|
|
|
 |
|
Home / Washington Business - May/June 2007 / Points of View: Untangling the Massachusetts Triangle |
|
|
|
 |
|
|
|
Points of View: Untangling the Massachusetts Triangle |
|
|
|
Written On: May/June 2007 |
|
|
|
Written By: by Arnold Kling |
|
|
|
Arnold Kling is an adjunct scholar with the Cato Institute and the author of "Crisis of Abundance: Re-thinking How We Pay for Health Care."
"As The Connector moves forward to set up subsidy schedules and regulate available plans, it faces an 'iron triangle' of competing pressures: the desire for affordability; the desire to minimize the public sector costs of subsidies; and the desire to ensure comprehensive insurance coverage for individuals. The problem is that the Commonwealth cannot move in all three directions at once."
—Jonathan Gruber
"The Massachusetts Health Care Revolution"
The Hastings Center Report
September-October 2006, p. 17.
During World War II, American combat engineers known as the Seabees were proud of their ingenuity. They used to say, "The difficult we do immediately. The impossible takes a little longer."
When the Massachusetts health plan was passed, it was immediately praised as a solution for the difficult challenge of universal health insurance. However, getting it to work as intended is taking a little longer.
The problem is the iron triangle described by Jonathan Gruber, an architect of the Massachusetts reform who now serves on the board of The Connector, the agency charged with overseeing the plan. The Connector has not been able to devise a health insurance policy that meets all of the state’s goals: low premiums for individuals; low subsidies from taxpayers; and comprehensive insurance, meaning that deductibles and co-payments are kept low.
Initially, The Connector set some parameters for health insurance policies and asked health insurance companies to submit proposals. The result, as reported by Eileen McNamara writing in The Boston Globe on Jan. 31, is that the insurance companies came back with "monthly premiums for an individual of $380 for the most basic 'affordable' plans being considered by the new quasi-independent state agency. That is almost twice what Mitt Romney predicted."
Romney was governor when the health care reform was enacted. The new governor, Deval Patrick, proceeded to negotiate with the health insurance companies. The result, according to a March 4 story in The Boston Globe, "shows an average monthly premium for residents of eastern Massachusetts of $305. That indicates a decrease of nearly 20 percent in premiums from the earlier bids."
It appears that some, if not all, of this reduction in premiums came as a result of cutbacks in the comprehensiveness of insurance. The plans with the lowest premiums use higher co-payments and deductibles.
Many people think of health insurance as a gift. For example, someone will say, "My employer gives me health insurance." What your employer actually does, however, is provide a compensation package, consisting of wages and benefits, that reflects your value to the firm. The more you receive in health benefits, the less you receive in take-home pay.
The cost of health insurance is transparent for people who purchase their own. Many people, when confronted with the cost, decide to forego health insurance.
Politically, the appeal of universal health insurance is to provide the uninsured with the gift of health insurance that others enjoy. However, suppose that the state provides health insurance to taxpayer A but not to taxpayer B (because B already has insurance). In that case, the state is asking B to pay for A’s health insurance.
That leads to another view of health insurance, which is that it is a personal responsibility. Failure to obtain insurance may lead you to show up on the hospital doorstep expecting free treatment.
The fear that the uninsured are "free riders" suggests that the state is entitled to penalize those who do not obtain health insurance. Massachusetts took this approach. The uninsured must either pay a fine or obtain insurance. This is known as a mandate.
But how can the state justify forcing a consumer to buy a product that the consumer believes is not affordable? To address that problem, the state of Massachusetts proposed to redesign its insurance market, using The Connector.
However, state-designed insurance will only be cheaper than private insurance if the state reduces the cost to insurance companies of providing insurance. One way to reduce the cost is to get rid of coverage mandates. But the Massachusetts Legislature did not give The Connector the leeway to do so.
With no room to maneuver on coverage mandates, The Connector’s health insurance policies may be perceived by the uninsured as more of a penalty than a gift. Relative to what was promised when the legislation was enacted, the policies are going to have higher premiums, co-payments, and deductibles.
Even with these less attractive policies, it is not clear that the arithmetic of the Massachusetts health care reform can work. On a per capita basis, Massachusetts has one of the highest health care spending rates in the nation. If the newly insured start to indulge in health care services to the same extent as their compatriots, health insurers will lose money, which will force them either to raise premiums or to exit the state.
It is too early for other states to draw lessons from the Massachusetts reform. Perhaps regulators and insurance companies will find a way to make things work. However, my prediction is that it will unravel, degenerating into a finger-pointing exercise among insurance companies, consumers, and politicians.
I would like to see at least some states consider a different approach. Instead of getting deeper into the thicket of designing health insurance contracts, states might move in the other direction. They could deregulate health insurance, which would give the private sector the freedom to structure policies and risk management practices to meet the needs of diverse consumers. If they were not painted into a corner by mandates, "must-carry" laws, and the like, health insurance companies might increase their penetration of the market, taking advantage of the opportunity represented by those who now do not buy health insurance.
|
|
|
|
|
 |
|
