January 17, 2007
Governor Schwarzenegger Should Go to NashvilleBy Patrick Poole
California Governor Arnold Schwarzenegger kicked off his first full term in office this week by announcing during his state-of-the-state address that he intends to implement a state health insurance plan to cover all residents, including illegal aliens. But before riding the universal health care train too far, Gov. Schwarzenegger might want to make a stop in Nashville to see exactly how such a plan has actually worked for Tennessee, where that state's abysmal TennCare program has forced dozens of hospitals out of business, pushed thousands of doctors and other health care professionals out of the state, destroyed any semblance of competitive health insurance market, and nearly drove the state government into bankruptcy.
Tennessee's disastrous experiment with universal health care coverage began in 1994 in the wake of Hillary Clinton's failed national single-payer plan. The Clinton Administration was anxious to see the program implemented on a smaller scale, so Vice President Al Gore was tasked to enlist then-Tennessee Democrat Gov. Ned McWherter to agree to the plan with the assurance that such a program would save the state money in the long-run and that the federal government would kick in the majority of the cost of running the program.
By the year 2000, however, McWherter was long gone and TennCare was now the problem of the hapless Republican, Gov. Don Sundquist. Just days after Sundquist's successful 1999 reelection campaign came to a close, during which he had repeatedly vowed never to consider instituting a state income tax, his fiscal advisors broke the sad news that the state was going broke as a result of TennCare. The program had become the line item that had consumed the state budget - ballooning more than 200 percent in less than six years.
When the Tennessee Democrats began the TennCare program the intent was, much like Gov. Schwarzenegger's proposal, to make sure that the state's uninsured and those who were uninsurable had health care coverage. Almost immediately, the ranks of the uninsured exploded as employers dropped at-risk employees or eliminated their plans altogether, effectively shifting the risk or the entire cost of employees' health care to taxpayers. In short order, one quarter of the state's population was on TennCare.
Of course, TennCare had the full backing of Tennessee's health insurance companies, who also had their risk covered as they employees they lost through their corporate policies came right back as TennCare enrollees. In fact, the largest insurer in the state, Blue Cross/Blue Shield of Tennessee, was openly selling uninsurable letters to anyone with any remotely identifiable risk for $25 - all with the awareness and approval of state authorities.
When things came crashing down with TennCare during the 2000 legislative session, I was able to witness the spectacle first-hand. At the time, I was a policy analyst for the Tennessee Institute for Public Policy, and the state budget was one my issues I covered. Almost daily, news stories would run about the rampant fraud within TennCare - enrollees living in a Trump Tower penthouse in Florida, Fortune 500 CEOs flying their ailing children to Tennessee on their private planes to get qualified for TennCare and to receive organ transplants, and thousands of enrollees whose only connection to Tennessee was a P.O. box located in one of the many border cities around the state. One TennCare director confessed during a legislative hearing that the department estimated that one-quarter of enrollees (250,000+) were fraudulent or didn't actually qualify for the program. Needless to say, in the matter of weeks that TennCare director was out of a job.
Fraud, however, wasn't the only issue. The financial savings promised by Al Gore and the Clinton Administration were supposed to come from the implementation of managed care within the program. But as soon as TennCare was launched, liberal "public advocacy" groups waged a litigation campaign to force the state to cover more under the program. By 2000, the benefits under TennCare were so generous as a result of court-orders (many agreed to by the state) that one could not find a private insurance policy with such extensive coverage no matter how much you had available to spend. Managed care simply didn't exist, and neither did the promised savings. And anytime the state tried to get the cheats and free-riders off the program, the same liberal "public advocacy" groups successfully sued to prevent the state from eliminating them from the TennCare rolls.
The state, however, didn't bear the entire brunt of TennCare: hospitals and doctors also bore a large part of the costs associated with Tennessee's universal health care experiment. In the first six years of TennCare, a dozen hospitals had closed around the state - all of them in underserved areas. Physicians were leaving the state in droves. And as the quality of health care continued to decline for all Tennesseans, taxpayers were getting stuck with the bill.
But rather than address the 800-pound gorilla sitting in the corner of the smoke-filled hearing rooms at Legislative Plaza, Gov. Sundquist and the Democratic legislative leaders settled on the easiest way to deal with the problem - a state income tax (Tennessee being one of the few states without one). This proposal was met with overwhelming outrage by the people of Tennessee. As the politicians plotted during the 2000 legislative session to secure enough votes to push the income tax through, the public rage at the TennCare program simmered just below the boiling point. Almost daily I was being interviewed by talk radio hosts about a study I had authored identifying the glaring problems with TennCare and proposing a radical plan to completely overhaul the system. In a matter of weeks, even as state officials and the mainstream media (including Al Gore's former employer, The Tennessean) peddled the lie at every opportunity that TennCare was saving the state money, TennCare became the focal point of the state income tax debate.
Then, as it looked as though the income tax was going to get pushed through and TennCare receive a reprieve in the last few days of the legislative session in June 2000, something amazing happened - the civic pot finally boiled over and the citizens of Tennessee rose up in open revolt. It began in the early morning hours of the day that the legislature was scheduled to vote on the tax proposal. The talk radio stations had set up shop in Legislative Plaza that morning, and I was running back and forth between their respective locations giving interviews.
At 7:30am, at the instigation of the talk radio hosts, cars, trucks, and virtually every other type of motor vehicle you could imagine began circling the state capitol blaring their horns. Thousands of angry citizens swarmed into downtown Nashville and traffic all around town came to a virtual standstill. By noon that day, with the deafening sound of car horns continuing to blare non-stop (in fact, I lost part of my hearing that fateful day), legislators supporting the income tax called in the State Troopers to bar the doors of the state capitol. One pro-tax legislator was carted away by ambulance with heart problems - threatening the razor-thin majority in support of the tax hike.
By late afternoon, the legislature had abandoned the income tax proposal entirely, closed the state budget gaps with temporary measures, and ended the legislative session for the year while they could still get out of town with their lives. Car horns continued to blare well into the night. In all my years working in public policy in Washington D.C. and several state capitals, it is the most exhilarating experience I have been privileged to be witness to and be a part of.
The Tennessee Tax Revolt of 2000 denied politicians the only financial avenue to keep TennCare afloat as it was. In the political aftermath, Gov. Don Sundquist became the most reviled governor in Tennessee history (no mean feat in a state where political scandal and corruption have been the norm), and many of the state legislators who had supported the state income tax chose not to run for reelection the next election cycle faced with the inevitability that they would be tossed from office; many of those legislators that tried to keep their seats got the boot. Sundquist's successor, Democratic Governor Phil Bredesen, has been forced to dismantle the program a piece at a time, and the bloated remains of TennCare still stress the state budget.
The catastrophic consequences of the TennCare experiment have been the dramatic lowering of the quality of health care statewide due to numerous hospital closures and the exit of countless doctors and health care professionals to other states, the neglect of many other critical areas of the state budget to cover TennCare costs, and the utter devastation of the health insurance market in Tennessee (at the time my study was published, only seven health insurance carriers in the country would write policies in Tennessee; I understand that it is even less today).
There is much for Gov. Schwarzenegger to learn from Tennessee's first-hand experience with universal health care before committing the largest state in the US to it.
But perhaps the most important is that trying to defy virtually every known law of economics is a fool's proposition, no matter how loudly you are cheered on by the media, state bureaucrats, liberal activists and Democratic legislators in Sacramento and Washington D.C. When the fiscal music stops, the taxpayers will be the only one left without a chair.
Secondly, beware of the siren songs of big business. In Tennessee's case, many employers gladly dumped their health care plans and transferred their employees to the public dole and added that money to their bottom line. Gov. Schwarzenegger hopes to counteract that effect under his plan by making almost all employers who do not have health plans to pay additional business taxes. But with all employers constantly facing astronomical increases in premiums, they will gladly pay the new tax to unload their liability. Additionally, the health insurance companies that clamored loudest for TennCare are the few that still remain in the state today, with the state covering all of their riskiest cases. They have made out like bandits.
Finally, California is already seeing many workers and businesses protesting that state's high taxes and near-tyrannical regulatory system by voting with their feet. Nevada, Arizona, and Oregon have been the unlikely beneficiaries of the Golden State's tax-and-spend, regulate-and-oppress policies. Destroying the state's health care system and condemning California taxpayers to perpetual tax increases to finance a cannibalistic universal health care plan is unlikely to stop their rapid egress.
The staggering number of uninsured Americans is truly a tragedy, and Gov. Schwarzenegger has his heart in the right place by trying to tackle the problem head-on. But trying to solve the problem with taxpayer-financed universal health care coverage is a prescription for an unmitigated fiscal and health care disaster. If he doubts the veracity of these claims, the next time he needs a heart valve replaced or a broken leg repaired, he should seek care in Memphis or Nashville and see first-hand the wonders that universal health care have wrought there.