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Red states' quiet triumph

More conservative regions will get a bigger boost under national health-care reform.

Alec MacGillis

is a reporter for the Washington Post

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 the employment patterns, weak unions, and stingy state governments. Texas leads the way, with a quarter of its population uninsured.

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. Such a tax could land hard on corporate executives and 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. 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 '80s," 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, universal health care is not talked about much in regional terms among senators. Pushing it are Northeasterners such as Ted Kennedy (D., Mass.) and Chuck Schumer (D., N.Y.), and pushing against it are Sun Belters such as John Cornyn (R., Texas) and Jon Kyl (R., Ariz.).

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, including Pennsylvania, have less than 11 percent uninsured. In the South and the West, where small businesses dominate, many states have more than 17 percent.

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.

"There's a big regional backdrop to this," said Harvard health-policy professor Robert Blendon. "Those who are the beneficiaries of all this money that's going to be floating around is one group of states, and who's going to have to pay for the taxes if they lift this exemption is another group."

For example, he said, if you're a New York policeman married to a nurse and your combined salaries are $80,000, your health insurance will be taxed to pay for a family in Mississippi. "I'm trying to figure out how Chuck Schumer can raise his hands and say this is a good thing if New York workers are going to be such losers based on taxes," he said.

Not everyone in a state such as Texas will gain from reform. Larger employers will face a mandate to cover workers or pay a fee. Residents will probably face a mandate to buy coverage and not all will qualify for subsidies to do so. New federal standards for health benefits will mean that self-insured residents of states with loose standards will get easier access to coverage and better benefits, but they'll have to pay more.

One of the likeliest options for reform is to increase coverage among the working poor by expanding Medicaid eligibility in states that now limit it.

But to persuade stingier states to expand eligibility, the federal government may cover the full Medicaid cost of newly eligible residents for a few years. This will draw howls from states that long ago expanded their eligibility rules and have been paying a large share of the cost of having done so. The plan could try to mollify these states with extra aid, but that adds to the cost.

"Do you penalize those that have been good in the past by only putting the new federal dollars into where the problem exists, or do you try to equalize the playing field to help the states that have been the best?" asked Diane Rowland, executive vice president of the Kaiser Family Foundation.

To conservatives, a westward and southward wealth transfer is long overdue. Exempting health benefits from taxes, they say, has meant a big tax break for employers and workers in the wealthier and more unionized regions. And for union members to complain about being taxed for their good benefits just shows that they, too, have been hurt by the system, because health care absorbs too much of their compensation.

But staunch advocates for universal health care, like Anne Dunkelberg of the Center for Public Policy Priorities, reject the regional point-scoring, arguing that reform is a national need. "We should be motivated by the fact that [the current system] is unsustainable for the whole country," she maintained.

Of course, that's easy for her to say; she's in Austin, Texas.