Learning from Mistakes in Health Insurance Policy

By Michael Bastasch

The Oregon Health Plan (OHP) was implemented in 1994 as Oregon’s attempt to improve health care for the state’s low-income Medicaid population. The program set out to increase access to health coverage, ensure early preventative treatment and reduce premium increases for the insured. Despite its lofty goals, the program largely failed as financial instability forced it to impose higher costs on its own beneficiaries and to disenroll many participants.

Recently, the National Bureau of Economic Research released a controlled study analyzing the effects of “expanding access to public health insurance on the health care use, financial strain, and health of low-income adults” in Oregon. In 2008, the state expanded Medicaid enrollment by 10,000 under the Oregon Health Plan (OHP) Standard program. The Standard program covers only a limited number of uninsured adults ineligible for traditional Medicaid programs and charges monthly premiums but no copayments. This recent study has been trumpeted by some as a vindication for the national Affordable Care Act (Obamacare), but the results simply echo a return to the same failed approach to health insurance that Oregon has already experienced with the OHP.

The results of the 2008 study were as follows: There was an increase in utilization of health care services among those who received insurance. The probability of having a hospital admission increased 30%, the probability of having an outpatient visit increased 35% and the likelihood of taking any prescription drugs increased 15%. Likewise, there was an increase in reported compliance with recommended preventative care including mammograms and cholesterol monitoring.

As for financial strain, there was a 25% decline in the probability of having unpaid medical bills sent to collection agencies and a 20% decline in having to pay any out-of-pocket medical expenditures.

In terms of the benefits of insurance to physical health, the results show a 13% increase in the likelihood that someone reported feeling “good, very good, or excellent;” and the likelihood of screening positive for depression fell as well.

All of these would seem to indicate that the program was successful, yet a closer examination reveals the fundamental problems with the program. First, the increases in the utilization of health services and the reduced financial strain add significantly to overall costs. In fact, average annual individual expenditures increased by 25% ($778). This isn’t surprising, given that merely a decade after OHP was implemented expenditures per enrollee had increased 58[SB1] %. OHP’s total Medicaid expenditures increased 113% from 1994 to 2008[SB2] , well over the rate of medical inflation for that time period. These huge cost increases put heavy burdens on the system which eventually resulted in large-scale disenrollment of beneficiaries.

Second, the push for preventative care did not decrease emergency room visits or generate cost-savings. Proponents of preventative care argue that expanded public insurance should encourage preventative treatments in order to reduce health care costs as fewer people use hospital emergency rooms for preventable diseases. They believe that emergency room visits are often the most expensive form of health care provision. However, the recent study points out that there was no such decrease in emergency room use, despite the fact that compliance with recommended preventative care increased. In fact, OHP has never caused any measurable change on emergency room usage over its lifetime.

Third, self-reported measurements of health indicated improvements. However, two-thirds of the increase in self-reported health came shortly after enrollment and before enrollees began utilizing any medical services. Also, the increase in self-reported health doesn’t mean enrollees were actually physically healthier. In fact, the report indicated it is most likely that the increase in self-reported health reflects a general sense of improved wellbeing. In other words, people feel better off with insurance even if they are not physically healthier.


The recent study provides a clear insight into the effects of expanded public health coverage in Oregon, and the results of the study provide additional evidence to the failure of OHP. However, proponents of Obamacare see the Oregon experiment as vindication for their nationwide endeavor. Comparing Oregon’s results to the national stage is premature, as even this report’s researchers have warned: “[C]onsiderable caution must be exercised in extrapolating from our estimates of the causal impact of insurance eligibility and coverage to other settings.”

Policymakers should use the study as a blueprint for how not to go about reforming health care. The Oregon experience has shown that further centralization of health coverage and layering of subsidies ultimately fails. Instead, it would be prudent to decentralize health coverage to promote competition and consumer choice.

Michael Bastasch is a research associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

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