January 7th, 2010
Back in October, as health care financing options were being hotly debated and proposals changing on an almost daily basis, one of us noticed an editorial on health care reform in West Virginia’s Martinsburg Journal. We were struck by the extent of opposition to financing the reform package through a tax on high earners. West Virginia is not heavily populated with high earners—it is one of the three states with the smallest percentage of residents with incomes of $500,000 or more—and it therefore wouldn’t be greatly burdened by a tax on high earners. So it was somewhat surprising that a West Virginia newspaper would be so strongly opposed to this financing approach.
This led us to think more generally about the redistributive implications of reform vis-à-vis the states. This is an issue that hasn’t been examined much and hasn’t played a major role in the political debate. The voting in Congress has mostly followed party lines in the House and has completely followed party lines in the Senate. Of course, there were some last-minute deals that resulted in benefits targeted to a couple of states, but this was the usual political wheeling and dealing, not an attempt to even out the health bill’s benefits geographically. It was only recently that, for what we believe is the first time, the potential geographic inequities were noted in the New York Times—officials from Arizona, California, New York, and Wisconsin were quoted as being concerned that their states would wind up subsidizing insurance coverage in other states.
In light of the lack of attention to state winners and losers, we decided to take a quick-and-dirty look at which states are likely to benefit most from the expansion of health care coverage and which are likely to bear the largest share of the costs under the two proposed financing mechanisms still on the table. We were not trying to model or fully measure the costs or benefits of reform. Rather, we used two very simple metrics—who pays and who gets the benefits—and we measured costs and benefits from the perspective of the state as a whole. In other words, both benefits and costs were assumed to accrue to the state as an entity; redistribution among residents within the state was ignored. Benefits were measured in terms of the state’s current proportion of uninsured residents, and costs were assessed by ranking the states to see which would be hardest hit by each of two financing mechanisms—a tax on high earners and a tax on high health insurance premiums.
Our measures were crude and were driven largely by what data were readily available at the state level. Despite these limitations, the differences in impact reveal a consistent pattern suggesting that some states do much better under certain scenarios than others. Of particular interest, the party affiliation of the senators from each state tends to stand in direct opposition to its status as a winner or loser state.
Determining Winners and Losers
Here’s how our categorization of states works—we classified states as “High Benefit” if the percentage of uninsured is above the national average and as “Low Benefit” if the rate is less than the national average. We then classified states by whether they would be “High Cost”—the top half of the distribution—for each of the financing approaches.
As Exhibit 1 shows, the states most likely to “win” as a result of health care reform are Arkansas, Idaho, Kentucky, North Carolina, Oklahoma, Tennessee, and Utah. All of these states have a relatively high number of uninsured and all are in the bottom half of states in terms of cost under both financing mechanisms. States with a high proportion of uninsured residents also included Arizona, Florida, Nevada, Texas, and Wyoming, but those states are above average in terms of the costs they would bear under each financing option.
Among the states most likely to “lose” are Delaware, Nebraska, and New Hampshire as well as the District of Columbia. Each of these states has a relatively lower-than-average proportion of uninsured residents, and each would fall in the “High Cost” category under either of the financing options. There are four states—Alabama, Indiana, Michigan, and Rhode Island—that while also “Low Benefit” are “Low Cost” as well.
The winner-loser status of the remaining states depends on the financing mechanism used. Under scenarios of taxing higher-income residents, six states (Alaska, California, Colorado, Georgia, New Jersey, and Virginia) would “lose” in terms of cost but would benefit in terms of expanded coverage. Another nine states would be high-cost and low-benefit under either of the financing options. With a tax on high-premium insurance policies, nine states would fare the worst; these states would be both “Low Benefit” and “High Cost” under this scenario.
The Political Alignment of Winners and Losers among States
It’s interesting to examine the distribution of states’ winner-loser status relative to political alignment. Support for reform has been restricted to Democrats, with only one Republican House member supporting reform and all Senate Republicans opposing. When we examine the seven states most likely to be winners under reform, we see a combined split in their Senate delegations of twelve Republicans versus two Democrats. The three states most likely to lose under health care reform are collectively represented by four Democrats and two Republicans. When we add in the group that would be losers under the income-tax option, the split becomes even stronger, with these states being represented by eighteen Democrats and four Republicans.
The overall pattern therefore shows a curious alignment: States with the most to gain under health care reform are overwhelmingly represented by Republicans, while those states likely to do worse are much more likely to have Democratic senators.
The benefits of reform, as we measure them, are higher in “red” states. This is not surprising. Medicaid eligibility correlates with lack of insurance, which in turn is our measure of potential benefit, and conservative states are less likely to provide broad social-welfare benefits for the poor. For any given state, increasing Medicaid eligibility would redistribute resources within, but the redistributive benefits to a state from health care reform are likely to come from outside the state: those who will pay the most toward expanding coverage may disproportionately live outside the state.
We have seen little to suggest that policymakers have considered these cross-state redistributions—in terms of either the number of uninsured in a state or the proportion of the state’s residents bearing some of the cost—as a reason for supporting or opposing reform. And the New York Times article we have mentioned seems to bear out the conclusion that legislators are largely oblivious to the issue of geographic equity. The article noted five state officials who expressed concern about redistribution; these officials come from states whose representation in the Senate is split 8-2 in favor of Democrats who support reform. (It is also interesting that three of the officials come from states having lower-than-average coverage rates, which are not considered relative “losers” in our analysis.)
While the relative degree to which a state wins or loses under reform need not be the determining factor in developing a policy position, legislators should at least be cognizant of the relative advantages and disadvantages to their state under alternative financing scenarios. The press has legitimately noted the deals demanded by Lieberman, Nelson, and Landrieu for their support. It is more surprising, however, that most legislators have decided their position on reform without any consideration of the relative costs and benefits to their states.
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