Tuesday, March 02, 2010
News from The Bay State...
Last month, Democratic Governor Deval Patrick landed a neutron bomb, proposing hard price controls across almost all Massachusetts health care.
State regulators already have the power to cap insurance premiums, which Mr. Patrick is activating. He also filed a bill that would give state regulators the power to review the rates of hospitals, physician groups and some specialty providers. Those that are deemed too high "shall be presumptively disapproved."
Mr. Patrick ad-libbed that he had "a whole bunch of pals here who are in the health-care field, and I saw the color drain out of their faces."
It doesn't even count as an irony that former Governor Mitt Romney (like President Obama) sold this plan as a way to control spending. As with all new entitlements, the rolling cost crisis began almost immediately...
... average Massachusetts insurance premiums are now the highest in the nation. Since 2006, they've climbed at an annual rate of 30% in the individual market. Small business costs have increased by 5.8%. Per capita health spending in Massachusetts is now 27% higher than the national average, and 15% higher even after adjusting for local wages and academic research grants. The growth rate is faster too...
As in Washington, the political class and providers blame insurers, but a better culprit is the state's insurance regulation. Incredibly, the average "medical loss ratio" in Massachusetts for individual policies is 112% -- that is, insurers pay $1.12 in benefits for every $1 in premiums.
This is the direct result of forcing insurers to charge everyone more or less the same rate regardless of age or health status, which makes it rational for people to wait to enroll until they need expensive coverage.
It is also the result of the state's decision to merge the individual and small-group insurance markets, which transfers individual costs onto small businesses. Mr. Patrick actually justified his plan by citing small-business costs...
Another reason costs are so high is that state regulations have mandated that insurance coverage be far richer than the rest of the country. The average insurance deductible is 28% lower than the U.S. average, and the benefits are more generous with less cost-sharing. Patients are thus insensitive to the cost of care.
...the state's own reports mainly show that the dominant reason health costs are rising is medical progress and technological innovation. Massachusetts health care, with its abundance of academic medical centers and high-quality specialists, is the envy of the world.
This is the true target of Mr. Patrick's price controls: The goal is to engineer a cheaper system through brute force so government can pay for health care for all.
What inevitably suffers is the quality of care for individual patients. Thirty states imposed hospital rate setting in the 1970s and 1980s. Except for Maryland, every one of them eventually eliminated it -- including Massachusetts, in 1991 --partly because it didn't control costs.
And partly because it killed people. A 1988 study in the Journal of New England Medicine found that the states with the most stringent rate-setting had mortality rates 6% to 10% higher than those that didn't.
... Massachusetts is teaching the country a valuable lesson in how not to reform health care, if only anyone would pay attention.