Friday, September 14, 2007

Health Care and the New Federalism

Paul Finkelman

In the Nineteenth and early Twentieth Centuries state governments led the nation in developing progressive public policy initiatives. There were experiments in democracy including state laws abolishing slavery, passing civil rights laws, banning child labor, regulating wages and hours, and expanding suffrage to black men and later to women. As Justice Brandeis noted, in his famous dissent in New State Ice Co. v. Liebmann (1932) “It is one of the happy incidents of the federal system that a single courageous State may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.” Scholars later summarized the Brandeis statement to asserting that that states were “Laboratories of Democracy.”

From the late 1930s through at least the 1990s the nation stepped away from the idea that the states should be the leaders in setting public policy. Instead, we came to rely on the national government to set the standard, with a federal minimum wage, social security, national civil rights laws, and medicare. Since the 1990s the Congress, controlled or stymied by Republicans, has done little to expand social policy. Thus, the United States remains the only western nation without some sort of national health care or health insurance.

It is time for the states to step in, as they did a century ago. As Justice Brandeis noted, “there must be power in the States and the Nation to remould, through experimentation, our economic practices and institutions to meet changing social and economic needs.” This is now beginning to take place in the field of health care. Massachusetts has required that all adults have health insurance. With state backing insurance carriers will be forced to insure all people, and with all people insured the rates can be rationalized. Under such a program health care costs ought to decrease, because those who previously did not have health insurance will no longer be relying on emergency rooms for what little health care they could obtain. Today (Sept. 14) the New York Times reports tell us “San Francisco to Offer Care for Uninsured Adults.” San Francisco has embarked on a plan to give subsidized for free health care to all uninsured adults in the city. The program seems generous, but in fact, if managed carefully, it could save the city money. It is much cheaper to give people primary care when they are just starting to get sick then give them emergency care down the road. An ounce of prevention – or a dollop of cash for early health care – will indeed be worth many pounds and many dollars of cures later on. San Francisco will also require that all businesses with more than twenty employees provide health insurance.

We may soon see a new bifurcated America: states and cities where people have access to health care and places where they do not. This will be like the US in 1850 – states with slavery and states where there was no slavery. Or the US in 1910 – states with child labor and those without child labor. If the experience of slavery and child labor is any guideline, the states and cities with progressive health care will be more prosperous than those without decent health care. Many states will reject such reforms, arguing that mandatory health insurance is bad for business. But, many states and cities will refuse to join the race to the bottom. Eventually the slaggards will be brought along, by a federal program, no doubt, just as eventually Congress banned child labor.

The states today can learn much from the progressive reformers of the last century. Local programs that lead to a healthier, better educated, more secure work force paid off in the late Nineteenth and early Twentieth centuries. The free states and the states that banned child labor were far more prosperous than those that did not. Similarly progressive policies will pay off in the twenty-first century as well. The states and cities can once again become the laboratories of democracy, improving the health and welfare of their residents. With a little luck, a new Congress and a new president in 2009 will see the handwriting on the wall and step in to lead the nation. This need not be about party politics. Republican Mitt Romney signed the Massachusetts health care act into law. The San Francisco program is being funding with some state money, not doubt with the approval of a Republican governor.

As more states and cities take the lead the pressure will increase for those in Washington -- even the die hard conservatives in the Bush administration and in Congress -- to realize that we have a health care crisis which must be solved. The next administration will hopefully have a Congress to work with on the issue, pointing out that the states are already on the march, and it is time for the national government to get in step. Ultimately, fighting against health care will be a losing issue, just as fighting social security and medicare proved to be a losing issue. Just as the states can learn from the history of state initiatives, so too might the Bush administration and its allies in Congress learn from their party's lost and futile attacks on social security and medicare. Perhaps instead of ranting about the costs and claims of big government, the conservatives will come to the table with ideas and suggestions that can create a national system for health coverage. Meanwhile, the brave and creative states will push forward, creating a healthy America for some while in other places health care will remain problematic.


So how is the Massachusetts program working? I think some empirical information would be more useful than partisan ranting. I have to say, though, that if progressive policies were uniformly conducive to prosperity, Europe would be richer than the United States, and the Rustbelt wouldn't be called that.

"We may soon see a new bifurcated America: states and cities where people have access to health care and places where they do not."

What, are you predicting that some states are going to prohibit the practice of medicine? Or do you really think that people only have "access to health care" where the government provides it?

It is amusing to see the left laud the benefits of federalism to bring about state "laboratories of democracy" when they have been attacking federalism as a "race to the bottom" for the past century.

By a "race to the bottom," the left recognized that people would vote with their feet to escape the high taxes and regulations which were a natural result of their statist policies, putting the brakes on the implementation of such policies. Only by having the federal government compel national taxation and regulation would the good people of this country then be allowed no escape from this "utopia."

The current experimentation with government provided health care at the state level will be no different. One would think that the Blue states would know better than to raise the cost of government again to accelerate the migration from their states to the relatively free areas of the country, but the Party of Asses is nothing if not stubborn.

As with all "free" services where someone else pays the bill, government health care is not cutting costs. When you lower the cost of a service to the consumer (if not the tax payer), that pesky law of supply and demand kicks in and increases demand for these services. Well, the law of supply and demand has already kicked in here. State governments are either cutting back services (Tenncare) or whining to Washington to increase Medicaid/Medicare funding to cover the shortfall.

Medicaid is literally bankrupting the states with high single digit and double digit growth, squeezing out other basic government services like schools, roads and infrastructure. Now, some states are accelerating this negative trend by expanding eligibility.

However, unless the feds do bail the states out with more deficit spending, the wonderful mechanism of federalism will check this nonsense. The outflow of the middle class and business from these states will accelerate, cutting off the tax revenues necessary to finance these programs.

You will then see a deepening of an already existing bifurcated America - expensive (and mostly Blue) states bleeding the middle class and business to become places where only the very rich and the poor can live and the rest of the country where the middle class live much better lives despite not having as many not-so-free government services.

That is the "race to the bottom" which led those on the left during previous generations to attack rather than laud federalism. Today's left will catch on shortly.

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