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The Oregon Health Plan: A Policy Placebo

Cascade Commentary

The Oregon Health Plan: A Policy Placebo
by Eric Fruits

The Oregon Health Plan has been called a “bold experiment” designed to expand health insurance to Oregon’s low-income residents. Its promoters promised the impossible: To expand health insurance coverage while simultaneously controlling costs and fostering provider participation. These promises would be met by the explicit rationing of care through a prioritized list of conditions and treatments. However, like the experimental drug that performs no better than a placebo, Oregon’s bold experiment has produced results that are not significantly different from the outcomes seen by the U.S. as a whole. In this way, the experiment has failed.

Expanding coverage. When John Kitzhaber first proposed the Oregon Health Plan in the late 1980s, he claimed that nearly 20 percent of Oregonians did not have health insurance, a claim that state agencies have echoed ever since. Unbeknownst to them, however, their data was incorrect. Revised estimates by the U.S. Census Bureau show that between 1987 and 1989, only 14.5 percent of Oregonians were uninsured, a percentage that was not much different from the U.S. as a whole. Indeed, census data show that the rate of uninsured during the life of the Oregon Health Plan has not been significantly different from the U.S. as a whole. In the end, one cannot confidently conclude that the Oregon Health Plan had any significant and sustained impact on reducing the number of uninsured as a share of Oregon’s population.

Controlling costs. The architects of the Oregon Health Plan recognized that costs had to be contained. Rationing via the prioritized list was one way the plan would contain costs. A requirement that beneficiaries enroll in managed care plans was another. Despite the hype and controversy, the prioritized list did little to ration health care services. For example, one researcher found that in many ways, the Oregon Health Plan’s coverage of mental health and dental care was superior to commercial insurance coverage in Oregon. On top of that, some providers found ways to get around the limits imposed by the prioritized list. For example, one study found that the plan pays for all diagnostic visits and procedures even if the associated treatment is not covered. Physicians have used this provision as a loophole to provide medical services under the guise of diagnostics.

Fostering provider participation. Initial hopes for broad participation by providers have been dashed by the pullout of larger managed care providers and a shrinking pool of providers willing to accept Oregon Health Plan enrollees as new patients. With the pullout of many managed care providers, some of the promised cost savings vanished.

The Oregon Health Plan was a bold experiment that never delivered on its promises. Understanding this failure is all the more important with gubernatorial candidate John Kitzhaber’s announcement that he wants to apply the Plan’s rationing approach to provision of other state social services.*

*See Harry Esteve, “John Kitzhaber’s budget plan would put brakes on social service, prison spending,” The Oregonian, September 8, 2010.

Dr. Eric Fruits is president of Economics International Corp., an economics consulting firm, and an adjunct scholar with Cascade Policy Institute in Portland, Ore. This analysis is based on Dr. Fruits’s recently published Cascade Policy Institute paper, “The Oregon Health Plan: A ‘Bold Experiment’ That Failed,” co-authored with Andrew Hillard and Laura Lewis. For more information on Dr. Fruits and Economics International, see http://www.econinternational.com/. For more information on Cascade Policy Institute, see http://www.cascadepolicy.org/.

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