This is a partial transcript from "The Journal Editorial Report," June 3, 2006, that has been edited for clarity.

PAUL GIGOT, HOST: In a groundbreaking ruling, Massachusetts adopted a law in April that requires all state residents to obtain medical insurance by July 1, 2007.

Starting next year, those who don't have coverage will lose their state income tax deduction and face a monthly fee, while low-income residents will have access to state subsidized insurance policies.

Although the plan has been praised by many, it has some conservatives chaffing at the prospect of new government mandates.

Massachusetts Governor Mitt Romney joins me now from Boston.

Welcome, Governor.

MITT ROMNEY, GOVERNOR OF MASSACHUSETTS: Thanks, Paul. Good to be with you.

GIGOT: One of the criticisms of your plan, I have heard from several people, is that you require people to offer health insurance but without first deregulating the insurance market. How do you respond to that?

ROMNEY: Well, our system does allow for people to be able to buy private health insurance policies.And what we've done is we have made our policies have a great deal more flexibility than ever before in our state, for much more substantial deductibles and co-payments.

We're going to have policies, which, instead of costing $350 a month for individuals, will now be priced at about $200 a month. That kind of change allows people to be able to afford policies that couldn't afford them in the past.

And right now, we've got hundreds of thousands of people in our state that are getting free health care, paid for by taxpayers, because they show up at hospitals without insurance, even though they could afford to buy a policy if it were reasonably priced.

GIGOT: Well, that free-rider problem, as it is sometimes called, is a real problem. But some people say it's not as big a problem as the mandates that are passed by politicians in the state that require certain kinds of coverages and so on.

Do you think that the mandate problem is the real problem in driving up the cost of health insurance in Massachusetts? And your bill really didn't do much to change that.

ROMNEY: Well, actually my bill asked for all of the mandates to be stripped out of the policies but the legislature turned that down, as you might imagine.

We've worked with the insurance companies here, all the private companies, and said, look, how do you get our premiums down to a level where people can afford them, people who are not now insured?

And they said, look, the big drivers of cost of an insurance policy are, number one, the size of the deductible; number two, the co-pays; and number three, whether you can direct the beneficiary to go to a certain network, a directed network, if you will, of suppliers. And if you do those things, those are what are critical for getting the price down.

Whether you have mandates on mental health coverage and so forth is less important to them. Although we do have some flexibility in the law that got passed by the legislature, I'd like more.

But what we have is what we need in order to have policies people can afford.

And frankly, the cost of free-riders — and that's hundreds of thousands of people, who can afford to buy health insurance but choose not to buy it because they get health care free by the taxpayers' picking up their bill — that's something which is a huge burden on our system.

It's driving up costs of health care across the country. And that's what we're taking aim at.

GIGOT: The Council for Affordable Health Insurance, who follows these things around the country, says that a family of four with a standard Blue Cross policy in La Crosse, Wisconsin, with a $250 deductible, would pay about $600 a month for a policy.

But in Boston, it's over $1400 a month and that's, in part, because of, I guess, the particular rules in Massachusetts. How do you get that price down?

ROMNEY: Well, that's the great thing about our plan, which is that we've gone to the insurance companies and they said, if you can let us put in place higher deductibles, higher co-pays and directed networks, and if you insist that all of our citizens participate, instead of just having the adverse selection of the very sick buy the policy, instead everybody now plays.

As a result of doing that, they get the prices of the premiums way down. And people are now able to afford products that they couldn't afford prior to this legislation being put in place.

GIGOT: You going to do anything about what they call guaranteed issue or community rating, for example, which requires that you charge the same price for insurance regardless of the risk and the health of the individual?

ROMNEY: Well, what we do in our plan is that we have traushes (ph), if you will, of community ratings so that we look at groups of people of the same age group and so forth, and price them all at the same level.

But because we're going to have everybody insured, no one is being left out, everyone in our state will have health insurance.

We, of course, are going to require that insurance companies can't pick and choose. They're going to take the whole population. Otherwise, those that would be left behind would have to get picked up by government. And that's what we want to end.

What we're really doing here is saying you know what? The free market does work.

If we let people buy private health insurance plans, and insist that if they can afford to do so, they do it, we can get government out of the business of handing out free care.

And that's what we're been doing in our state to the tune of more than a billion dollars a year. That's what this is about. Get the market to work well. Get everybody insured inside the system rather than people getting free health care paid for by everybody else.

GIGOT: Let's talk about the employer component of this. There was a levee on employers, who don't insure employees, of $295 for each employee. You vetoed that. The legislature overrode you. But that's going to go up in the future, that fee. Is it not?

ROMNEY: Well, I think it'll actually disappear. It is kind of, in my view, kind of a silly add-on that the legislature tacked on at the very end.

It is not necessary for the plan at all. It raises a very small amount of money. I think it was just a face-saving kind of change that they wanted to put in place.

It applies to a very small percent, 2, 3, 4 percent of our employers. And you can avoid the fee altogether by insuring one employee. So if you have 500 employees and you insure one, there's no fee at all.

So it's kind of a silly proposal in my opinion. And that's why I vetoed it. It's unnecessary. It'll go away.

This is fundamentally a plan, which is based on individuals being helped to get their own private health insurance policy.

GIGOT: Governor, you've been mentioned as somebody who might want to go — might have some national ambitions. Is this something — is your plan something that you think that Washington should consider for the whole country?

ROMNEY: Well, there's some aspects of what we are doing that could well be applicable to the rest of the country. One is we found a way to allow people to buy their own insurance policy with pretax dollars.

In the past, you could only get that outcome by having your employer buy your policy for you. So that's an innovation that I think is important nationwide.

I think also John Goodman, who's president of the National Center for Policy Analysis, he looks at the same issue and says, look, we're already spending all the money in giving out free care. We've got to turn the money we're spending into getting people to buy their insurance policies.

That principle, which we've applied here, may be applied in different ways by different states. But the overall principle really does have applicability generally.

And fundamentally, you know, we have a massive health care crisis in this country, not just those that don't have insurance, but the extraordinary cost of health care.

We're not going to solve either of those problems until we get everybody inside the system having insurance, going to get their care in the appropriate setting.

These are changes, which we have to see, or we're going to continue to see skyrocketing costs in health care.

GIGOT: All right, Governor Mitt Romney, thanks.

ROMNEY: Thank you, Paul.

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