Study: Massachusetts Provides Lessons for Obamacare

Study: Massachusetts Provides Lessons for Obamacare
January 26, 2012

Benjamin Domenech

Benjamin Domenech (bdomenech@heartland.org) is a senior fellow at The Heartland Institute. Domenech... (read full bio)

Imagine a marketplace where you have to receive government approval for setting prices on your product, where you have to show your math for every decision made, and where you are "granted" the ability to increase the cost of your product only after first being approved by government bureaucrats.

Well, it's a reality today.

This morning AEI's Jim Pethokoukis links an interesting Health Affairs study on Massachusetts - it's an overview of the outcomes to expect from Obamacare based on the experience under former Gov. Mitt Romney's health care law. Noting the law "provided the template for the Affordable Care Act, so the state’s experience under that legislation provides an example of the potential gains under federal health reform", the piece goes on to warn against the problem of health care cost increases the Bay State has experienced being replicated on the national level:

There is, however, reason to be concerned about employer-sponsored insurance premiums because health care costs in the state continue to rise. Data from the Insurance Component of the Medical Expenditure Panel Survey, a national survey of employers, indicate that in 2006 the average employee contribution toward premiums in Massachusetts was $1,011 for single coverage and $3,128 for family coverage. By 2010, the average employee contribution had increased to $1,200 for single coverage and $3,444 for family coverage, although the change in the employee contribution for family coverage was not statistically significant. Health care costs in Massachusetts, as in the rest of the country, continue to grow faster than wages and inflation. …  Consistent with that finding, Massachusetts continues to struggle with escalating health care costs, reflecting the decision to defer addressing costs in the 2006 legislation so as not to hold up the expansion in coverage.

As Pethokoukis notes, "The authors conclude that based on the Romneycare experience, Obamacare will improve coverage and not kill employer-based insurance, but containing costs will be a 'considerable challenge.'" But I'd suggest he's missing the next step which Massachusetts has taken, and which we will likely take as a nation as well: the imposition of far stricter bureaucratic price controls.

Sally Pipes of the Pacific Research Institute covered this a bit in the Washington Post last year. But as it happens, today has news from Massachusetts insurers on this point - who are now able to realize "no profit margin" with the 2.3 percent rate hike Gov. Deval Patrick allows.

The insurers said they requested the unusually low rate hikes this year because of public and regulatory pressure, adding that they will barely break even with the small premium increases unless demand for care remains low. Others said they could lose money with the new rates, according to EmaxHealth.

"We're trying to be as responsive as we can to our small-business customers, and responsive to the environment," Jay McQuaide, senior vice president for Blue Cross Blue Shield of Massachusetts, told the Globe. "There is no profit margin in these rates.''

...This year, Blue Cross was granted a 1.9 percent increase, Harvard Pilgrim Health Care can charge 3.8 percent more, Tufts Health Plan was awarded a 1.2 percent hike, and Fallon Community Health Plan can raise its premiums by 2.7 percent.

There's a great line from Cato's Doug Bandow about this: "Deval Patrick responded like King Canute: he insisted that premiums not rise." But this is what future presidents will be reduced to under Obama's law: insisting premiums not respond to the pressures of government.

At the federal level, currently Sebelius only has the power to "shame" insurers for price increases. The newly created Obamacare health insurance exchanges, however, can exclude insurers who display "pattern or practice" of "unreasonable" hikes.

The problem, of course, is that these hikes are the inevitable result of the mandate + subsidy + Medicaid expansion approach. The price controls inevitably make it impossible for insurers to have a workable business model. Already pinched, they're driven out of marketplace. So the private market shrinks, the subsidy costs rise, and the number of people surviving on redistributive taxes explodes.

In this case, the shame game is insufficient. Washington can't fight math. In fact, Sebelius is already being defied by insurers. The endgame of all of this is for Washington, which already dictates prices and service availability via the massive Medicare and Medicaid system, to seize the power to just set insurance prices at whim - transforming the system permanently into one of public utility, and ending any hopes of a private marketplace revival.

Update:Peter Suderman has more on this at Reason. He suggests the real takeaway is that Obamacare's best case scenario is Romneycare.

Benjamin Domenech

Benjamin Domenech (bdomenech@heartland.org) is a senior fellow at The Heartland Institute. Domenech... (read full bio)