The Massachusetts Question

Two years ago lawmakers in Massachusetts made the state the first in the nation to mandate that residents purchase health insurance. The proposal quickly caught on, inspiring similar efforts on the state level and eventually becoming the blueprint for the national health reform efforts of Democratic presidential candidates Sen.  Barack Obama and New York Sen. Hillary Rodham Clinton.

More than a year into the experiment the first returns are in.  And reviews are mixed. Not surprisingly, the program is costing far more than backers had initially predicted. On the other hand, the ranks of the uninsured in the state have dropped sharply. (See Matthew’s podcast with Jon Kingsdale, executive director of the Massachusetts Connector, the agency created to administer the program, for more on the back story.) The Massachusetts experiment  is clearly not something to be dismissed — nor is it something to
defend for the sake of argument.

In brief, the Massachusetts health care reform law appears on its way to:

  • Covering two-thirds of those who did not have health insurance on the day it was enacted — about 400,000 people by the end of 2009.
  • Covering most of those who were uninsured in households with incomes below 300 percent of the federal poverty level–below which the plan pays all or most health insurance premiums.
  • Offering health insurance plans to middle-income people that are still largely unaffordable for those families making less than $110,000 a year –– people for whom the state has generally canceled the individual mandate that they must buy coverage.
  • Racking up costs well above what was first estimated. The plan looks to be coming in 38 percent higher than originally estimated for its first year and the Governor is now estimating second year costs 50 percent higher than the original estimate –– from $725 million to $1.1 billion for the 2008-2009 fiscal year.
  • Developing an annual cost trend for the program’s insurance programs, Commonwealth Care and Commonwealth Choice, in the 10 percent to 15 percent range.

So, lots more people, particularly lower-income residents, are covered but the program’s costs are unsustainable.

Massachusetts was a bold and very difficult piece of legislation to
accomplish. It has often been described as an experiment. The greatest
contribution experiments make is to tell us a lot about what works and
what doesn’t so we can move on successfully from there.

Massachusetts policymakers will now work to improve the plan. But
without a major cost containment effort — way beyond anything they are
even talking about now — they won’t make much progress.

The Massachusetts plan closely parallels Barack Obama and Hillary Clinton’s national
health reform plans. Whatever happens next in Massachusetts likely now undermine both state and federal
attempts to copy it. Neither Congress or any state legislature is
going to embark on a plan whose costs have quickly become so
problematic for such an incomplete result.

Now before all my readers in the Bay State quickly complain I’m
deriding the Massachusetts plan again, let me be clear that this is not
a bad outcome. If there has been one primary frustration in the health
care debate since the 1960s it’s that we too often just debate things,
never try anything, and never build on our successes and failures.

The Massachusetts health reform law is valuable because it tells us so much.

My primary takeaway from the Massachusetts health reform law is that
attempts to incrementally deal with access first, while avoiding a
major restructuring of the system to simultaneously deal with costs,
will only lead to an incomplete result in improving access and costs
that cannot be sustained.

What Massachusetts has accomplished in passing this law is the most
any state or Congress could have done — or ever did. As I have said many
times, the political leverage just hasn’t been available
to do the job in full. That was true in 2006 when this law passed
and it’s true even today.

But in the coming months, results from the Massachusetts health care experiment are going to become well known.

While many will say, "Look at that cost mess let’s forget major
health care reform." I would hope more people would say, "It’s clear we
are going to have to take a more fundamental look at real health care
reform that cuts across both the access and cost-containment lines."

Even bolder plans, that everyone says are politically impossible
today, just may take on a new life because it will be clear the
Massachusetts outline isn’t going to do much more than bust the budget
for an incomplete result. Moving the debate to a more viable place
would be a very worthwhile contribution for Massachusetts to make.

A few weeks ago, I said watch the Wyden-Bennett health care plan. It
combines many of the things conservatives want — a decoupling from the
employer-based system using an individual defined contribution
model — with many of the things liberals want — adequate premium support
for consumers and open access for everyone. The fact that the CBO rated
Wyden-Bennett revenue neutral early in the game also looks pretty good
in light of what’s happening in Mass.

Other fresh ideas are on the table. Ezekiel Emanuel’s health plan,
for example, that also decouples health care from the employer, puts
private health insurance in the hands of the consumer, and substitutes
the many ways we pay for health care today with a single VAT tax that
automatically creates a national budget for health care expenditures,
has also gained lots of attention.

The National Leadership Coalition on Health has had a comprehensive
plan on the table for sometime. Its bipartisan approach and many
supporters from a broad cross section of the stakeholders also makes it
a serious proposal that could now get more attention.

To me, progress is a matter of keeping the debate moving forward toward a successful outcome by building on valuable experiences.

That, I will suggest, is what the Massachusetts experiment can now

6 replies »

  1. I appreciate the thoughtful comments in this dialogue so far, but one point which is probably worth underscoring is that the value of this initiative is largely in the long run. The very long run.
    The cost of the uninsured and under-insured in MA — the state where I live — is largely ignored in the calculations about cost. The small business groups are right to be concerned about tax increases and the downward pressure on them to either provide benefits or pay more to their employees, but don’t ignore the societal costs of the uninsured.
    Granted, Massachusetts may not be the best model for other states — we do enjoy access to incredible health care choices; retail clinics might make more sense in communities where income and population density differ — but we haven’t begun to measure the benefits of this system. So perhaps I’d say that the jury is still out until we see calculations about the % under-insured who are now insured and what the strain on the healthcare system would be otherwise.

  2. Eric,
    I take it these comments are meant to indicate inconsistency in what I wrote, but I don’t see how.
    Costs matter, period, as do medical cost inflation and outcomes. However, the point of my post was that we aren’t realistically going to fix all of these at once. Increasing access to the system through universal healthcare is proposed as a first step that will trigger other changes to reduce costs and cost inflation, reduce perverse incentives in the system and improve the use of evidence-based medicine. The trigger I’m proposing is pressure from those who are mad about new taxes, but who don’t want to surrender their new universal health care. That taxpayer pressure, I am hypothesizing, is the only force strong enough to defeat the vested interests within the health care industry that want to defend business as usual and their share of 16% of GDP. It is what can finally get Americans to get more pragmatic about what kind of healthcare we can, as a people, afford.

  3. JD- quick thoughts:
    1. costs matter in your post, except when they don’t, like in your MA analysis– the press releases make the statement about ‘victim of success’ cost issue– but that comes from those who are running/ promoting the plan
    2. medical inflation is a regular topic of concern, except when it’s not– 10-15% compared to 4.5% nationally
    3. outcomes matter, except when they don’t– the bar is now simply ‘get people into the system’, which, while it seems compelling, was not benefit that proponents claimed would come from the program

  4. Good analysis jd. Why is it that local property taxes are held in check by voters and federal income taxes artificially kept low – because local communities can’t print money to hide overspending/incompetence, it’s PAGO for property tax payers. Your point about a 2 or 3 stage step to universal coverage with cost controls would be ok if mandated premium payers could hold out long enough to see system costs reduced – I don’t think they can because providers will always push (through political contributions) to get the state to just give more and more premium subsidies. It’s morally wrong to penalize those who see mandates for what they are – a way to keep providers happy reaping the benefits of an overly expensive system while political leaders can remain spinless.

  5. It’s hard to get a straight answer on what is going on with the high costs in MA. I’ve read in several places that part of the cause is higher than expected enrollment of those who qualify for subsidies. To the extent this is responsible, there is no grounds for hand-wringing. The whole point was to get these people into the system, it’s just happening faster than was budgeted for. In the long run, not a big deal, and not something that critics like Eric can say voters would have rejected if they knew in advance.
    I’ve also read that another cause of higher than expected costs is adverse selection….a higher proportion of sicker people are signing up than were expected. If true, this bad prediction is an actuarial failure on the part of the MA Connector authority. But again, you wanted these people into the system anyway, and they are precisely those who really need health insurance now. So, if you believe in universal health care, it doesn’t change your mind.
    The flip side of this actuarial issue is a little more worrisome: healthier people are still mostly staying out. So far, they have done so because the penalties have been trivial or non-existent. The higher the penalties, the more they will participate and the less the state will have to subsidize these risk pools. But of course, these are the people who will most resist participating and will likely make more noise when facing large penalties for not doing so. This is a political problem that does jeopardize this type of program.
    But in all this, I have seen no indication that the expenses of the MA program are any higher per member than the risk-adjusted expenses of members in private insurance generally. In other words, it’s not that this is an inefficient program! It is just as efficient as the private market, such as it is.
    Naturally, though, being just as expensive as actuarially identical plans in the private market is a long term problem. But it is a problem that has an obvious solution: reform to the delivery of health care to make it less expensive.
    In the end, MA is going to be an example of how reform to the health care system in America will take two parts: First, reform in the access to care and second, reform to the delivery of care. There is simply no way that deep reforms to the system that reduce total costs are going to happen unless citizens as taxpayers clamber for it. And they won’t clamber for it until they feel new and substantial pain in the form of dedicated taxes. And they won’t feel that tax pain until there is a government program in place to give everyone access to care, subsidized for the poor.
    Yes, it would be more fiscally responsible to take the approach of reforming the delivery of care first, and when costs are under control instituting universal health care. But if Americans at this stage of history were fiscally responsible, they wouldn’t spend more than they earn (the only nation to have a negative savings rate), the housing crisis wouldn’t exist (failures on both lender and lendee side) and American leaders wouldn’t have been able to get away with trillions of dollars in new Federal deficits.
    In the near term, nothing but directly felt pain, almost certainly in the form of new taxes, will get us to change healthcare in the huge ways needed to turn our 16% of GDP spent on the industry into something more like 12%, let alone the 10% the rest of the developed world spends.

  6. Bob- my first issue with your analysis is your semi-dismissal line “Not surprisingly, the program is costing far more than backers had initially predicted.”
    The issue is that if the real cost was appreciated– or acknowledged, since many claimed this would be the case (and so did those in Mass responsible for estimating state bond needs)– it never would have been passed in the first place.
    Since the entire effort was financially driven– to preserve federal funds– to minimize the impact of massive cost overruns, and a cost increase rate that is now more than 2x the national rate for health care, should be the focus.
    Especially since I doubt there is any data on the famed ‘improved health outcomes’…
    BTW have there been any studies demonstrating improved health outcomes to date?
    I am not being cynical– just would like your thoughts…