The Massachusetts Health-Reform Mess

The biggest problem with ObamaCare is that it is bereft of proven ways to curtail increases in health-care costs. This has given rise to unending speculation about what will happen to these costs when the law's main provisions go into effect in 2014.

To get a glimpse of the future, take a look at Massachusetts, whose 2006 health-care overhaul was by all accounts the model for the federal Patient Protection and Affordable Care Act passed last year. It was launched in promising circumstances: The Bay State already had the lowest percentage of uninsured people in the nation, and some of ObamaCare's provisions such as community rating (everyone can buy insurance at the same price, regardless of health) were already in place.

So, how are things going in Massachusetts? The easy part was getting more people insured. Coverage increased from about 88% to 96%. But the number of emergency room visits, which everyone expected to drop once people had to purchase insurance, is still going up. Surveys show roughly half the visits are unnecessary. Surveys also indicate that finding a primary care physician is becoming more difficult.

In a mere four years, Massachusetts has demonstrated that the most important effects of its reform arise not from the letter of the law but from the law's unintended and unpredictable consequences.

There are other troubling signs. Cities and townships were expected to move their employees into cheaper health policies through the new state-sponsored insurance exchange, the Health Care Connector. None have—because unions fear the very tools that keep costs competitive in the private sector, such as co-pays. (Gov. Deval Patrick wants a new law to force the unions into the Connector.) Despite an individual insurance mandate, thousands of consumers wait to purchase coverage until they require costly procedures and then exit after paying a modest penalty. That makes insurance more expensive for everyone else.

Massachusetts reformers deferred cost control to the vague prospect of a "Round 2" of reform—much as congressional Democrats did a year ago when they passed ObamaCare. Meanwhile, economists John Cogan, Glenn Hubbard and Daniel Kessler reported in the Forum for Health Economics & Policy (2010) that insurance premiums for individuals (alone or in employer-sponsored group plans) increased 6% to 7% beyond what they would have without the reform. For small employers, the increases are about 14% beyond those in the rest of the nation. Four years after reform, Massachusetts still has the highest insurance premiums in the nation, and the gap is getting wider.

In 2010, insurance firms announced premium increases of 10% to 30% in the individual and small-group market. Gov. Patrick, on the verge of a tough re-election race, had the state insurance commissioner deny the higher rates.

Insurance firms protested that they increased premiums because they had to deal with entrenched providers, especially hospitals, most notably the academic giants of Boston and Cambridge. Then the state prepared to introduce highly intrusive price controls over those providers—only to discover that this would provoke formidable political opposition while encountering myriad practical difficulties.

Last month Round 2 arrived. Gov. Patrick introduced a bill that will impose de facto price controls on everyone from solo primary care doctors to prestigious academic hospital systems. An 18-member board will decide how and how much providers should be paid, and the bill gives regulators the power to force private insurers to accept these fiats. Some 30 states experimented with such rate-setting in the 1970s and '80s. Except for Maryland, all of them—including Massachusetts—deregulated in the 1990s because costs rose even as quality and choice declined.

In a mere four years, Massachusetts has demonstrated that the most important effects of its reform arise not from the letter of the law but from the law's unintended and unpredictable consequences. The state is lurching from one crisis to another as it attempts to construct a system vastly different from any seen before or anything contemplated when reform was first passed. Health care in the state is evolving toward a state-run version of Medicare combined with government reorganization of the delivery of medical care.

The cost problem in Massachusetts is not going to be solved anytime soon. The question to be asked is why we should plunge ahead with a national version of this model before we learn whether Massachusetts’s brave new world is one in which we want to live?

John E. Calfee was a Resident Scholar at AEI (1941-2011).

Photo Credit: iStockphoto/DNY59

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About the Author

 

John E.
Calfee
  • Economist John E. Calfee (1941-2011) studied the pharmaceutical industry and the Food and Drug Administration (FDA), along with the economics of tobacco, tort liability, and patents. He previously worked at the Federal Trade Commission's Bureau of Economics. He had also taught marketing and consumer behavior at the business schools of the University of Maryland at College Park and Boston University. While Mr. Calfee's writings are mostly on pharmaceutical markets and FDA regulation, his academic articles and opinion pieces covered a variety of topics, from patent law and tort liability to advertising and consumer information. His books include Prices, Markets, and the Pharmaceutical Revolution (AEI Press, 2000) and Biotechnology and the Patent System (AEI Press, 2007). Mr. Calfee wrote regularly for AEI's Health Policy Outlook series. He testified before Congress and federal agencies on various topics, including alcohol advertising; biodefense vaccine research; international drug prices; and FDA oversight of drug safety.

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