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The Health-Care Crisis: States Are Rushing In

Health costs are skyrocketing, the number of uninsured is growing steadily, and squeezed companies are bailing out of the benefits business. Yet Washington is sitting on its hands. Enter the states. Governors and legislators are trying in a variety of ways to expand coverage while reining in their own expenses. Business is watching warily to see whether states can achieve health-care nirvana: widespread coverage and lower costs without steep, job-crushing taxes.

The hottest debate is in Massachusetts. On Nov. 3 state representatives passed a bill that would achieve near-universal coverage by making their state the first to impose a so-called individual mandate -- a requirement championed by Governor Mitt Romney -- that directs all residents who can't get coverage at work or from Medicaid to buy their own insurance. In Illinois, Democratic Governor Rod Blagojevich on Nov. 15 signed into law his $45 million "All Kids" plan, which would make the Land of Lincoln the first to extend comprehensive coverage to all children under age 18. And in 2006, 22 states across the political spectrum will be expanding eligibility for Medicaid programs, according to the Henry J. Kaiser Family Foundation.

Increasing health coverage is a laudable goal. But visionary governors should study the results of past state experiments. Hawaii launched an employer-financed universal-coverage plan in 1974, but today up to 12% of its residents still remain uninsured. Tennessee tried to expand coverage dramatically in 1994 with a massive state-run insurance program called TennCare, but its staggering costs fueled a taxpayer backlash. And California dropped plans to require employers to cover workers or face new taxes because of widespread opposition from the business community.

Yet Romney thinks a more market-based solution to the health-care crisis can be a winning issue. The Republican governor is expected to announce his Presidential candidacy before Christmas and figures expanding coverage could win him praise as a can-do compassionate conservative. Rather than force employers to provide coverage, he would require individuals who don't qualify for Medicaid to buy their own health insurance. Massachusetts would encourage insurers to offer less expensive but more restrictive policies costing about $200 a month, or half current levels. The state would help subsidize the cost for people earning less than triple the poverty level. Those who don't buy insurance would face stiff tax penalties -- a stick designed to encourage participation. House Speaker Salvatore F. DiMasi, a Democrat, estimates the plan would extend coverage to 95% of the 500,000 residents who are now uninsured. "This could become a model for other states," he predicts.

Pack-Up Time?

But health plans that work on paper often fail in the clinics. The individual mandate could create a backlash among healthy young singles who often choose to go without insurance. And DiMasi's troops in the Democratic-controlled Massachusetts House are adding a wrinkle that is strongly opposed by business: a 5%-to-7% payroll tax on companies that don't insure their own employees.

"This would clearly undercut job creation at a time when we are already a very high-cost state," says Michael J. Widmer, president of the Massachusetts Taxpayers Foundation, a business-oriented research group. And for employers who already provide coverage, the tax could prove a cheaper alternative, inducing them to dump workers onto the state plan as costs rise.

Romney, who knows his 2008 prospects could vanish if he endorsed a steep tax hike, is counting on the state Senate to nix the tax: It's pushing a less sweeping plan that would cover no more than half the uninsured. "If you try to do too much, too fast, you end up with nothing," says Senate President Robert Travaglini (D).

Even that modest progress could prove appealing to voters in states where coverage is shrinking. Slammed by increasing health-care costs, 14 states -- almost all of them carried by George W. Bush in 2004 -- are scaling back their Medicaid programs. Tennessee has already slashed 200,000 from TennCare, and Missouri has cut some 100,000 residents off Medicaid.

Over the past five years, the number of companies offering insurance has fallen from 69% to 60%, says Gary Claxton, a Kaiser vice-president. Where coverage is offered, premium hikes have more employees opting out. The upshot: The number of uninsured rose from 15.3% to 18% between 2000 and 2004. Faced with those facts and with Washington's inaction, governors like Romney and Blagojevich feel they have little choice but to ignore the grim record of state reforms and take action on their own.

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