If Massachusetts is a harbinger – and all evidence indicates it is – the new federal health overhaul legislation is headed for serious trouble.
Massachusetts and the federal government built their reform efforts using similar architectural plans – strict regulation of health insurance, mandates on individuals and businesses, expensive new taxpayer-funded subsidies and a major expansion of Medicaid – and both share a central structural flaw in failing to address rising health costs.
Former Massachusetts Governor Mitt Romney sold his plan in 2006 with the promise that, “Every uninsured citizen in Massachusetts will soon have affordable health insurance and the costs of health care will be reduced.”
It hasn’t turned out that way. On average, health insurance now costs $14,723 for a family of four in the state, compared to $13,027 nationally — nearly 12 percent more.
In fact, John Cogan of Stanford University and colleagues found that since the state’s reform initiative passed, premiums for private employer-sponsored health insurance in Massachusetts increased by an additional six percent in aggregate compared to the nation as a whole. It’s even worse for smaller firms: Their health insurance costs grew 14 percent more than in the country as a whole from 2006 to 2008.
Health insurers in Massachusetts are the messengers reflecting higher costs from providers, including the state’s powerful hospitals, and increased utilization of health care services. The insurance companies are battling with the government to allow them to increase their rates by seven to 34 percent because they say they are losing tens of millions of dollars.
Gov. Deval Patrick ordered his insurance commissioner to reject the rate increases. The governor lost the first round when an insurance appeals board overturned his cap on insurance premiums, but the very public battle continues between politicians and health insurance companies over costs.
Other factors are pushing up the cost of insurance: Reformers promised that covering everyone would eliminate the problem of uninsured people going to the emergency room for routine care and “free-riding” on paying customers. But the number of people visiting emergency rooms has increased, not decreased, new state data show.
One reason: More people may have health insurance but they can’t find a doctor to see them. Last year only 44 percent of internal medicine practices were accepting new patients, down from 66 percent in 2005., according to the Massachusetts Division of Health Care Finance and Policy.
But the distortions don’t end there: Some residents are gaming the system in ways that drive up costs for others. The Massachusetts Division of Insurance reported in June that the number of people who are buying coverage for short periods more than quadrupled in the three years since passage of the state’s reform law.
The incentives in Massachusetts invite this behavior: Insurance companies are required to sell policies to anyone who applies (“guaranteed issue”) at the same prices as other applicants who have maintained coverage (“community rating”). This gives short-termers a free ride but drives up the cost of insurance for people who maintain continual coverage.
Blue Cross and Blue Shield of Massachusetts reports that more people are jumping in and out of coverage as they need medical services. The typical monthly premium for short-term members was $400, but their average claims exceeded $2,200 per month. Other insurers have witnessed a similar pattern. “These consumers come in and get their service, and then they leave because current regulations allow them to do it,’’ said Todd Bailey, vice president of underwriting at Fallon Community Health Plan, the state’s fourth-largest insurer.
Massachusetts says it has reduced the percentage of its citizens without health insurance to about three percent, but 68 percent of the newly-insured receive coverage that is heavily or completely subsidized by taxpayers. An infusion of federal Medicaid funds has allowed the state to increase eligibility for subsidized coverage to 300 percent of poverty, or more than $66,000 a year for a family of four. Without that money, the state would have had to rely on significant new taxes to finance its coverage expansion.
Employer coverage has increased largely because employers do not want to break the law requiring them to provide coverage or pay a fine. The percentage of firms with three or more employees offering health benefits has increased from 73 to 79 percent.
But now, some small Massachusetts employers are dropping employer-sponsored insurance and are instead sending their workers into the taxpayer-funded health insurance pool. They say they have no choice because of the relentlessly rising costs of coverage.
The Boston Globe reports that “Since April 1, the date many insurance contracts are renewed for small businesses, the owners of about 90 small companies terminated their insurance plans with Braintree-based broker Jeff Rich and indicated in a follow-up survey that they were relying on publicly-funded insurance for their employees.”
This spells trouble for taxpayers. With more than two-thirds of the newly-insured receiving taxpayer-supported coverage, it will put additional pressure on the already stressed state budget if more employers opt to pay the $295 fine and instead send their workers to taxpayer-subsidized coverage.
Massachusetts residents are no different than people in the rest of the country: They respond to incentives.
Health reform in the Bay State has increased demand without increasing the supply of health care providers, it continues to keep people in the dark about the true cost of health care and health insurance, and has not changed incentives for people to seek more affordable options or for a truly competitive marketplace. Washington’s health overhaul law has the same structural flaws.
When President Obama told MSNBC’s Chuck Todd in an interview last week that his new health reform law “not only makes sure everybody has access to coverage but is reducing costs,” the quote was evocative of Romney’s promise. Washington’s reform effort doesn’t even pretend to achieve universal coverage, and Massachusetts’ experience shows the near impossibility of containing costs in a system where incentives go in exactly the opposite direction.
Published in Kaiser Health News, July 22, 2010.