For a health care commentary writer, the health care mess in Massachusetts is the gift that keeps on giving. For people who are anxious about the effects of the recently passed national health care bill, Massachusetts is a shining example of just how bad things are going to get. The basic plot line is known to all–the state passes a “reform” bill that provides coverage for just about everyone, but with no provisions that do anything to address cost increases, in fact it has now become apparent that the law exacerbated the cost problem. Small businesses and individuals are faced with significant premium increases. Providers are raising prices and research, including that by the state’s Attorney General, indicates that provider market power, not underlying provider cost rises, are the cause of the price increases. Most of the major health plans in the state are not-for-profit and lived up to that by losing money in 2009. The Governor’s response–follow the federal administration’s lead and blame the health plans and refuse to give them any premium increase for 2010! That will go a long way to solving the problem.
Another cause of health care cost increases is the poor design of the individual “mandate”, which is supposed to require everyone to participate in the insurance pool. The penalties for not having insurance, however, are so low that individuals have begun to just pay the penalty and then get insurance when they anticipate having a major health care expense and drop it afterward, which has caused millions of dollars in losses to the health plans. (Boston Globe Story) The federal bill has the same flaw and should be expected to lead to the same phenomenon.
Predictably, the insurers have now sued to undo the state’s denial of premium increases. (Boston Globe Story) We will see how that turns out. If the failure to allow premium increases adequate to cover health care cost rises is upheld, ultimately the plans will either become insolvent or if they can, will stop offering individual and small group coverage. Either way, less health insurance is going to be available and it certainly won’t be affordable.
Meanwhile Maine’s insurance regulator is also denying rate increases to a health plan, again with no actuarial rationale, just a populist appeal. (WSJ Story) Maine is one of the states to learn the hard way that requiring insurers to accept all applicants regardless of health status, but not requiring people to purchase insurance in an iron-clad manner, leads to much higher costs and premiums. Then when the individuals and small groups complain about rate increases, blame the insurer! The Maine regulator justifies her decision in part, as did the Massachusetts one, by saying the plan’s wasn’t negotiating hard enough with providers. That is ironically hilarious. Health plans have no leverage with providers because of government inaction in preventing hospitals and affiliated physicians from acquiring excessive market power and because of government action in underpaying providers in public health programs like Medicare and Medicaid and passing laws like any-willing-provider that undercut a payer’s ability to negotiate selectively.
Wellpoint, the insurer at issue in Maine, has recently terminated a hospital system in New York because it would not accept less than a 15% price increase. (WSJ Story) In the past, health plans that have done this have faced an outcry from patients, regulators and legislators that has often forced them to back off. We will see what happens here. The research is clear: provider price increases, usually not justified by their costs or quality, are the source of most of the health plan premium increases. If policymakers aren’t willing to address that, they are going to have to live with higher premiums one way or the other.
In any event, for Congressional Democrats and the Administration, which probably wish the health care story would go away, issues like those in Massachusetts and Maine are going to persist and are going to cause people to increasingly question the claim that the national bill will actually lower premiums and will increase the pressure for repeal or major modification of that bill.