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I get asked this question a lot these days, which shouldn’t be that surprising. Harvard Pilgrim is headquartered in Massachusetts, and the Massachusetts health care reform plan is already a couple of years old. More importantly, it has added about 440,000 people to the insured ranks (185,000 through unsubsidized private plans and another 255,000 through subsidized, Medicaid-like coverage), has maintained high employer participation (over 70%) and doesn’t appear to be crowding out private coverage as public coverage expands.
But my answer to this question remains “it depends.” 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.
While some might argue that bringing other states into line with Massachusetts’ standards could be more equitable to consumers and small business, there’s no doubt that big changes in how individual and small group products can be grouped, rated and priced will create millions of winners and millions of losers – at least in the short term. Winners don’t always notice the gain, because it usually gets lost in the noise (and doesn’t always translate into a big drop in price overall – just less of an increase), but the losers almost always notice they’ve been hit with a huge increase – and they don’t like it.
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.
As a result, employers have been looking for people more than people have been looking for work. This “buyer’s market” has combined with a pretty high minimum coverage requirement to create a rich plan design as the so-called “basic” plan in Massachusetts. Installing this ”basic” plan design nationally would be a huge step up from where most commercial insurance plans in other parts of the country are today. Huge.
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.
It’s hard for me to see how the federal government, given the enormous structural deficits staring policymakers straight in the face as far as the eye can see, can ignore the cost question as it pursues coverage expansion. In fact, most serious analysts of federal finances say health care reform HAS to do something about health care cost growth generally and Medicaid and Medicare cost growth in particular – or it simply takes a terrible situation and makes it even worse.
So what should the feds do? I suggest the following:
1) Reform the way Medicare pays for services. Over time, no single reform will mean more to the cost and quality of health care in this country than this one. Medicare drives everything else. Change Medicare, and you change the system. It’s as simple as that. The fact that almost everyone who studies the health care system in this country knows this is true – but it doesn’t happen – illustrates how hard it is to do.
2) Fix the insane operating and financial relationship that exists between Medicare and Medicaid for low income seniors who qualify for both programs. This is a huge opportunity to reduce costs and improve health care quality for a very vulnerable population that’s deeply involved in the health care system.
3) Use federal matching funds from Medicaid and S-CHIP to encourage states to expand coverage for those populations that can’t access coverage through work, but don’t currently qualify for Medicaid. The role of federal Medicaid funds in encouraging the MA expansion was paramount. Without the threat of losing existing federal Medicaid funds if nothing got done, the reform plan wouldn’t have happened.
4) Combine guarantee issue in the individual market with an individual mandate to buy coverage. Use soft, escalating financial penalties to encourage people to buy coverage – maybe as take-up rates associated with Medicaid and S-CHIP expansions kick in – to encourage everyone – including healthy youngsters – to purchase coverage. Remember, if you don’t bring in the healthy people, all guarantee issue will do is raise prices for everyone who’s already got coverage in the individual market. On this one, Senator Clinton was right.
5) Define a minimum benefit plan design – which needs to be a minimum – not a maximum – and consider tying that standard to the federal tax deduction. But if the minimum ends up looking like what’s minimum in Massachusetts, that’s an enormous increase in costs and coverage requirements for the vast majority of the employed population in this country. That would be a bad idea.
Whether or not the federal government would need a Connector or an Exchange to do this is at least debatable. If there’s a minimum benefit standard, guaranteed issue, and a mandate to buy, I’m not sure why the federal government needs to set up shop as a seller/buyer/intermediary. In Massachusetts, the Connector is spending more time regulating and overseeing the individual and small group market and managing the Medicaid-like Commonwealth Care program than it is spending selling private insurance. Plans can and do sell directly to individuals and small businesses – using products and market rules and standards that have been certified and approved by the Connector. But the Connector is not the preferred channel for buyers – so far anyway.
All in all, my big hope is that the federal government will do something on health care. It’s too big a player with too much influence and too much at stake to sit idly by and perpetuate the status quo. But as has been the case before on health care, there’s the talk of reform – and then there’s the walk. I’m hoping for the walk.
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There is a proven and successful Model in use for 35 years in Michigan only.
Please view the free video at Google, “The Solution for brain injuries and bankruptcies” it outlines how to provide unlimited medical benefits while preventing bankruptcy due to medical bills and save billions in Medicaid costs at the same time. You can also visit myspace.com/thesolutionguy for a link to the PBS special on Disabilities today that outlines this revolutionary concept. America can adopt this model in every state and Citizens will be the beneficiaries. This concept actually has hundreds of millions in annual excess, the best performance in the world.
We have a fundamentally convoluted system – where the users of the services do not directly pay for them, to the providers of the services. Any payment reform has to address this fundamental problem.
A satirical juxtaposition of the Health Insurance Model in the case of Automobiles highlights that problem (http://two-tuppence.blogspot.com/2007/06/if-your-auto-insurance-worked-as-your.html).
Charlie –
I’d love to read your comments on the Nov 24, 2008 Brian Klepper article about Small Group coverage issues and the accompanying letter from John Sinibaldi.
Would the problems facing John’s Florida clients be different in Massachusetts?
http://healthcommentary.org/public/blog/218833
Unless I missed it you failed to point out that Massachusetts has the most expensive healthcare in the world.
http://www.cbo.gov/ftpdocs/89xx/doc8972/MainText.3.1.shtml
“In 2004, as an example, per capita spending ranged from roughly $4,000 in Utah to $6,700 in Massachusetts”
All that regualtion comes at a price.
Ya know, all this talk of copays, and buyins and single-payer systems…. blah blah blah! It’s simple. If we are going to have NATIONAL health care, then it simply has to be funded just like Social Security. A simple income percentage of all profit going toward Social Healthcare. What’s the problem? No more co pays, or buy ins or any other pencil pushing administrative costs.
VOILA! Affordable health care for all just like police, fire, and sewage. We all like security, we all like to prevent fires, and we all gotta take a dump!
So, remove the “profit off of the suffering of others” system we have and put in place a health care system that is actually focused on the health and care of the people instead of trying to run it as a business that must grow in profit and shares.
Now, who is going to argue against Social Security?
jd – those were the words I was trying to put in my mouth. Thanks for the help.
Peter,
Not to put words in his mouth, but I think he’s not convinced that the political will exists to overcome the huge obstacles presented by industry lobbies and the general public to any such change that rations high-end and end-of-life care, and reduces overall revenues to the industry in such a dramatic way as you envision. If we can’t even get Medicare as it currently stands to be a little more effective in reducing costs and promoting efficient care, then your larger reforms that come with universal budget constraints aren’t even on the horizon.
Charlie, not convinced about what? That single-pay has a better chance of controlling costs than the “system” here? If primary care and “reasonable” access is not better health then what would better health look like, in the context of healthcare, not lifestyle? Everything you mention above is how costs are controlled and will need to be controlled here. Not my problem if that “strategy” can not be implemented because Americans still cling to a vision that private enterprize will save us in healthcare, the reality, like the new found reality that debt no longer can sustain our economy, is getting closer every year.
Peter – I hear where you’re coming from, but I’m not convinced. Other countries don’t make health care a priority, they make primary care and “reasonable access” a priority. They have a more robust primary care infrastructure, they limit access to many health care services, they define who can have what when, and they set a theoretical cap on how much they’ll spend each year out of the public trust. If private insurance wants to then wrap around those rules, in most places, it can and it does – sort of like Medicare Supplemental products do in this country. It’s hard for me to believe that any payor – single or not – could implement a strategy like that in this country. Just getting Medicare to be a little more primary care friendly has been an uphill climb, to put it mildly.
Charlie, like your analysis and comments, but equating how Medicare operates within a failed/ing system to how single-pay would (even more) operate is just not the way other single-pay systems run. Why is that? Because I believe those systems believe in healthcare first and profits second. They believe that healthcare is like a public utility that serves society, not the other way around. Ron hits the nail on the head and I think if we get a national MA plan, true single-pay will be close behind when the real costs can’t be hidden any longer.
Folks – A few more random thoughts…
1) Barto – I worried that there would be movement from the private system into the public system under this reform. So far, it hasn’t happened. People do not seem to be sliding from employer coverage into public coverage (two separate studies show this), and the number of uninsured overall has dropped dramatically. MA has the lowest uninsured rate in the nation – by a wide margin.
2) Barto and Ron – You are right. The cost question is still hanging out there – big-time. If I didn’t make that clear enough in my post, I will now. Funding the reform over time remains a big question mark.
3) jd – I hope it’s possible to do something about payment reform – and let’s start with Medicare – without having a total financial meltdown first. I also remain convinced that if Medicare changes the way it pays, others – everyone else – will follow suit.
4) Random Walk & doc – If I didn’t emphasize enough the financial constraints that face the federal government, I apologize. I think the feds have a much tougher task than MA did. I don’t believe the feds can do coverage without doing cost at the same time.
5) Brian – if there’s a better way to do this, I’m all ears, but don’t underestimate three factoids when you consider applying other industry smarts to these particular problems. Factoid #1 – Through Medicare, the federal government is the biggest payor – by far. This is an incredibly constraining market reality. Factoid #2 – Employers and state and federal governments are the ultimate payors, the consumer is the user, and the provider/supplier makes most of the resource use and allocation decisions. This is not a traditional buyer-seller market. Factoid #3 – When asked, most people think health care services should be “free.” This really complicates reform efforts, whatever direction they go in.
Finally, I don’t think my negativity toward a single payor is driven by “industry bias.” I’ve been working for about 30 years, but less than 10 in this industry. In fact, I spent eight years in Cabinet positions in MA state government. I know a bit about the public sector, too. My bias has more to do with my belief that Medicare – the closest thing we have to a single payor – is very hard to reform, very hard to modernize, and in some ways, a big part of the problem we face in health care today. Medicare favors transactions, technology and volume – and as a result, so does our health care delivery system. Everyone knows this, agrees it’s a big problem, and has felt that way for years. And yet nothing – NOTHING – happens to change this. Can more of this really be the right solution for health care in this country?
AS the CEO of the second largest health plan in MA, it is reasonable to assume that the consideration of a single-payer system is given short shrift by the blogger. Nevertheless, the blog is informative, albeit a bit disingenuous regarding costs of the program due to its mixed public/private nature. Missing from his data on enrollment is the number of people who jumped from private coverage to publicly subsidized coverage, and the overall budgetary shortfall (cost in 2009 will be double 2007) that the program is experiencing right now, which, like all “reform” attempts in many states has resulted in essentially zero progress and the eventual collapse of the reform for some. Enrollment in this program had already plateaued in early 2008 and is actually decreasing slightly.
The bottom line is that if you don’t get people paying into the kitty for the healthcare they will eventually need, the system is destined to be the hodgepodge of spotty, expensive, and blatantly unfair coverage that we have now, unless you truly believe that you only get the healthcare you can afford. A well-designed single-payer system is the best way to achieve fair, comprehensive, and affordable coverage, is completely doable, is supported by 70% of Americans (when the question is posed correctly) and nearly 60% of doctors. But good luck convincing guys like Mr. Baker whose vested interests supersede the best interests of the public.
As a Bay State resident currently trying to cope with the horror that is the Massachusetts plan, please allow me to inform the discussion. Talk of taking this scheme national must have AHIP members salivating all over their shoes!
Chapter 58, the Massachusetts Health Reform Law, was essentially written by BCBS and endorsed by our carpetbagging, Social Darwinist former governor, Mitt Romney. The plan was ramrodded through the legislature to enhance Romney’s presidential ambitions, although he later repudiated the scheme while on the campaign trail. Basically, the MA scenario holds everyone earning more than 300% of FPL hostage to the private insurance industry. Citizens must buy high co-pay, high deductible HMO products or face draconian tax penalties. Tens of thousands of people like me will be fined nearly a thousand dollars at tax time next year for refusing to buy dubious products that we can’t afford.
Chapter 58 has done nothing to control the inexorable rise in healthcare costs nor to halt the perpetual increases in plan premiums (8-12% annually). It is a costly and inefficient expansion of the status quo that is far from universal, has already necessitated new taxes and exacerbated the economic misery being felt by the middle class. The state has a skyrocketing budget deficit and the plan is totally unsustainable. People here can’t find doctors and many are deferring care due to the high co-pays and deductibles associated with their “coverage”. In short, adopting the Massachusetts approach is probably the worst possible way to try to overhaul our failing non-system.
Random Walk, that “blogger” is the CEO of the second-largest health plan in Massachusetts. He knows as much as anyone what’s been happening there.
Random Walk and doc: Charlie partially addressed your concerns about cost control and unfunded liabilities. In particular, see points (1) and (4). We know what to do to make the system solvent and sustainable in the long run. What we don’t know is how to overcome the resistance these reforms will create.
Which brings me to my favorite issue: how the heck do we overcome industry resistance to changes that (a) require massive change in the reimbursement system and in many standard practices, and (b) lower revenues in real terms over the next 5-10 years for both individual practitioners and medical institutions that employ millions of people (and have been the largest source of job growth in the US for years).
I think the answer is that we can’t overcome this resistance until things get fiscally worse, and they have to get fiscally worse in an obvious way: namely, by hitting more people visibly in the pocketbook (taxes, premiums, out of pocket expenses).
I suggest that reformers engage in brinksmanship: enact universal healthcare without deep reforms to the payment system. This will visibly raise taxes for millions, visibly increase expenses for millions more in premiums they must pay as part of a mandated system, and likely won’t significantly reduce the problem of out-of-pocket expenses since the national minimum plan is likely to be not nearly as rich as in Massachusetts.
If you try to simultaneously get universal health care with deep reforms to the payment system, you will get neither. Charlie cites an analysis of the MA reform which argued that only by putting payment system reforms on the back burner was it possible to approximate universal coverage. I agree, and so will it be at the national level for years to come.
But we can shorten that time by implementing universal health care now and bringing a sense of fiscal crisis to the fore sooner rather than later. Because if you think we’re going to get payment reforms and reductions without a national sense of fiscal crisis about our ability to pay for healthcare, I think you’re kidding yourself. It’s not a matter of whether we get there, but when. So the argument that it is fiscally irresponsible to enact universal healthcare without controlling/reducing the costs at the same time is false. I don’t think anyone has solid evidence that this approach will cost the nation one dime more for healthcare in the end.
Charlie,
Thanks for the analysis. It seems that differences in other states could be reconciled by legislators. They seem to be making up new rules every month or so as it is.
Seriously, I think you make some very good points on issues that the eventual reform will have to address. At the same time, as a long-time, and accomplished, health insurance executive I wonder if your view of the possible solutions, while certainly from a knowledgeable position, aren’t unintentionally biased simply by the industry you have been entrenched in for so long.
Isn’t there room for a dramatic paradigm shift in healthcare coverage at least partially developed by industry outsiders?
Brian Marchant-Calsyn
I believe there was a very important post a couple of weeks ago about MEDICARE PART-P : the ponzi scheme that Medicare really is— it is true we already have medicare-for-all…
everyone must be a part of the ponzi scheme that is government run health care…
another post that attempts to blind us to reality with even more government control and spending money we do not have…
From my understanding, some of these Massachusetts plans are Medicaid-like, and people have been on waiting lists to see the doctor. It also seems obvious that maintaining high levels of generosity requires more money, right? “There is no free lunch.”
And the blogger is missing the big picture here. Explain how the fiscal situation of Medicare and social security is sustainable with continued government expansion of health benefits? $30 trillion plus in unfunded liabilities? Can we borrow money from trusting foreigners, print lots of money, tax the hell out of people, and bring in lots of wealthy immigrants? Or should we just make government healthcare bad for everybody just so that the government can remain solvent?
“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.”
In a nutshell, this is the difference between health “insurance” and all other forms of insurance. None of us plan to have a car accident or have our house burn down, but all of us need ongoing healthcare, and will incur costs for that.
Thanks for the very informative post.