The Massachusetts Health Reform “Disaster”

Joe Paduda

Posted 11/19/11 on Managed Care Matters

To hear the current GOP presidential candidates describe it, former Gov. Mitt Romney’s support for the 2006 Massachusetts health care reform initiative was the worst thing since the Spanish Flu.

We can chalk a lot of the hyperbole up to campaigning, but the critics raise some good points.

First, costs have gone up. That’s not surprising as more people are covered, many of whom didn’t have coverage before and therefore likely had medical issues that, once they were insured, they addressed. Moreover, Mass’ per-capita health care costs have been higher than the national average for a long time – this is a structural issue as much – if not more – than a result of reform.

Second, the individual mandate turned out to be a rather unsatisfactory ‘solution.’ I’d argue that the problem with the mandate’s design was two-fold – the penalty for failing to obtain health insurance wasn’t stiff enough to drive high enrollment and the individual market was hammered by adverse selection. Some may argue that actual participation results may indicate my pessimism re the low penalty was misplaced.

In the individual market, people could enroll in, and then drop coverage at any time, resulting in some pretty serious adverse selection issues. Someone would need care, sign up for insurance, get the treatment, then stop paying premiums. This was a big problem in the individual market (and I’d argue supports my point about the inadequacy of the penalty).

There’s no question that the big problem is the cost issue – especially in today’s tough economic environment. (I’ll leave aside the ‘should government be this activist’ argument for now)

There are some pretty interesting solutions to the cost problem emerging in Massachusetts, solutions with broader implications for the country.

A couple years back the Mass Blues set up a program basing reimbursement in their HMOs in part on quality; this plan covered over a half-million members and looks to be expanding. Known as an Alternative Quality Contract, the program involves:

“A global, risk-adjusted, fixed payment per patient, with annual increases in line with inflation; and

Performance-based incentives linked to nationally-recognized measures of quality, efficiency and patient experience.”

There’s a pretty thorough description of the program in the link and it’s well worth reading.

With several years’ experience on which to build, Massachusetts’ politicians, health plans, and providers are gradually adopting new business practices, pricing models, and reimbursement methodologies designed to address long-term system costs.The legislation under consideration would put global payments in place for about a quarter of Massachusetts residents covered by Medicaid and state-subsidized insurance and state employees.

One of the more promising steps is a legislative initiative to enable/encourage global payments to provider organizations instead of the current fee-for-service reimbursement system. The concept, which is associated with Accountable Care Organizations, is based on the idea that incentivizing physicians and other providers to maintain and improve the health of members is more cost effective than paying them for each visit and procedure.

While relations between the dominant health care systems and insurers have been pretty combative, there appears to be a thaw in the air. Partners Healthcare, the largest system in eastern Massachusetts, just signed on to the program in a deal that appears to be a major win for cost cutters.

Lest we forget, the Massachusetts reform plan has achieved remarkable success in expanding coverage – a mere two percent of residents are uninsured along with less than one percent of kids.

What does this mean?

Mass’ legislators decided to pass reform first and tackle costs later. There’s no question costs have gone up, in part driven by expanded coverage. There’s also no question that providers and insurers are working together to “bend the cost curve” and their efforts look promising for both lower trend and better care.

Are there lessons we can take for the country as a whole?

Yes. Unsurprisingly, expanding coverage increases costs. But over time, stakeholders, prodded by intelligent legislation and forced to compete not on the basis of risk selection but quality and cost, can and will figure out how to control costs.

Joe Paduda is a health care analyst writing at Managed Care Matters.

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