Alec MacGillis -- Who Will Pay for Universal Health Care? Blue States More Than Red

By Alec MacGillis
Sunday, May 31, 2009

Those in the red states still smarting over Barack Obama's election victory can perhaps take solace in this: The Democrats' No. 1 domestic policy initiative, universal health care, is likely to help red America at the expense of blue.

Health-care reform may be overdue in a country with 45 million uninsured and soaring medical costs, but it will also represent a substantial wealth transfer from the North and the East to the South and the West. The Northeast and the Midwest have much higher rates of coverage than the rest of the country, led by Massachusetts, where all but 3 percent of residents are insured. The disproportionate share of uninsured is in the South and the West, the result of employment patterns, weak unions and stingy state governments. Texas leads the way, with a quarter of its population uninsured; it would be at the top even without its many illegal immigrants.

Then there is the matter of paying for universal health care. The plan picking up steam on Capitol Hill is to cover much of the $1.2 trillion cost over 10 years by taxing employer-provided health benefits. And who has the highest benefits? People in the North and the East, thanks to pricier health care markets, higher state standards for health coverage and stronger labor unions. Depending on how such a tax were designed, it could land hard not only on corporate executives but also on union workers whose compensation gains show up as health benefits instead of wages.

It would not be the first time that the historically more affluent part of the country has subsidized the less prosperous one. Long before jobs flowed to Mexico and China, they flowed from Massachusetts and Michigan to North Carolina and Tennessee, where unions were weaker and employers could pay less and provide fewer benefits.

The people followed, moving to a Sun Belt where taxes were lower because states offered less in the way of safety nets -- nets that the North and the East will now pay to stitch up via universal health care.

"The cost of health care benefits was very much a factor in plant relocations in the eighties," said Gary Chaison, a professor of industrial relations at Clark University in Worcester, Mass. "And now we end up paying for [Sun Belt health care] anyway? It's incredible."

So far, though, the health-care debate is not talked about much in regional terms. In the fight over regulating carbon emissions, regional self-interest is plain, with Republican and Democratic lawmakers from coal-dependent Midwestern and Southern states trying to blunt the legislation. But pushing universal health care are Northeasterners such as Ted Kennedy and Chuck Schumer, and pushing against it are Sun Belters such as John Cornyn and Jon Kyl.

It is a rare triumph of principle over parochialism -- or maybe no one is looking at the numbers.

Nationally, about 15 percent of Americans lack health insurance. But in the North, many states in addition to Massachusetts have less than 11 percent uninsured. They include Pennsylvania, Connecticut, Michigan, New Hampshire, Ohio, Iowa, Wisconsin and Minnesota. In the South and the West, where small businesses dominate, many states other than Texas have more than 17 percent, including Arizona, Florida, California, Louisiana, Georgia, Arkansas, Mississippi, Oklahoma, Nevada and New Mexico.

The disparities extend to the value of employer-provided benefits. It is highest in the Northeast and the Midwest, lowest in the South and the West.

That means a big regional slant if the plan raises money by ending the tax exemption for employer health benefits or by taxing the value of above-average benefits, which is what Congress is leaning toward. Critics have long argued that exempting employer-provided benefits from taxes is unfair to self-insured people who have to use after-tax dollars to buy coverage, and that the exemption drives health costs higher by encouraging generous benefits plans.

But opponents of taxing health benefits say that it would hit many middle-class families whose packages are worth more than average simply because they live in high-cost markets. They argue that much of the Northeast has high health-care costs partly because the cost of living there is high, not because medical spending is out of control. Indeed, when it comes to Medicare spending, some of the top spending areas are in the South and the West, such as Miami and McAllen, Tex., while some of the most efficient areas are in the North. Better, some say, to raise revenue through other routes -- reducing tax deductions for the wealthy, taxing sugary sodas, raising the capital gains tax or expanding the Medicare tax to unearned income.

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