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Akron Univ. School of Law

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Monday, December 29, 2008

Massachusetts Health - Model Reform??

Charlie Baker at HealthCareBlog provides a critique of the Massachusetts health reform plan and whether it will serve as a model for the rest of the nation.  He writes about whether Massachusetts can serve as a model when there are quite a few differences between health insurance there and elsewhere.  His article states, 

. . . . There were profound differences between Massachusetts and the rest of the country before health care reform took center stage here that make relying on our experience somewhat challenging for the nation as a whole. For example, Massachusetts already had guaranteed-issue requirements for individual health insurance coverage even before reform. Today, most states don’t. So in Massachusetts, individual coverage was available to anyone who wanted to buy it, but it was really, really expensive.

That’s because most of the people who buy individual coverage -- absent a mandate to purchase -- usually plan to use health care services once they purchase the insurance. Insurance works through risk pooling - a small number of people who get sick spend the premiums paid by a much larger group of people who don’t.  If most of the people who buy the product plan to use it, there’s not enough healthy people to keep the overall price down.

When the state merged the individual health insurance market with the small group health insurance market (businesses with 1-50 employees) as part of its reform efforts, prices for individual coverage went down by 25 percent (on a per capita basis, individuals spend a lot more on health care than small business employees - hence the big drop in price for the individuals when they got mushed together with all the small business employees).  At the same time, small group prices went up by 2 percent to pay for including the cost of all those individual purchasers in their risk pool. This was mostly missed during the implementation of reform, because medical expense trends went up by 10% over the same period of time, shielding the shift in expenses from individuals to small group.

In addition, most other states permit medically underwritten individual insurance - which weeds out people seeking to purchase coverage who might be high risk enrollees. They either get denied coverage, or shifted to a high risk pool for high risk enrollees. As a result, individual insurance in many states is very, very inexpensive for those who can access and purchase coverage.  Any national move to guarantee issue individual coverage - even with a mandate to buy - virtually assures that these people - and there are millions of them throughout the country - will pay a lot more for their health insurance coverage than they pay now. This is exactly the opposite of what happened when reform was passed in Massachusetts, and needless to say, this would make all those folks who have individual insurance now very unhappy.

Massachusetts also heavily regulated the small group health insurance market before reform, using rating  rules that capped how far apart the prices for expensive and inexpensive (relatively speaking) products could be, and prohibiting medical underwriting in the small group market. Today, most states allow significantly more flexibility than MA did before reform, and the MA rules today are even more restrictive than they were before reform. . . .

Third, Massachusetts had a declining population, a tight labor market, high per capita income, and relatively rich plan designs in its public and private health insurance programs to begin with. Our unemployment rate has been below the national average for the past couple of years, but not because we’ve been creating new jobs faster than the nation overall. It’s because our working population has been shrinking for years, making it easier for the state’s economy to appear to be relatively healthy compared to its peers. . .

Fourth, state government was already making significant - and calculable - investments in paying for hospital-based services provided to people in Massachusetts who did not have insurance. It was worth about $1 billion, and was funded by a combination of assessments on health plans and providers, money from the state itself, and federal reimbursements through a Medicaid waiver. There is no calculation anywhere at the national level that could possibly help people understand what the “savings” from getting everyone covered might be to the system overall. Moreover, because Massachusetts already had so much money “in the game” so to speak, the Commonwealth did not have to raise taxes (much) to make the prospect of universal coverage a reality. I would think this trick will be much harder to pull off at the federal level.

Fifth, Massachusetts raised Medicaid payments to hospitals and physicians as part of the reform initiative by a lot - $270 MM over three years. That’s a 3 to 5 percent increase on top of regular inflation, plus or minus.  Duplicating this kind of positive incentive to support reform among providers at the federal level will be hard to do.

Finally, the health care cost problem wasn’t addressed by the MA health care reform plan.  In fact, a recent post on the Health Care For All blog argues that the decision to ignore the cost question made reform possible. "The main critique is that the (reform) plan over-regulates and does not do enough to control spending.  One of the lessons we drew from Massachusetts health reform is that coverage expansions, as hard as they are, are easier than serious cost control.  Massachusetts wisely decided not to hold coverage hostage to the difficult decisions about cost. In fact, expanding coverage increases the pressure to do something about costs, pressure that wouldn’t exist without the expansion."

It’s also worth noting that Massachusetts enacted almost $800 MM in new taxes as part of its FY 2009 budget to fund, among other things, the third year of health care reform. This has not been a free ride financially, and won’t be going forward. In addition, the financial meltdown of the past three months only makes the state’s fiscal situation worse.

The article continues with some suggestions for a federal health reform initiative. 

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