state, why can't they buy an insurance plan in another jurisdiction?
The federal McCarran-Ferguson Act of 1945 empowers states to regulate "the business of insurance." But nothing stops Congress from passing legislation allowing the interstate sale of health insurance. Indeed, such a bill would reflect the principle of the Constitution's Commerce Clause. And it would also be consistent with free market principles since interstate restrictions leave many Americans at the mercy of a small number of local health insurance carriers--which for Dean's former constituents can be counted on one hand.
In 1992, Dean said: "There is no such thing as an informed consumer of health care." Republicans need to present voters with a less paternalistic vision. They can start by empowering Americans to buy affordable health insurance. The Burlington man spending $5,000 a year on insurance would, in Connecticut, pay less than half that. Washington should give him the option to buy the out-of-state plan. This would help stave off the disastrous scenario predicted by Service Employees International Union president Andy Stern when he said: "After November 2, there will be a doctor in the house--the White House."
David Gratzer, a Toronto-based physician, is a senior fellow at the Manhattan Institute.