When President Obama was elected to the White House with large Democrat majorities in both chambers of Congress, it was widely believed that the health care system would finally be reformed. 2009 was dominated by debate over the shape of this reform. The most common policies under consideration included: (1) community rating in health insurance markets, (2) employer mandates to offer coverage, (3) taxes on so-called “Cadillac” plans, and (4) a public option. Many in Illinois wonder what effect these reforms will have on the state.

Community rating is the practice of charging equal rates to everyone in a community regardless of an individual’s poor health or other factors. Research shows that the change in the risk composition of the individual market causes the price of insurance for the young and healthy to go up, leading fewer to pay for insurance. The increase in the coverage of the sick tends to cancel out the effect of the practice on the total number of uninsured in an area.

Employer mandates to offer health insurance have also been researched in depth. Most proposals call for businesses with 50 or more employees to either offer insurance or pay a tax per-employee (usually around $750). Ninety-five percent of the employers in Illinois with more than 50 staff already offer insurance. The legislation could have an unintended consequence in the state, causing employers to cancel health insurance plans in favor of the relatively low $750 tax (the mean employer-sponsored family premium is $12,600). One factor that has historically encouraged the growth of health insurance premiums over time is tax law that allows the value of employer-sponsored health insurance to be counted as un-taxable income. This represents an estimated $250 billion implicit tax subsidy. Congress proposes taxing the value of health benefits above some set cap (Cadillac plans). This would be effective in lowering the cost of the healthcare plans chosen, but lower costs almost always mean less use.

Significant debate has surrounded the implementation of a public option. In this debate, it is easy to forget that the U.S. has two public option programs already: Medicaid and Medicare. Medicare’s unfunded liability over the next 75 years is estimated to be a staggering $38 trillion. This debate often leads to the question of market competition. Limited research has shown that there is substantial health insurance competition in Illinois.

One-point-six million Illinois residents lack health insurance. It is clear that the status quo is untenable, while options to expand coverage are perilous and costly. In the event that national reform should fail, it is clear that existing trends will continue and there will be a need for Illinois to consider enacting state-level reforms aimed at greatly reducing the number of uninsured. These are only achievable with bold thinking about Medicaid payment restructuring and reducing insurance regulations—both politically difficult tasks to carry out.