January 28, 2006
By Edmund F. Haislmaier
In "Unhealthy in Massachusetts" (NRO, 1/26) Sally Pipes roundly
trashes Massachusetts Governor Mitt Romney's health plan. However,
her "just say no" critique reveals a near complete misunderstanding
of the governor's innovative approach.
In reality, those who want to create a consumer-based health
system and deregulate health insurance should view Romney's plan as
one of the most promising strategies out there. I know, because
I've been part of the Heritage Foundation team advising the
governor and his staff on the design, which builds on some of my
work with officials in other states.
The overall design has two basic parts: reforming the state's
insurance market structure and reforming its uncompensated-care
Over the past 70 years a combination of industry practices and
federal and state government regulations have produced a
fragmented, balkanized health-insurance market, one with different
regulations and practices in the large-group, small-group, and
The solution offered by the Left has been to standardize coverage
and benefits. In practice, that ends up looking like Henry Ford's
auto market - only one or two car models (all painted black), but
obtainable from lots of independent dealers.
The Romney approach is the inverse of the Henry Ford model. Call it
the "CarMax" model - lots of different kinds of cars to choose
from, all obtainable through one giant dealership.
The basic insight behind a state health-insurance exchange is that
markets sometimes work more efficiently and effectively with a
single administrative structure to facilitate diverse economic
activity. That's exactly what stock exchanges do for the buying and
selling of securities. Like a stock or commodity exchange, Romney's
health-insurance exchange would be a clearinghouse but never a
The exchange would be a single place where a small employer could
send its workers to buy coverage, paid for with a defined
contribution from the employer. For workers, it would be a
"marketplace" in which to choose the plans that best suited them
and which they could keep as they moved from job to job.
Furthermore, the exchange is designed to ensure that premium
payments by both employers and workers can be made on a pre-tax
Such an exchange offers numerous advantages. For example, a
two-earner couple could combine contributions from their respective
employers to buy and keep the plan they want, instead of being
forced to choose one employer's plan while forgoing the subsidy
offered by the other employer. Similarly, a worker with two
part-time jobs could combine pro-rated contributions from each
employer to buy coverage, while the government would have a single
place to send subsidies for those who need extra help.
In short, the exchange is designed to work around the limitations
of current federal law to achieve, in a single state, the basic
objectives of conservative health reform - consumer choice of
plans, true coverage portability, and the functional equivalent of
individual health-insurance tax credits to help pay for
Also, contrary to Pipes's assertion, the state government wouldn't
design the coverage offered through the exchange. Rather, the
exchange would be open to any willing insurer interested in
offering a plan that complies with Massachusetts' law. While his
proposal does provide some regulatory flexibility to enable
insurers to offer cheaper plans through the exchange, Romney knew
from the start he didn't have the votes for a full repeal of
Massachusetts's community rating and mandated-benefit laws. In a
less-liberal-dominated state, more deregulation would certainly be
Costing Taxpayers Less
Where Romney really builds on the concept of a state-insurance
exchange is in the Medicaid reforms he included his proposal. His
administration found that the reason some 100,000 Medicaid eligible
residents were not enrolled wasn't because they "simply hadn't made
the effort." Rather, it was because hospitals often got paid better
rates by the state's uncompensated care pool than by Medicaid for
treating those patients. Thus they had an incentive not to enroll
those individuals in Medicaid when they showed up in emergency
rooms. Of course, the total cost to taxpayers would actually be
much less if they were enrolled in Medicaid, and thus getting most
of their care in clinics and doctors offices instead of
The Romney administration fixed that by putting Medicaid
eligibility determinations back in the hands of the state Medicaid
program. Then they seized on the opportunity presented by the
impending (June 2006) expiration of the state's Medicaid waiver, to
tackle covering uninsured individuals who are ineligible for
Medicaid. That waiver currently pumps $385 million a year in
Federal Medicaid money into the state's uncompensated care pool,
which in turn pays it out to hospitals treating the uninsured. But
the Feds told the state that they wouldn't approve a waiver
extension absent a state plan to achieve better results with the
Romney's solution was to propose converting what is really a
"hospital safety net" into premium assistance for the low-income
(but not Medicaid eligible) uninsured. Of course, if you're going
to now subsidize thousands of people, instead of just a handful of
hospitals, having a one-stop-shop health-insurance exchange sure
makes for an administratively simpler and cheaper way to match up
all the various combinations of people, plans and payments. It also
means that as those folks work their way up the income ladder and
lose the subsidies, they still have portable health insurance
coverage. Federal Medicaid officials liked the approach.
As Tip O'Neill used to say, "All politics is local," and faced with
the choice of Romney's plan versus losing a big chunk of federal
money, savvier Massachusetts Democrats lined up behind their
Republican governor's proposal - albeit, with varying degrees of
Flirting with Libertarians in Massachusetts
Finally, there is the element of Romney's proposal that gives
Pipes's and many other conservatives the most trouble - the
"personal responsibility" provisions, or what could be called an
individual mandate to buy health insurance. Romney's argument is
that mandating coverage in the currently fragmented and overly
expensive insurance market would be wrong and counterproductive.
But, if the market is reorganized to make coverage universally
available and portable, deregulated at least enough to make it
affordable for the middle class, and subsidized enough to make it
affordable for the low-income, then there are no more reasonable
excuses for anyone not buying health insurance.
Furthermore, to allow people to go without health insurance, and
then when they do fall ill expect someone else to pay the tab for
their treatment is a de facto mandate on providers and taxpayers.
Romney proposes to take that option off the table, leaving only two
choices: Either buy insurance or pay for your own care. Not an
unreasonable position, and one that is clearly consistent with
But beyond that, the Romney administration got downright
Libertarian in figuring how to make it work. Under Romney's plan
anyone opting to not buy insurance would be required to deposit
$10,000 in an (interest-bearing) escrow account with the state. If
they didn't pay their medical bills, the providers stuck with their
bad debts could apply for that money. But what if they won't buy
insurance and refuse to put $10,000 in escrow with the state? The
answer is that they aren't allowed to claim the personal exemption
tax-break on their state income tax, and any tax refunds due them
are deposited into the escrow account until the $10,000 limit is
Having first proposed the creation of more and better
health-insurance choices and more rational and efficient subsidies,
Romney essentially says, "You will be free to choose, but your
choices will have consequences."
A conference committee of the Massachusetts legislature is now
hammering out the details of the final legislation. Given that
Massachusetts has a legislature in which Democrats outnumber
Republicans by about five to one, the fact that Romney's proposal
has gotten this far is itself a testament to the power of good
ideas - as well as to the political skills of one particular
governor and his team.
Edmund F. Haislmaier is a visiting research fellow in the
Center for Health Policy Studies at The Heritage
First appeared on NationalReview.com
In "Unhealthy in Massachusetts" (NRO, 1/26) Sally Pipes roundly trashes Massachusetts Governor Mitt Romney's health plan. However, her "just say no" critique reveals a near complete misunderstanding of the governor's innovative approach.
Edmund F. Haislmaier
Senior Research Fellow, Health Policy Studies
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