Will Romneycare Hurt Mitt’s VP Bid?

As I was glassing over the news that I have missed over the last week, I came across this item from May 21 edition of the Wall Street Journal:

The New Big Dig
May 21, 2008; Page A18

Mitt Romney’s presidential run is history, but it looks as if the taxpayers of Massachusetts will be paying for it for years to come. The former Governor had hoped to ride his grand state “universal” health-care reform of 2006 to the White House, but his state’s residents are now having to live with what he and the state’s Democratic Legislature passed. As the Boston press likes to say, it’s “the new Big Dig.”

The showpiece of RomneyCare was its individual mandate, a requirement that all Massachusetts residents obtain health insurance by July of last year or else pay penalties. The idea was that getting everyone into the insurance system would eliminate the “free-rider” problem of those who refuse to buy insurance but then go to emergency rooms when they’re sick; thus costs would fall. “Will it work? I’m optimistic, but time will tell,” Mr. Romney wrote in these pages in 2006.

Well, the returns are rolling in, and the critics look prescient. First, the plan isn’t “universal” at all: About 350,000 more people are now insured in Massachusetts since the reform passed. Federal estimates put the prior number of uninsured at more than 657,000, so there was a reduction. But it was not secured through the market reforms that Governor Romney promised. Instead, Massachusetts also created a new state entitlement that is already trembling on the verge of bankruptcy inside of a year.

Some two-thirds of the growth in coverage owes to a low- or no-cost public insurance option. Called Commonwealth Care, it uses a sliding income scale to subsidize coverage for everyone under 300% of the federal poverty level, or about $63,000 for a family of four. Commonwealth Care also accounts for 60% of statewide growth in individual insurance over the last year, and the trend is expected to accelerate, perhaps double.

One lesson here is that while pledging “universal” coverage is easy, the harder problem is paying for it. This year’s appropriation for Commonwealth Care was $472 million, but officials have asked for an add-on that will bring it to $625 million. For 2009, Governor Deval Patrick requested $869 million but has already conceded that even that huge figure is too low. Over the coming decade, the expected overruns float in as much as $4 billion over budget. It’s too early to tell how much is new coverage or if state programs are displacing private insurance.

The “new Big Dig” moniker refers to the legendary cost overruns when Boston rebuilt its traffic system. Now state legislators are pushing new schemes to offset RomneyCare’s runaway expenses, including reductions in state payments to doctors and hospitals, enlarged business penalties, an increase in the state tobacco tax, and more restrictions on drug companies and insurers.

Mr. Romney’s fundamental mistake was focusing on making health insurance “universal” without first reforming the private insurance market. The “connector” that was supposed to link individuals to private insurance options has barely been used, as lower-income workers flood to the public option. Meanwhile, low-cost private insurers continue to avoid the state because it imposes multiple and costly mandates on all policies.

Hailed at first as a new national model, the Massachusetts nonmiracle ought to be a warning to Washington. Barack Obama and Hillary Clinton are both proposing versions of RomneyCare on a national scale, with similar promises that covering everyone under a government plan will reduce costs. Mr. Obama at least argues that more people would be covered were insurance more affordable. But his solution is Massachusetts on steroids – make insurance less expensive for policyholders by transferring the extra costs onto the government. Mrs. Clinton likes that but also wants the individual mandate, despite the mediocre results so far.

The real problem in health care is the way the tax code and third-party payment system distort incentives. That’s where John McCain has been focusing his reform efforts – because that really does have the potential to reduce costs while covering more of the uninsured – and Republicans ought to follow his lead.

In this respect paradoxically, we can be thankful that Massachusetts ignored the cost problems that doomed other recent liberal health insurance overhauls in California, Pennsylvania, Wisconsin and Illinois. The Bay State is showing everyone how not to reform health care.

I’m not trying to stir up contreversy, and a lot of my beef with Romney was buried a long time ago, but the fact remains that his defining achievement as the governor of MA is turning out to be a disaster. Granted, as one commenter (Illinoisguy) noted when I raised this point earlier, if Romney had stayed in MA, he could’ve adjusted it, but the facts are not pretty, as pointed out by the libertarian leaning Pacific Research Institute:

The program is in intensive care, surviving only on massive infusions of other people’s money. The plan’s boosters celebrate that it’s covered 342,000 people. Quite an accomplishment until we understand that of these, 176,000 are enrolled in nearly free or entirely free plans — free to enrollees but not state and federal taxpayers. Another 55,000 were simply enrolled in Medicaid.

This isn’t a new trend where the blame can be solely placed on the shoulders of current MA Governor Deval Patrick. Commonwealth Care has been a disaster waiting to happen.

The CATO Institute predicted this from the getgo. This article from last December:

Massachusetts has done better at signing people up for subsidized coverage. No surprise: People are all too happy to sign up if others pay the bill – and Romney extended subsidies well into the middle class – a family of four earning $63,000 per year qualifies.

That “success” here translates to failure on another front: The cost of the program has exploded; it’s running $150 million above the original projection for this year alone.

Nor has the reform succeeded in holding down other costs. Insurance premiums in the state are expected to rise 10 to 12 percent next year – double the national average. While many factors surely contribute to that jump, one reason is that the new bureaucracy that the legislation created – called “the Connector” – has been adding new regulations and mandates.

This program has turned out to be a disaster, and although he had left office by the time the program could be properly evaluated, Romney was responsible. Liz Mair predicted this back in 2006, when Romney was still in office.

She noted that:

RomneyCare has not even been fully implemented yet, and a cost overrun of $151 million in 2007 alone is already in the cards, perhaps because the RomneyCare financial model assumed the wrong number of uninsured in Massachusetts (the Census Bureau puts it at 748,000, but RomneyCare assumes only 500,000). But any needed hike in taxes won’t be pushed through by Romney—he’ll be out of office when the bill comes due, and when extra federal dollars will likely have to be allocated to Massachusetts to help cover the shortfall between RomneyCare’s cost and its budget.

Ms. Mair was correct on the eventual cost overrun, and on the outcome of the program. Since leaving office, Romney has done well to define himself, and has turned himself into a credible possibility for the vice presidential nod, despite the fact that his largest accomplishment at the time of the launch of his candidacy has turned out to be a failure.

I’m not starting another crusade against Mitt Romney. In fact at this point, I think he’d be a better pick than some of the names that are being seriously considered. However, since those who are in the running for the vice presidential nod are being debated, such as Lieberman (who I have strongly and publicly opposed), and Bobby Jindale (who I think would be one of the stronger picks), one must reevaluate the pros and cons of putting Mitt Romney on the ticket.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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