Wednesday, May 28, 2008

First Year Results in Massachusetts' Health Care Reform Undercut Barack Obama's Health Care Reform Strategy

The Massachusetts health care reform plan is coming up on its first anniversary.

Its costs are now officially out of control.

Those of you who regularly read this blog know that I have been particularly critical lately of what I see as a lack of sophistication in McCain's market-based health insurance proposals.

But with this news, Obama will have some big health care policy questions of his own to answer.

The 2006 Massachusetts Health Insurance Law is looking to be little more than an expensive expansion of Medicaid and that does not bode well for Barack Obama who has used the Massachusetts health reform law as the template for much of his own health care reform plan––as did all major Democratic candidates including Hillary Clinton.

The good news is that the plan, which began on July 1, 2007, has covered 340,000 people who were not insured a year ago––out of around 600,000 when the program started.

Almost all of those people have incomes below 300% of the federal poverty level and are eligible for full or substantial government subsidies to pay for their new health insurance.

The state has seen a gain of only 18,000 Massachusetts residents with incomes above 300% of the poverty level in the Commonwealth Choice plan. That's because it costs $7,000 - 12,000 a year for a family of four to buy the baseline health plan that includes a $2,000 single/$4,000 family deductible before most benefits are available. A family of four with an income of at least $61,000 (300% of the federal poverty level) would not qualify for a subsidy.

Commonwealth Care, the program covering uninsured workers under 300% of poverty, and available at little or no cost to residents, had 176,000 new enrollees as of May 1st and is projected to grow to 255,000 by July of next year--many more than the 136,000 that were estimated for the first year when the law was passed.

It is a good thing that there are 340,000 fewer uninsured in Massachusetts than there were a a year ago and Mass appears on its way to covering about 400,000 of the 600,000 that were uninsured when the program began.

But the Massachusetts Health Insurance Law is doing almost nothing for the middleclass because people can't afford the premiums––leading the state to also back-off on the individual mandate for these people. For example, almost all families would need an income of at least $110,000 a year in order for the mandate to apply to them.

So, Obama is right––you can't enforce an individual health insurance mandate if the coverage isn't affordable.

But that is about the only thing Senator Obama can be happy about when it comes to the state health reform plan that looks a lot like his plan for national reform.

With little or no cost containment in the program, the cost of Massachusetts Health Insurance Law really is out of control.

The cost for the program in its first year––July 1, 2007 to July 1, 2008––was first estimated to come in at $472 million when the bill was passed in 2006. However, that assumed there would be 136,000 low-income residents in Commonwealth Care. Instead, the state now projects that there will be 180,000 in the plan by the end of the fiscal year on June 30th driving first year costs up by 38% to $650 million.

When the law was passed in the spring of 2006, it was estimated that the second year’s costs––2008 to 2009––would increase to $725 million as the enrollment ramped up.

This past March, Governor Patrick provided an updated estimate of $869 million for next year––fiscal year 2008 to 2009––saying enrollment was higher than expected.

Just a month later, in April, the Governor revised that estimate upward by an additional $100 million to $969 million.

Now, in May, in a statement to bond rating agencies, the Governor has estimated that the fiscal year 2008-2009 costs will be more like $1.1 billion––a 50% increase over the original estimate from less than two years ago!

These costs may themselves be understated because health insurers are saying they are losing money on the program and are charging insufficient premiums that will ultimately have to rise. The Commonwealth Care insurers (100% to 300% of poverty) originally asked for a 15% increase for next year and settled at 10%.

The Commonwealth Choice insurers (over 300% of poverty and also available to small groups) are seeing a 10% trend rate and are being pressured to limit their increases to 5%--which they will do with more benefit reductions and cost sharing making these plans even more unaffordable for the benefits they provide.

It is clear that the Massachusetts Health Insurance Law is not sustainable for the state--and wouldn't be sustainable for the nation.

Until policymakers are ready to have a serious discussion about cost containment, health care reform is an unrealistic objective.

Prior posts on the Mass Health Care Plan from March 2007:
The Massachusetts Health Plan Will Turn Out to Be Little More Than a Fancy Expansion of Medicaid--Bids Come In At $250 Per Person Per Month

The Massachusets Health Plan's Inability to Offer Affordable Health Insurance Premiums Will Stall-Out Other State's Efforts in Health Reform
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