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
7 comments:
If anyone is surprised about this result, they should drop out of the debate altogether. A sharp increase in demand for an important good, with no increase in supply, what else could happen but costs spike? This doesn't even mention the bottleneck problem that is experienced in less-populated areas. Cost containment, well, good luck. Absent a commensurate supply increase or serious demand containment, "cost containment" is doomed to fail or to result in service shortages. No different from rationing and price controls during world war II.
The first year of any plan is always difficult to evaluate, especially when you have over 180,000 new people getting benefits. Thats one of the reasons as an underwriter it's nice to look at a rolling 12 months comparison and 2 years of data. I have had groups where an influx of new people caused the first look to much worse than anticipated. In addition isn't part of the philosphy long term savings. Isn't getting these problems under control now cheaper than what they may cost in 5-10 years?
Donald First has it right here. Anytime you are absorbing a previously unmanaged population, you are going to see costs spike. The new members do some "catching up" utilizing services they had previously been postponing due to cost and their lack of coverage. It takes nearly two full years to reach a sort of stasis on medical costs. It will be interesting to have this same conversation a year from now, and perhaps chart a trend line of the Medical Loss Ratio (i.e. medical costs as a percent of premium revenues) over the previous eight quarters.
I agree with the comments above. Compare the Massachusetts situation with Medicare Part D - it has been criticized because it hasn't provided enough benefits to enough people, but it has cost a lot less than expected. It is virtually impossible to do access expansion and cost containment simultaneously - you need to do one and then the other. Massachusetts has taken the more humanitarian route.
By looking just at the Commonwealth Choice enrollment, you're missing a good number of middle class people induced to buy private insurance because of the mandate.
People can get equivalent coverage without going through the Connector, and in fact the plans encourage that since that way they don't have to pay the Connector's fee.
According to the Mass Assoc of Health Plans, there was a net increase of 111,000 in private coverage during calendar year 2007. So of the 340,000 newly covered, a good number were not government-subsidized.
Yes, the plan is costing more than anticipated. Some of it was because the expectations were set artificially low by the Romney administration, using what they knew was a incomplete estimate of the number of uninsured. Some pent-up demand is also part of the story.
In any case, spending government money to provide subsidies to previously uninsured low-income people is nothing to sneer at. These people were getting very poor care, if at all.
You're right that the challenge now is cost control. I would argue that expanding state-funded coverage is providing the imperative for the state to consider far-reaching cost control ideas, things that never would have been on the agenda without the expansions. If access expansions had to wait for cost containment, we would have to wait a long, long time. Massachusetts is now considering some transformative reforms to payment systems.
So far, all of the political leaders and stakeholders are committed to finding the money needed to keep things going. No one's saying we should pull the plug.
Stay tuned for next Tuesday (6/3/08) when the first research on the results of reform will be released. We'll also have much better data on the individual mandate when the tax data is released later this summer.
Brian:
You make a good point that it was necessary for the Mass policymakers to do access first in order to create the imperative for cost control to follow since there was no political ability to include cost control upfront.
In fact, I have said many times on this blog that it is possible reform will have to come in two parts--access first and cost control second whether its the liberal or the conservative brand of reform
However, now that the cat is out of the bag on what a plan like this really costs it will be very hard for national or state policymakers to sell such a solution. That's why I think Obama has a problem because of Mass.
Policymakers will be at once scared to copy the Mass plan because of its cost problems and still unwilling/unable to tackle any kind of cost control.
A sort of deer in the headlights dilemma--unable to move in either direction.
Mass is an experiment and it is important to face what the experiment is telling us--in this case as regards costs.
I'm a little late on the commenting but I thought the out of control costs of the Mass health plan had more to do with greater than expected enrollment instead of rises of costs in the health care market. I think a another poster said that commenting on costs at this juncture is a bit premature. I agree. I agree that Obama's plan to finance his health plan fall short, which points to reform that should be tackled in other areas simultaneously, like payment delivery structure, but we cannot kid ourselves into thinking that this is going to be cheap.
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