Posted on November 1, 2002

Economics at heart of Measure 23 debate


October 31, 2002
By Rebecca Merritt
The Bulletin

On the surface, Measure 23 looks to be a good deal for the average family struggling to keep up with escalating health insurance premiums.

If approved in Tuesday's election, Oregonians would create a health plan that would cover everyone. Residents would receive a rich benefit package that includes everything from chiropractor visits to nursing home care to mental health counseling. To pay for it, residents would be taxed up to 8 percent of their incomes, and businesses would face a 3 percent to 11.5 percent payroll tax. Those figures would be in addition to current taxes.

But can Oregon afford such a bold plan?

The plan's economics is at the heart of the debate over Measure 23. Supporters argue the system would save money by better controlling costs, while opponents point to a recent study that concludes the plan could increase health care expenditures in the state by as much as 30 percent.

For starters, the financial impact statement in the state voter's pamphlet underestimates the measure's potential cost, according to the state's report on Measure 23's fiscal impact.

The pamphlet states Measure 23 would cost the state not less than $1.7 billion per year while also taking in revenues of not less than $1.7 billion from income and payroll taxes.

The cost projection is based on the assumption of only covering the cost of about 460,000 people who are now on the Oregon Health Plan and another 420,000 Oregonians who have no health insurance.

But state budget analyst George Naughton said the state's cost would increase to about $10 billion if those with private insurance drop their coverage to be part of the universal plan. And that's likely to happen because people who pay for health insurance would be taxed for the new plan. Employers, faced with higher payroll taxes, would also almost be certain to terminate their employee health plans.

Naughton said the committee that puts together financial impact statements had their hands tied with Measure 23 because the committee cannot make assumptions about what may happen after a measure passes.

"We had to go with $1.7 billion because of what the measure says," said Naughton, who wrote the state's report. "The measure does not say people have to drop private insurance, but assuming they drop insurance would bring the cost up to $10 billion."

With the income and payroll taxes set by the measure, Naughton said the state could generate enough revenues to cover the $10 billion cost. Increased income taxes could generate up to $4.7 billion while payroll taxes could generate to $6.1 billion for a total of $10.8 billion.

That means to cover that $10 billion, businesses and residents would likely be taxed close to the maximum limits set by the measure, depending on what happens with the economy between now and when the plan would take effect in 2005.

In addition, the measure would create a state board to oversee the plan and the board would have bonding authority to raise additional money. Because there is no way to predict what the board might do, there is no way to project how much debt the state would face because of bonds.

Supporters of the measure admit it is going to cost even more than the $10 billion to provide comprehensive health care to everyone in the state. Mark Lindgren, chairman for Health Care for All Oregon, said the total cost would be $19 billion per year. The rest of the money would come from shifting state and federal dollars to the plan, including Medicare and Medicaid dollars and workers compensation fees, he said. The plan would also begin collecting a 1 percent payroll tax in 2003, before the plan is implemented in 2005, to set up a reserve of funds.

Lindgren and campaign supporters say the plan is economically feasible because of cost savings that would come from lower administrative costs and global budgeting. By keeping administrative costs to 5 percent, the plan could save $1.5 billion. The plan would also save money by working with pharmaceutical companies and buying prescription drugs in bulk. Also, he said, the plan would encourage people to see doctors for preventative care, saving them more expensive trips to emergency rooms.

Opponents argue that there is reason to believe Measure 23 could cause a financial hardship for the state. A study conducted by the economics consulting firm LECG concluded that Measure 23 could increase health care expenditures in the state by as much as 30 percent. The study was commissioned by The American Association of Health Plans, an opponent of the plan who represents managed care companies across the nation.

According to the study, Oregon's health care costs would rise by $2.2 billion to $6.5 billion once the plan is implemented. The study's authors argue that the elimination of co-payments would increase the amount of services demanded by participants. Also, the plan's comprehensive benefits and lack of a residency requirement may encourage people to move to Oregon for health care services.

The study concluded that increasing taxes to the plan's limits would still leave the plan underfunded by $3.5 billion to $10.4 billion. Therefore, the study said that Oregon would have to raise more money.

Karen Ignagni, chief executive officer of the American Association of Health Plans, said the study shows the estimated costs presented before the public are too conservative.

"It demonstrates the burden that would be placed on households in Oregon," Ignagni said.

"You would have an explosion of population in Oregon because of this," she added. "Why wouldn't people in surrounding states without health insurance and with a chronic disease move to Oregon?"

Supporters point to nine studies that say universal health care is economically feasible. One study, conducted by Boston University's School of Public Health, showed that universal health care would lower the cost of health care in Massachusetts by savings in administrative costs and more appropriate use of hospital care. The study done in 2000 concluded that a universal plan could cut administrative costs by $3.6 billion and redirect $2.4 billion to providing more health care to more residents, resulting in an overall savings of $1 billion.

Deborah Socolar, author of the Boston study, said a state's specific situation affects whether savings are achievable with universal health coverage. The uninsured population in Massachusetts is fairly low, and the government health spending per person is among the nation's highest so saving money may be easier there.

In Oregon, she said, the uninsured are a greater share of the population and the state is among the 10 lowest in the nation for health spending per person. But Socolar said it's encouraging for Oregon that a feasibility study showed universal health care coverage would save money in California, which has a higher number of uninsured residents and also has a lower spending per person.

Another study, supported by a grant from the U.S. Department of Health and Human Services, showed that Vermont would save $118.1 million in health spending with a single payer health system. The Vermont proposal, however, included a $10 co-payment for health services. Oregon's plan has no co-payments, which can help control unnecessary visits to the doctor.

Regardless of the outcome of Tuesday's election, Oregon is at the forefront of the debate over universal health care coverage. Six other states are working on similar proposals to offer single-payer health systems, said Rachel DeGolia, operations director for the Universal Health Care Action Network in Ohio.

"They've been successful in sparking a debate at a much higher level than you've had in the state," she said. "It really has helped raise the level of debate of the nation."