In healthcare issues, don’t repeat the costly mistakes made by states


House Speaker Nancy Pelosi famously said before Congress voted on her massive health overhaul legislation that “we have to pass the bill so that you can find out what is in it.”

Now that the bill has been signed into law, the American people are finding a lot not to like — from a new federal requirement that every citizen must have expensive government-defined health insurance to a mandate that states dramatically expand access to their Medicaid programs.

Yet missing in the 2,700 pages of legislation is a serious effort to contain health costs — the number one priority for health reform. Unless costs are addressed, efforts to expand access to health care will fail.

The states can tell Mrs. Pelosi how hard that task will be and the high price of bad policy decisions.

For starters, consider state-run health plans, akin to the “public option” that so dominated the health reform debate. While a federal public option didn’t make it into the final bill, states are required to set up health insurance purchasing exchanges that can take many forms.

California lawmakers are considering a bill to institute a single-payer health system — the ultimate public option. But the experiences of Tennessee and Maine illustrate why state-level public options can backfire.

In 1994, Tennessee launched “TennCare,” a program that expanded Medicaid eligibility to uninsured citizens who weren’t able to get health insurance through their employers or existing government programs and to citizens who were uninsurable because of pre-existing conditions.

The state hoped to afford this vast expansion of Medicaid through the use of managed care. But costs quickly spiraled out of control.

Between 1994 and 2004, Medicaid’s per-capita cost increased by 71 percent in the U.S. overall, but TennCare’s costs rose by a whopping 146 percent! Indeed, by the end of TennCare’s very first year, the state was forced to close enrollment to uninsured adults. Only the uninsurable could enroll.

Despite TennCare’s mammoth expenditures, health outcomes did not improve, according to an analysis by the Heritage Foundation. Even Phil Bredesen, Tennessee’s Democratic governor, has called the program “a disaster.”

Tennessee is not alone. Maine’s experiment with a public option also has been fraught with problems. Dubbed DirigoChoice, the program was developed in 2005 with the goal of providing coverage for all 128,000 uninsured Mainers by 2009. Despite spending $155 million on the program, only 8,000 state residents were enrolled as of this January, and the state’s uninsured rate has barely changed.

In addition, DirigoChoice failed to control health costs. In the program’s first four years, premiums increased 74 percent — almost double initial estimates.

Many states have focused on restricting access to prescription drugs to cut costs — with markedly little success. One policy that several states have tried in their Medicaid programs is “step therapy,” whereby patients must try less-costly prescription drugs before their doctors can prescribe more expensive treatments — even if the doctors don’t believe the cheaper drugs will work.

Not only does that mean government bureaucrats are playing doctor and overriding a doctor’s medical decisions, the policy often ends up costing the state more!

For example, a 2008 study of Georgia’s Medicaid program showed that step therapy actually increased costs for patients requiring antipsychotic medication. Although step-therapy saved Georgia’s Medicaid program roughly $20 per person each month in drug spending, the state spent $31.59 more per member each month on outpatient services. That was hardly a money-saver.

Georgia is not alone. Washington state has implemented a program to control spending on prescription drugs in its Medicaid program by using “therapeutic substitution” designed to automatically provide patients with less expensive drugs in the same therapeutic class.

But such substitutions can actually increase overall health costs. A 1996 study in the American Journal of Managed Care concluded that substitution of cheaper, older drugs increased the use of other healthcare resources and resulted in longer illnesses, more trips to the hospital and emergency rooms, and increased overall spending.

Because Congress failed to address rising costs in any meaningful way in its health overhaul law, the task of controlling spending, especially in the expanded Medicaid program, will continue to fall to the states.

As they contemplate their options, officials would be wise to study these health policy blunders as cautionary tales. Short-sighted programs can backfire with bigger costs in the long run, especially when bureaucrats try to play doctor.

[Grace-Marie Turner is president of the Galen Institute, a non-profit research organization focusing on patient-centered solutions to health reform. She can be reached at P.O. Box 320010, Alexandria, VA, or at]