Massachusetts Warning Signs

We continue to study Massachusetts’ health overhaul experiment as a harbinger of ObamaCare. And we continue to see serious problems ahead.

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 then-Massachusetts Gov. Mitt Romney’s promise in 2006 that, “Every uninsured citizen in Massachusetts will soon have affordable health insurance and the costs of health care will be reduced.”

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.

Here are some highlights from a piece I wrote this week for Kaiser Health News with an update on Massachusetts:

  • High costs: On average, health insurance now costs $14,723 for a family of four in Massachusetts, compared to $13,027 nationally. That’s nearly 12 percent higher than the national average. Reform has not made insurance more affordable.

  • Rising costs: 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 for individuals increased by an additional six percent in aggregate in Massachusetts compared to the nation as a whole. It’s even worse for small-group coverage: These health insurance costs grew 14 percent more than in the country as a whole from 2006 to 2008, putting “a very large burden on small businesses and their employees,” the authors write.

  • Dropping insurance: As a result, some small Massachusetts employers are dropping health insurance and sending their workers into the taxpayer-funded health insurance pool. They say they have no choice because of relentlessly rising costs.

    This spells trouble for taxpayers. With more than two-thirds of the newly insured in Massachusetts receiving taxpayer-supported coverage, it will put additional pressure on the already stressed state budget if more employers opt to pay the fine instead of offering coverage. The incentives for this are also in ObamaCare.

  • More ER visits: Reformers promised that covering everyone would eliminate the problem of uninsured people going to the emergency room and “free-riding” on paying customers. But the number of people visiting hospital emergency rooms is increasing in Massachusetts.

    According to new state data, emergency room visits rose by nine percent from 2004 to 2008, to about three million visits a year. The report from the Division of Health Care Finance and Policy found that Romney’s health reform law may have contributed to the increase.

    One reason: More people have health insurance, but many can’t find a doctor to see them so they go to the ER. 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.

  • Gaming the system: 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, driving up costs for others.

    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.

    Some opt to pay the smaller penalty for not being insured rather than pay expensive premiums to maintain coverage. The incentives for this are even worse in the federal legislation.

Massachusetts says it has reduced the percentage of its citizens without health insurance to about three percent (down from 9 percent percent in 2005, according to the U.S. Census Bureau), 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.

Washington is pretending to pay for its reform effort with phony budgeting and what surely will be massive deficit spending. Its experiments in cost control are all built on centralized, regulatory plans that have no track record of success.

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.

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 in a truly competitive marketplace. Washington’s health overhaul law has the same structural flaws and is headed for even bigger trouble.

Here is our latest paper with more details and links to earlier writings on Massachusetts.


Video from the Galen Institute’s Capitol Hill Briefing, “Why the Obama Health Law Is Not Entitlement Reform”

This week’s “Clip of the Week” is the full video from the Galen Institute’s July 15 Capitol Hill briefing to release Jim Capretta’s paper, “Why the Obama Health Law Is Not Entitlement Reform.”
Watch now >>


ObamaCare’s Political Future

James C. Capretta, Ethics and Public Policy Center and Galen Institute
National Review, 08/02/10

Opposition to ObamaCare will intensify in the coming months, Capretta writes, because millions of people will come out worse. As millions of today’s happily insured citizens begin to find out that their current arrangements have been disrupted, and, in some cases, terminated, to pay for the Obama administration’s government-centric takeover, their views of ObamaCare will only sour further. They are all but certain to hold those responsible for imposing this colossal mistake on the country accountable for what they have done.
Read More »

Toward Real Health Care Reform

Paul Howard, Manhattan Institute and Stephen T. Parente, University of Minnesota
National Affairs, Summer 2010

Howard and Parente describe five key components for a serious and achievable plan to heal American health care: 1) genuine interstate insurance competition; 2) replacing ObamaCare’s subsidies with a single defined credit or voucher for the purchase of basic (at the very least catastrophic) health insurance; 3) overhauling Medicaid; 4) fixing Medicare instead of using it as a slush fund to finance yet another new entitlement; and 5) using a system of robust high-risk pools to address the problem of insuring Americans with pre-existing medical conditions. Rather than vastly expanding the American welfare state and bankrupting the country, these proposals would arrange economic incentives for improved efficiency and lower costs. And instead of precipitating a wholesome transformation of the relationship between the American people and their government, they would offer discrete solutions to specific problems.

Read More »

Why the ObamaCare Tax Penalty Is Unconstitutional

J. Kenneth Blackwell, Liberty University School of Law and Kenneth A. Klukowski, Family Research Council and American Civil Rights Union
The Wall Street Journal, 07/22/10

The Justice Department announced last week that it would defend the new federal health insurance mandate as an exercise of Congress’s “power to lay and collect taxes,” even though President Obama had insisted before the bill’s passage that it was “absolutely not a tax increase.” The truth is the mandate is not a tax — and if it were it would be unconstitutional, Blackwell and Klukowski write. The federal government allows only four types of taxes: duty, excise, direct, and income. The individual health insurance mandate fits into none of these four categories and is therefore not constitutionally justified as a tax.

Read More »

Prior Authorization Required by Health Insurers Impedes Primary Care

Charles R. D’Agostino, M.D.
MedPageToday, 07/19/10

A Massachusetts physician reflects on the barriers that “prior authorization” (PA) procedures required by insurance companies put between patients and the care they need. “The PA ‘dance’ is too complicated for patients to learn,” Dr. D’Agostino writes, leaving physicians to “learn an array of delicate maneuvers determined by, and different for, each insurance partner we choose to dance with.” He concludes: “There seem to be only a few conclusions that could be drawn … Either insurance companies don’t trust physicians to be honest with their requests, or they have devised the most vile and devious means to put up every roadblock in their power to save money. Either way it is a sad state of affairs.”

Read More »


OptumHealth Bank Surpasses $1 Billion in Assets as More Consumers Embrace Health Savings Accounts

OptumHealth Inc., 06/30/10

OptumHealth Bank, a leading bank dedicated to health care, has exceeded $1 billion in health savings account (HSA) deposits and related investment assets. The milestone illustrates the growing appeal of HSAs as a convenient, tax-advantaged way for consumers to save and pay for qualified health care expenses. OptumHealth Bank HSAs have grown by 18% within the last year to nearly 600,000 individual accounts. In addition, a 2009 OptumHealth national survey found that 82% of HSA owners are satisfied with their accounts.
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Rethinking Socialized Medicine in Canada

David Gratzer, M.D., Manhattan Institute
Investor’s Business Daily, 07/21/10

The dramatic changes occurring throughout Canada are worth contemplating as the U.S. prepares an unprecedented expansion of the federal government into private health care, Gratzer writes. For example, Regina — the very first city in North America to experience government-run health care — recently started entertaining the idea of contracting out CT scans to the private sector, and with good reason: Regina has just three CT scanners, and they are running at full capacity, seven days a week. In British Columbia, the government is moving hospitals to a pay-for-service model that would lead providers to compete with one another directly. In Quebec, the premier has openly endorsed the idea of co-pays for basic services, which no politician previously supported, and governments across the country are hiring private clinics to provide basic surgeries.

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The Drawbacks of Dutch-Style Health Care Rules: Lessons for Americans

Ryan Lynch and Eline Altenburg-van den Broek
The Heritage Foundation, 07/22/10

Many American policymakers are looking to the Dutch experiment as a model to fix America’s complex and costly health care system. But the Dutch reforms have not caused individual consumers to seek value and have led to a less competitive market, write Lynch and Altenburg-van den Broek, a health policy analyst from the Netherlands. In 2006, the Dutch government implemented a universal insurance mandate and devised a system of “managed competition” that included a statutory general insurance provision. Dutch citizens are now obligated to buy a basic insurance package, as defined by the government, and insurers have a duty of acceptance. But the reforms have not caused individual consumers to seek value. Quite the opposite has occurred, as the attempt to manage market conditions has reduced competition. Cost-consciousness remains elusive, and managed competition has led to an oligopolistic insurance market bereft of meaningful choice.

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Free to Choose Medicine: How Faster Access to New Drugs Would Save Countless Lives and End Needless Suffering

Bartley J. Madden
The Heartland Institute, 07/10

Bart Madden shines a bright light on the all-too-invisible damage caused by the FDA’s self-protective, dysfunctional, and ultimately lethal drug approval process. He explains how the FDA bureaucracy protects itself while allowing millions of people to suffer and die who could be helped by faster access to the newest medicines. The FDA uses approval processes appropriate to an era of adding machines and not super computers. Madden offers a 21st century information-age solution that would give consumers control over health decisions, allow faster access to life-saving and life-enhancing drugs, and ultimately reduce the cost of new medicines. This concise book explains how to keep the FDA monopoly from stifling innovation and crippling the life sciences industry.

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Addressing Geographic Variation and Health Care Efficiency: Lessons for Medicare from Private Health Insurers

Darius Lakdawalla, University of Southern California, Tomas J. Philipson, University of Chicago, and Dana Goldman, University of Southern California
American Enterprise Institute, 07/10

Recent studies find that Medicare spending and utilization vary considerably across U.S. regions, leading some to suggest that Medicare should look at relatively “low-use” regions as a model for decreasing costs in “high-use” regions. This policy prescription may be off the mark, Lakdawall et al. write. To reduce spending and more appropriately limit geographic variation in utilization among Medicare beneficiaries, the program should consider the utilization-management techniques employed in the private sector as a model.

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Behind the Curtain: The Health Care Law’s Impact on Small Business
American Action Forum, U.S. Chamber of Commerce, and NFIB Event and Webcast
Monday, July 26, 2010
8:30am – 12:00pm
Washington, DC

Republican Thought Leaders Series featuring Representative Mike Pence
Congressional Health Care Caucus Policy Forum
Tuesday, July 27, 2010
12:30pm – 1:30pm
Washington, DC

Health Care Forum
National Center for Policy Analysis Event
Thursday, July 29, 2010
Dallas, TX

Grace-Marie Turner speaking on Real Wealth Weekly
Real Wealth Radio Broadcast
Monday, August 2, 2010
10:00am Eastern

The Real Impact of the New Health Care Law
Cato Institute Capitol Hill Briefing
Wednesday, August 4, 2010
Washington, DC

10th Annual Focus on Healthcare Conference
BMO Capital Markets Event
Thursday, August 5, 2010
7:15am – 5:00pm
New York, NY
Grace-Marie Turner will participate in the luncheon roundtable discussion on “Healthcare & Money: Reform Never Ends.”