KHN: Kaiser Health News
Massachusetts Shows Federal Reform Headed For Trouble
Grace-Marie Turner, President of
the Galen Institute
Jul 22, 2010
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.h
It hasnft 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 statefs 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. Itfs 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 statefs 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 gfree-ridingh 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 canft 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 donft 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 statefs reform law.
The incentives in Massachusetts invite this behavior: Insurance
companies are required to sell policies to anyone who applies (gguaranteed
issueh) at the same prices as other applicants who have maintained coverage
(gcommunity ratingh). 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 statefs 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 gSince 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 burgeoning 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. Washingtonfs 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 Romneyfs promise. Washingtonfs
reform effort doesnft even pretend to achieve universal coverage, and
Massachusettsf experience shows the near impossibility of containing costs in a
system where incentives go in exactly the opposite direction.
Grace-Marie Turner is president of the Galen Institute, a non-profit
research organization focused on patient-centered health reform. She can
be reached at galen@galen.org .