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Will Washington state take Wisconsin's health care sloppy seconds?

February 7, 2008

At the beginning of this legislative session, State Senator Karen Keiser (D-Kent) introduced legislation that would radically increase government control of health care in the state of Washington. The legislation was based almost entirely on a plan that had been considered – and rejected – a year before by a state halfway across the country.

Thanks to the efforts of pro-market legislators like Wisconsin State Rep. Leah Vukmir (R-Wauwatosa), who spent a great deal of time, resources, and political capital educating their fellow representatives, and the state’s voters, about what a poor policy decision it would be to enact the expensive and inefficient program, the 2007 attempt at government-run health care was removed from the state budget it had been inserted into, and was scrapped entirely.

Though Wisconsin managed to avert the debacle that the “Healthy Wisconsin” program would have caused in the state’s health care market, the program’s authors did not give up on their dream of subsuming the health care and health insurance markets entirely into a government-run framework. Instead, remaining true to government’s penchant for rehabilitating failed ideas and policies and presenting them – unchanged, but under slightly new names – as new solutions, they simply exported their idea to Washington, where Sen. Keiser was happy to adopt them and to present them as a "solution" to Washington’s health care woes.

Keiser did not attempt to hide the fact that her proposal was the exact replica of a horribly failed measure from another state – instead, she flaunted that fact, by actually having Wisconsin State Senator Jon Erpenbach (D-Middleton), primary sponsor of the failed Healthy Wisconsin program, appear in the Washington State Senate with her when she introduced her legislation.

Keiser’s bill, SB 6221 (also known as the “Washington Health Partnership”), would, of course, be as bad for the state of Washington as its original form would have been for Wisconsin. Volumes could be written on just why this is, but the simplest explanation can simply be made by dealing with the issue of cost.

The Washington Health Partnership is expected by its proponents to cost, at the beginning, around $15 billion per year – most of which would be funded by an increased payroll tax, the rate of which would be set by a board established to oversee the program. The payroll tax rate necessary to raise the $15 billion needed to initially fund the program has been estimated at no less than 14 percent – a significant increase in Washingtonians’ tax burden. In fact, the $15 billion in additional tax revenue needed to get the Washington Health Partnership off the ground represents more in tax revenue than the state currently takes in through sales, income, and corporate taxes combined.

As Michael Tanner, the Cato Institute’s director of health and welfare studies, explained during his October 2, 2007 testimony to the Wisconsin Assembly Committee on Health and Health Care Reform (when the Badger State was considering the exact same proposal), the payroll tax would theoretically be “split, with the employee paying four percent and the employer paying 10.5 percent.

“But, while it might be politically appealing to claim that business will bear the new tax burden, nearly all economists would see it quite differently. The amount of compensation that a worker receives is a function of his or her productivity. The employer is generally indifferent to the composition of that compensation. It can be in the form of wages, benefits, or taxes. What matters is the total cost of hiring that worker.

Mandating an increase in the cost of hiring a worker by adding a new payroll tax does nothing to increase that worker’s productivity. Employers will therefore seek ways to offset the added cost by raising prices (the most unlikely solution in a competitive market), lowering wages, reducing future wage increases, reducing other benefits (such as pensions), reducing hiring, laying off current workers, or outsourcing. In the end, one way or another, workers will bear the full cost.”

Further, small businesses – the life’s blood of America’s state and national economies – will be hardest hit by the severe payroll tax increase. Most small businesses pay less than ten percent payroll tax, and few provide health insurance. Therefore, these businesses will see their tax burdens per worker skyrocket without any corresponding savings that would come from no longer having to provide employee health plans.

In order to relieve themselves of this added hardship, businesses can – and will – leave the state as a result of the Washington Health Partnership’s passage. Given that Washington’s tax burden is already significantly worse than its neighboring states, the increased weight of the Washington Health Partnership is an almost certain recipe for slowed economic growth and lost jobs. The non-partisan Tax Foundation currently ranks Washington 16th in the nation in terms of state and local tax burden (rankings go from 1=highest tax burden to 50=least tax burden). By comparison, Idaho ranks 35th, Oregon 37th, and Montana 41st.

Washington state has been enjoying moderate job growth in recent months and years. Passing a bill like SB 6221 would do much to reverse that trend, and would severely damage the state’s economy – not to mention the state’s health insurance and care market. Even if businesses do not relocate to escape the increase in their payroll costs, the national rate of health care inflation is too far ahead of projected wage and revenue increases for the Washington Health Partnership to avoid running a sever deficit within the next few years.

Further, with its health care-by-geographical-area framework, Sen. Keiser’s retread proposal would not only eliminate consumers’ ability to choose their providers, but would, in Tanner’s words, “set up a perverse set of incentives that will encourage healthy and insured residents to move out of state, while also encouraging uninsured and sick from out of state to relocate to, or at least take jobs,” in Washington.

This would significantly strain the health facilities in the state’s border areas, acting as a magnet for those to whom it alone extends coverage, such as undocumented immigrants and extends low-income pregnant women. This outcome would increase program costs exponentially, while also creating several other problems for Washington state.

Beyond these issues, the Washington Health Partnership would create a situation in which health care is rationed and prices are inflated due to the outlawing of competition. Rather than cause serious damage to the health care market and to the state’s economy as a whole, Washington should seek common sense reform to help solve the health care crisis. Opening up the market to greater competition, decreasing the number of procedures and operations whose coverage is mandated by law from the current total of 23 – including “port wine stain” birthmark removal – would do a great deal to alleviate the current biggest problem with health insurance: its affordability. Further, the state should amend its insurance laws to allow the sale of any health insurance plan approved for sale by any state – something which is not allowed by most states, but which would work wonders in bringing down health insurance costs through the tried-and-true method of simple competition.

Regardless where Washington goes from here, further regulation of its health care market will only serve to exacerbate the state’s problems. Instead of repackaging recently failed attempts to legislate an area of the market that is already suffering from over-regulation, the state legislature of Washington should seek out real reform – reform that would decrease government involvement, increase consumer choice, and work to the benefit of the market as a whole.

Disclosure: Jeff Emanuel is Research Fellow for Health Care policy at The Heartland Institute and is managing editor of Health Care News.


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At 8:38 PM, Anonymous Anonymous said...

Thanks for this article. I sent it on to my state representative and several friends. We can only hope reason prevails. This motivated me to look for Washington State politicians I can support, but that is taking more research time than I have!


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