How Massachusetts controls health costs should be closely watched

A major criticism leveled at the health reform law is that it doesn’t do enough to control costs. Yet experience with a similar breed of health reform in Massachusetts indicates that the cost control issue will come to the fore sooner rather than later.

Recent stories have reinforced my conviction about this:

Massachusetts health plans have sued the state and stopped issuing new policies to small businesses and individuals after the vast majority of their 8 to 32 percent rate increase requests were denied by the Division of Insurance.

Some individuals are gaming the system by buying insurance for a few months when they need it, then dropping coverage. These customers are very unprofitable for the health plans.

Towns are worrying that they will be affected by the tax on “Cadillac” health plans, because the benefits they provide are so generous.

State legislators and the Governor are seriously considering caps on pricing by doctors and hospitals and replacing fee-for-service payments with global capitation.

I choose to look at these items in a positive light:

For a long while, health plans in Massachusetts and elsewhere have mainly just passed along cost increases. They haven’t been terribly effective at holding costs down, and in fact with the backlash against managed care their employer customers haven’t really pushed that hard. Higher premiums aren’t bad for insurers since they boost revenues and makes it easier to justify administrative expenses that are growing in dollar terms but stable as a percentage of revenues. Health insurance costs have finally reached the breaking point for individuals and small businesses, but with a mandate in place customers are required to buy anyway. The state can’t just sit still –but neither can insurers offer policies at a big loss. Something has to give.

The reason for the gaming is that penalties for not buying insurance are too low. This gaming drives the costs up for everyone else, which is part of the reason insurers have asked for such big rate increases. For policies like guaranteed issue and community rating to have a chance of working, everyone needs to be in the insurance pool. My guess is penalties will be raised.

Towns have a big, big problem on their hands with enormous health care premiums for town employees. These costs are going to bankrupt the towns and kill off essential services if they aren’t addressed soon. Apparently Framingham has dozens of employees enrolled in family plans with premiums of $40,000! I’m hopeful that the threat of even more massive spending will help break the logjam that exists today.

As mentioned above, health plans haven’t done much to control costs, and the state is on the verge of stepping in. If that happens to a significant degree, health plans will have to find some way to differentiate themselves. Managing utilization is an obvious way to go. If they can’t manage that then I think the days of traditional health plans in Massachusetts will be numbered.

We’ll see how these issues are resolved. No doubt it will be messy. But I think there’s a real chance that effective cost control solutions will be put in place in Massachusetts within three years. And that bodes well for the US as a whole.

David E. Williams is co-founder of MedPharma Partners and blogs at the Health Business Blog.

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  • Doc99

    Pricing doctors out of MA doesn’t seem like a formula for better healthcare.

  • ninguem

    “…..Towns have a big, big problem on their hands with enormous health care premiums for town employees. These costs are going to bankrupt the towns and kill off essential services if they aren’t addressed soon…..”

    Governor Mitch Daniels of Indiana wrote an editorial about how much money his state saves, and how much money the state employees save personally, by signing up for high-deductible health plans and HSA’s.

    Of course, that would be politically incorrect for the current Administration, both national and in Massachusetts.

  • Doc99

    On a related matter, say good bye to “Doc Fix.”

  • David Allen, MD

    The author seems not to realize the implications of what he has said. He puts together a fine argument AGAINST what Massachusetts has done! For example, the system is so unsustainable that health insurance companies are suing the state or risk going out of business. People are gaming the system because they know that when they really need insurance, they can always get it. Those who do buy insurance are finding it ever more costly.

    The problem, per the author? Not the control of health insurance companies, individual’s rights NOT to buy insurance, or physician’s rights to control their own charges. NO. The problem is only that Massachusettes hasn’t gone far enough! They need to force doctors to accept certain rates, force individuals to purchase insurance by increasing the penalty for not buying it, and continue to control the rates insurance companies can charge!

    The problem, as the author sees it, is that these damned people keep making decisions that benefit themselves! How can we put an end to this!? Why not jail time for not buying insurance – there’s a winner. And once we force insurances out of business by controlling who their customers are, determining what benefits they must offer, and controlling their prices – then the government can simply take care of the whole process and put an end to this charade that there is a private market in health care in the state.

    But what can we do about those pesky physicians? I know, let’s just make it illegal for them NOT to accept our government health insurance and make it illegal for them to practice outside of our state! That will show those bastards!

    • Max Power

      The author continues to perpetuate the myth that health care cost inflation completely rests on the shoulders of the “evil” insurance companies who continue to raise premiums for no other reason than to boost profits and line their own profits. The author conveniently ignores the fact that insurance companies have teetered on the brink of insolvency for years and that laws like the one in MA and the one to go into effect in 4 years are requiring a private business to provide a service to people without compensation.

      Consider this, if you have a private practice, or some other business, would you consider it just for the government to require you, under penalty of law, to provide a good or service to someone without compensation? If this were to happen in any other industry the populace would riot, yet the state has been so effective at villainizing the health insurance companies that much of the public have no problem with the “legal robbery” of their resources. This essentially makes the people of Massachusetts no better than the looters in New Orleans after hurricane Katrina.

  • jsmith

    I was kind of with the author until the last 2 sentences. It is possible that effective cost control measures will be in place in MA within 3 years, but maybe not. The last sentence is a whopper. It bodes well for US healthcare??? Depends on whether your ox is getting gored. If we pay less, there is a very real chance that that will be because of rationing–either because of the primary care collapse, or because subspecialists refuse to take the reimbursements offered, or both. Even more pts could wind up in the ER with no one who will take them in hand-off. Huge medical needs going unmet, even more so than now. If we don’t pay less, fewer and fewer will be able to afford HC.
    At bottom, the problem with the current HC reform movement is that absolutely no one knows whether enough doctors and hospitals will be willing to care for pts in the new systems proposed and at the new prices that will be proposed. We hear prognosticators all over the media, but they mainly give us propaganda or wishful thinking. Make no mistake. HC reform is an experiment, and experiments often fail.

  • GaryM

    Controlling costs means, as a matter of simple arithmetic, restricting benefits. State control of costs means state restrictions on what will be paid for. This necessarily entails government control over whether we can get treatment or not. Putting this decision into the hands of politicians and bureaucrats is a really bad idea.

  • Wellescent Health Blog

    Controlling costs also means reducing inefficiencies and with the US spending 17% of GDP as compared to 10% in other first world countries, there is certainly an argument that there is a lot of waste to be cleaned up. The problem is that cost containment and reduction needs more attention. However, now that the fates of politicians will be tied to their ability to administrate health care, they will be called upon to put their minds to the problem of controlling costs or risk losing their positions.

  • Ed Pershing

    Mr. Williams appears to commend federal healthcare reform legislation for failing to capture opportunities to address healthcare cost issues. In effect, he maintains the coming crises will force towns with “big, big problems on their hands” to then address such problems. Mr. Williams fails to note that America’s “towns” and states will have to address their healthcare cost problems because they are required to balance their annual budgets.

    How large must the “big, big problem” become before federal officials effectively address these issues? They don’t have to balance the federal budget, so they “kick the can down the road” while the problem continues to grow unabated.

    One must only look to the TennCare funding crisis Tennessee faced to foretell the crises that Massachusetts and our federal government, and thereby us, will experience.

  • Paul MD

    @ David Allen, MD
    Thank you, thank you, thank you. Excellent response. There is truth and iron in your words on this subject. This needs to be watched closely.

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