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What We Can Learn from Massachusetts (Page 2)

Criticisms of the Plan: Mandates, Payment Reform and Rationing Care

Mandating that people buy health insurance is a contentious issue.

During the past presidential campaign, President-elect Barack Obama spoke out against having mandates for adults, saying that the government “shouldn’t force people to buy health insurance, especially if that insurance is unaffordable.”

Even proponents of mandates are tending to agree with the President-elect when it comes to Massachusetts.

The Case for Mandates

Many experts argue that to reduce costs system wide, both the healthy and the sick must be insured.

  • This broadens the pool over which the risk of covering the sick is spread, thus making it more affordable for the payer organization to provide care.
  • This also prevents healthy individuals from buying insurance only upon becoming sick.
    • The insurance companies that offer plans through the Connector are not allowed to discriminate amongst consumers based on age, gender, or other pre-existing conditions.
    • Without a mandate, folks could simply wait until becoming sick to purchase insurance, which would increase premiums across the board.

In other words, requiring that individuals buy health insurance is similar to mandating that people buy car insurance.  Health insurance coverage protects you from yourself when an emergency occurs, but it also prevents you from driving up the cost of care for everyone else.

Mandates, then, may be a valid tool for achieving universal coverage, and lowering costs, in theory.

But critics of the Massachusetts’ law assert that mandates are not enough to guarantee universal coverage or to create a sustainable health care reform initiative.

First, the mandates alone are only helping to maintain a bloated, bureaucratic insurance industry at the expense of individual consumers and small businesses.

  • Insurance companies spend 20% or more of their revenues on administrative costs, including marketing, financing high management salaries and denying patient claims.
  • This amounts to roughly $13.3 billion per year in Massachusetts.
  • By requiring that consumers and small businesses purchase insurance plans through the private market, the state is endorsing and supporting these bureaucratic practices.

Second, despite the best efforts of the state to regulate the cost of the insurance plans offered through the Connector and Commonwealth Care programs, premiums are continuing to rise at a rate of nearly 10% per year.

What impact is this having on the law?

Already roughly 2% of Massachusetts’ residents are exempt from the purchasing requirement because their salaries are too high to qualify for public assistance and too low to afford the private plans offered through the Connector, according to the Connector’s own calculations.

The reason that these individuals cannot afford the private plans is simple. Group insurance plans in Massachusetts cost $4,500 annually for an individual and $11,000 for a family. By the Connector’s own admission, there is no way for an individual earning anything below $90,000 per year to afford a private plan, even if that individual is young and in perfect health.

As the premiums on the private plans continue to rise at a rate of 10% annually, more and more middle-income individuals are likely to be exempt from the mandate requirement, as there is simply no way for them to afford the plans. Likewise, rising premiums will lead small businesses to drop coverage, sending more folks to the individual market.

The state may decide to pick up some of the slack by agreeing to subsidize individuals in higher income brackets.

But this seems unlikely, or near impossible, as the growing premiums also add to the already higher-than-expected total cost of the subsidized component of the law, which the state pays for directly.

Why is the subsidized component of the law costing more than planned?

Enrollment in insurance plans has thus far outpaced the original expectations of legislators.

The majority of the new enrollees are covered through Commonwealth Care, the subsidized component of the plan. As of April 1, 2008, 175,000 low-income adults were enrolled in the Commonwealth Care Health Insurance Program, which exceeded estimates by 30,000.

While it is encouraging that individuals are enrolling in subsidized plans, the cost of implementing the law is much higher than predicted as a result.

  • For the 2009 fiscal year, the Governor requested an additional $400 million to run the program, and it is unclear whether even this amount will be sufficient.
  • The program also depends upon a substantial contribution from the federal government, which may or may not be renewed in the years ahead.

Why are the insurance premiums rising?

Insurance premiums are rising due to increased administrative costs, which are passed on to consumers.

They are also rising because our fee-for-service health care delivery system prioritizes the overuse of medical “goods”- hospital beds, specialists, and expensive technology, even when studies have shown that extra care does not always result in better outcomes (and may even cause harm in some cases).

This is especially true in Massachusetts. Residents there receive an average of $10,000 worth of care per year, compared with the national average of $7,000 per year. High consumption is also driven by the oversupply of medical technology, and the need for hospitals to recoup the costs of expensive equipment.

How is Massachusetts dealing with rising costs?

Massachusetts is eyeing a variety of cost-shifting measures to reduce the burden on the state’s budget.

The cost-shifting measures being considered include requiring that businesses pay a higher percentage of premiums, or face increases to the Fair Share contribution that is assessed for not providing coverage.  Businesses are already uniting in opposition to this plan.

  • Individuals, in both the Connector plans and the subsidized, Commonwealth Care plans, will also see their co-pays and deductibles rise.

While these cost-shifting measures might keep the program going for a few more years, they will ultimately drive out middle-income consumers and hurt small businesses.

In other words, without substantive efforts to reform the insurance industry and ration care through the use of cost-effectiveness research, the program is expected to become unsustainable for the state, and for individuals and businesses.

The only other way to reduce or maintain premium costs is to limit the benefits offered in the plans, which would essentially make the coverage obtained meaningless.

Bottom Line

There are many things to take away from Massachusetts’ experiment with universal coverage.

On the one hand, the success of the Health Care Reform Law in reducing the number of uninsured individuals in the state is remarkable. Roughly 97% of the state’s population is currently insured.

This success provides solid support for the use of individual mandates to achieve universal coverage. Without mandates, many healthy people would simply opt out of purchasing coverage until they became sick. This would drive up the premiums in the individual and small group market, helping to keep insurance unaffordable.

At the same time, the high cost of the program indicates that universal coverage cannot be the only goal when it comes to national health care reform.

That Massachusetts is struggling when it comes to funding is remarkable, given that the state had a smaller percentage of uninsured residents than other states at the outset (10% compared to 25% in Texas), and given that the average income is $10,000 higher than the national average, meaning that some of the uninsured are more able to afford care.  This illustrates that we must also concentrate on reforming our health care delivery and financing system.

We currently ration care by ability to afford insurance. In other words, those folks without insurance do not receive preventative care, or other tests and treatments on a routine basis.

That roughly 47 million Americans do not have health insurance helps to balance out the overuse of expensive, newer technologies, medications and procedures by those with insurance (and it doesn’t really balance out, as our health care bill continues to rise). But once we find a way to insure everyone, it will be absolutely critical that we also reform our delivery system, eliminate the administrative costs associated with private insurance and reduce our reliance on costly, ineffective procedures.

Otherwise, our medical bill will skyrocket beyond the 16% of GDP that we already pay as a nation, and will cripple our ability to invest in other sectors such as education and homeland security.

This article was written by Julia Nagle.

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