Health Care Has A Relapse

By Karen Tumulty/Washington With Reporting by Fred Barnes/Little Rock, Paul Cuadros/Raleigh, Mitch Frank/New York, Hilary Hylton/Austin, Jeff Ressner/Los Angeles and Maggie Sieger/Chicago

For most children, a hug is all it takes to treat the bruise from a playground fall. But when Dalton Dawes collided with a classmate on his first day of preschool three years ago, the bleeding inside his shoulder would not stop. Dalton, an 8-year-old with fine blond hair and intelligent blue eyes who lives in North Carolina's Blue Ridge Mountains, is a hemophiliac. What prevents the mishaps of childhood from killing him is $2,000-a-week injections of a medication called Mononine. But no private insurer will cover Dalton, so his parents, Leonard Poe and Heather Dawes, held their income to $22,900--33% over the poverty line--to qualify for Medicaid.

That worked until March 2001, when Dalton turned 7 and his Medicaid eligibility ran out. (For him to stay in the program, his parents would have had to earn no more than $15,492 a year.) Heather, a paralegal, tried to enroll him in the Children's Health Insurance Program (CHIP), a state-federal initiative that provides coverage to children of working families. But North Carolina had burned through all the money allocated to CHIP that year, so Dalton joined 23,000 other kids on a waiting list. By the time legislators found the $8 million needed to resume enrollment last September, Dalton was down to his last three weeks' supply of Mononine. After months of seeing her son's survival in the hands of politicians and bureaucrats, Heather could not stop thinking about "how flimsy it all is." She notes, "They could decide to set it aside tomorrow again if they wanted."

In 13 other states, from West Virginia to Hawaii, lawmakers are talking about cutting funding, narrowing eligibility or placing restrictions on CHIP. And that's just one small part of what the new health-care crisis looks like across America. In California nurses are leaving hospitals to take jobs at Starbucks and Macy's because the benefits and working conditions are better, and hospitals are so understaffed that patients' families are answering phones on the wards. In Arkansas lawmakers cut a deal last week to preserve Medicaid benefits, after protesting parents wheeled their disabled children into the statehouse. In Idaho parents angry over proposed cuts in the state's already skimpy health program sent their children to the Governor's office with valentines pleading DON'T BREAK OUR HEARTS. Tennessee's health plan, hailed only a few years ago as a national model for covering the working poor, is falling apart as its cost approaches $6 billion a year. As many as 500,000 people may be dropped. In Florida a 1999 state Chamber of Commerce survey found that 91% of businesses provided health insurance for their employees; by last fall, the figure had dropped to 77%.

One measure of popular passion on the subject is that the movie John Q.--in which Denzel Washington plays an underinsured father holding a hospital at gunpoint to get his son a heart transplant--was No. 1 at the box office during its opening weekend in late February. When the movie came out, the HMO industry's lobbying group bought full-page newspaper ads blaming Washington politicians for failing to address the problems of the uninsured. There's not much evidence, however, that anyone in Washington is paying attention. "While there's conversation going on," says John Engler, Michigan's Republican Governor, "it doesn't appear to us to be a very focused conversation or a very clear strategy to get something done."

During the 1990s boom, politicians could pretend that the problem was fixing itself. Health-care costs were being held in check. Private employers offered more and better health care to attract workers. The states were becoming more generous and creative in taking care of lower-income working people, who most often fall into the crack between private insurance and public-assistance programs.

Today, however, costs are soaring again, fueled by drug and hospital prices. Insurance premiums rose 11% last year, and are likely to increase an additional 15% this year. Because of the recession, employers are trimming or eliminating coverage even as an estimated 2 million Americans have lost their health plans along with their jobs. State governments, facing a collective deficit of $40 billion, can no longer afford the extra Medicaid benefits they began paying for a few years ago. "You can't just manage your way out of it anymore," says Engler. "The numbers are getting so big and it's growing so fast that it's just dwarfing our efforts."

No one expects the Governors to get anything close to the $6 billion in federal aid they were asking for last week to cover this year's Medicaid shortfalls. Mississippi may be in the direst straits; its Medicaid program ran out of money entirely last Friday, as lawmakers argued over an array of unpalatable options, ranging from a 5% reduction in doctor reimbursements to sharply cutting back on services.

For all the promises politicians of both parties made in the last election about providing prescription-drug coverage for the elderly, President George W. Bush's recently unveiled budget includes only $190 billion for prescription-drug subsidies over the next decade--a figure that even Republicans say is woefully short of what's needed. Few believe there will be a prescription-drug program this year. "The truth is that Bush's tax cut killed the possibility of a prescription benefit," says Vermont's Democratic Governor, Howard Dean, who is also a physician and is considering a run against Bush in 2004. "He's not serious about it, and the Congress doesn't have any money." Bush tried once again last week to put forward a plan to sanction private drug-discount cards for seniors, but drugstores are fighting it, and most experts say it's a gimmick that would mean only 10% to 13% in savings.

Under political pressure to do something about drug costs, 28 states are offering prescription assistance. Since they can't afford to pick up the tab, most are trying to force pharmaceutical makers to cut costs--so the country is becoming a legal battlefield on which states are locked in hand-to-hand combat with drug companies. A federal judge last week ruled that Maine could force drugmakers to provide discounts of up to 25% for people with incomes up to three times the poverty level. It was the third such defeat the industry had suffered against such programs in three months. That same day Montana sued 18 drug firms it accuses of illegally inflating prices. Governors say Congress would make their guerrilla campaign a lot easier if it would change the laws that allow pharmaceutical companies to hang on to their patents and prevent cheaper generics from coming to the market.

To the degree that Washington is making any serious effort to get something done on health care, it's on noble-sounding legislation known as the patients' bill of rights, which does nothing to help the uninsured and could actually make costs rise even more. Bush and Senator Edward Kennedy have quietly reopened negotiations on the question of whether and how patients should be allowed to sue their managed-care companies. But while the HMO-reform measure was a crowd pleaser when the idea started kicking around five years ago, it is merely a "version of the Maginot Line" against the health-care problems facing the country, says Steven Schroeder, president of the Robert Wood Johnson Foundation, which leads a coalition of business, labor and health-care groups trying to call attention to the uninsured--40 million and growing. The recession is likely to be over before Congress does anything to get health coverage to the 2 million latest additions to those ranks. A bill to provide temporary health coverage for laid-off workers has been stuck in a partisan wormhole since last fall because Republicans and Democrats can't agree on whether it should be done in the form of tax credits or a new entitlement.

The economic slump is not the only reason people are finding it tougher to afford health care. While managed-care companies used to have the economic clout to force doctors and hospitals to take the rates they offered, a round of hospital closings and mergers has given the providers more bargaining power. And consumer anger--fueled by horror stories of insurance-company bureaucrats denying lifesaving drugs and medical procedures--has forced HMOs to ease restrictions that helped hold insurance prices down. What's more, growing numbers of businesses and consumers are abandoning HMOs. In California, the state that pioneered managed care, the percentage of people enrolled in HMOs has fallen below 50% for the first time in eight years. Most are moving toward costlier plans with higher premiums and more out-of-pocket expenses.

With costs rising so quickly, consumers trying to navigate the health-care market on their own have fewer and fewer realistic alternatives. In the Chicago area, Kimberly Godboldt, 25, an office manager who is a single mother of two, got a $10-an-hour raise in January, only to find that she then earned too much to qualify for Medicaid. Her employer, a doctor's office, does not have a health plan. The best deal she could find on private insurance was $400 a month, and because of recent cuts in Illinois's CHIP program, someone at Godboldt's income level would have to pay a monthly deductible of $2,300. She recently had to pay $450 when her 6-year-old daughter needed X rays and blood work. "It was really hard, but I didn't have a choice," Godboldt says. "She was so sick, and we didn't know what was wrong." Anxieties like hers explain why, in Republican pollster Bill McInturff's surveys, twice as many people (14%) thought it likely that they would have trouble paying for a major illness as expected to lose their jobs (7%). And why, for the first time in several years, McInturff's numbers indicate that more than 30% want to see the nation's health-care system "radically changed."

If national politicians are not feeling the heat yet, they will soon. Tom Strickland, a Democratic former U.S. Attorney in Colorado who appears headed for a tight Senate race against G.O.P. incumbent Wayne Allard, says except for a brief spell around Sept. 11, "health care has been the No. 1 issue we're encountering." At a get-together with a coal-company executive three weeks ago, he expected to be asked about energy policy. Instead, the businessman complained that his firm's policy of covering its retirees' prescription-drug costs was draining $10 million a year from the bottom line. Says Strickland: "Every day I'm on the campaign trail, every meeting I have, that's an issue that just screams for attention."

That sort of call from the hinterland got Washington's attention in 1991, when bookish Democrat Harris Wofford ran for the Senate on the health-care issue and pulled off a stunning upset over a two-time Pennsylvania Governor. The next year Bill Clinton deftly appropriated Wofford's message, vowing to "make health care affordable for every family," and toppled the first President Bush. But when Clinton tried to fix the problem--and almost lost his own presidency--he gave all the other politicians pause about making any such promises again.

Which helps explain George W. Bush's predicament. Three years ago, Candy and Amador Guevara of Austin, Texas, had to sell their washer and dryer to pay for their 5-year-old's prescription drugs. They could not qualify for Medicaid beyond their children's first birthdays because Amador's job as a painter and wallpaper hanger pays an average of $350 a week, just over the income limit. But in 1999 Candy heard about CHIP from a social-services agency where she was seeking help to pay for her son's dental care. "It was so easy," says Candy. "All I had to do was show my husband's pay stub."

Texas was two years late in taking maximum advantage of federal matching funds to start its CHIP program, going full force only in 1999, after the situation became an embarrassment to a certain "compassionate conservative" who was thinking about running for President. Now, with roughly 530,000 children enrolled, the Texas program is considered a model of how far CHIP can reach--but faces a possible $20 million shortfall. State lawmakers are looking to Washington for Medicaid money, but the Administration wants to hold the line on domestic spending in order to fund the war on terror. Working parents like the Guevaras say Governor Bush gave them peace of mind. Can President Bush help them keep it?

--With reporting by Fred Barnes/Little Rock, Paul Cuadros/Raleigh, Mitch Frank/New York, Hilary Hylton/Austin, Jeff Ressner/Los Angeles and Maggie Sieger/Chicago