Wednesday, March 18, 2009

Containing Health Care Costs in Massachusetts - When the Going Gets Tough the Tough Get Going

Eight months ago I opined - "the wild rumpus of cost control in Massachusetts is just starting. Stay tuned to see how it plays out!"

My timing was off, but I think the cost control rumpus is finally about to start.

For the first three years of the health care reform process, Massachusetts concentrated on access. The state now has 97.4% of its population covered by insurance - the highest rate of insurance in the nation. But the program is costing more than was originally predicted, and, as in other states, revenues are dropping fast.

I'd been told that leaders of the health care reform process deliberately chose not to take on cost containment at the start. The idea was - "let's get the public, providers, employers and health plans to buy in to reform and get the process underway. We know cost will hit the fan before long, but when it does no one will want to give up on what we've accomplished with access, and we'll be able to bite the cost bullet."

It was a risky strategy. But it may prove to have been a smart approach. Massachusetts is being looked to by the federal government and the other 49 states. For Massachusetts to crump now would be humiliating, and a national disappointment to boot!

But I wish I felt more optimistic about what a recent New York Times article expects to come next in Massachusetts:
[Governor] Patrick has shown signs of playing tough with the state’s hospitals and insurers. Responding in January to a series in The Boston Globe that exposed how the state’s most influential hospitals negotiate high reimbursement rates, Mr. Patrick announced that he would explore whether the state could regulate insurance premiums.

“Frankly, it’s very hard for the average consumer, or frankly the average governor, to understand how some of these companies can have the margins they do and the annual increases in premiums that they do,” Mr. Patrick said in an interview. “At some level, you’ve just got to say, ‘Look, that’s just not acceptable, and more to the point, it’s not sustainable.’”
The Governor is right that the cost trend is not sustainable, but in this quote he segues from noticing how high provider prices are in Massachusetts to condemning insurance companies for their margins. It is tempting for the administration to follow the insurance bashing route, but for two big reasons it's a bad idea.

First, the money isn't in the insurance companies. 90% goes to providers. Of course, some of what the providers charge is their own administrative overhead for dealing with insurers. If the administration was pushing for a single payer system, focusing on administrative overhead would make sense, but insiders say that the single payer option is not on the table.

If that is true, insurers will have to drive the cost containment process. On one side insurers will have to influence patient/public expectations about health care. In Massachusetts the public's default position is that more care is better than less, new technologies are better than old ones, and tertiary care is better than primary care. On the other side insurers will have to negotiate about compensation with providers who have the public's trust and what marketers call great "brand equity."

Changing public expectations for care and disappointing provider expectations for compensation would be a tough job for Buddha or Confucius. When insurers tried to manage care in the 1990s they were knocked out of the box by public and provider backlash. If the state government wants insurers to try again it needs to tell the public that it trusts insurers to do the process right and that it's asking them to take on this public responsibility.

Massachusetts has made progress in demonstrating that at least one U.S. state can come close to doing what every other developed economy has been doing for decades - provide health insurance benefits to [almost] all citizens. It has made no progress, however, in showing that it can do this in a financially sustainable manner. Cost containment is the challenge the state has to lock horns with now.

What comes next will determine whether Massachusetts has anything worthwhile to teach or whether its health care reform has been much ado about nothing.


Anonymous said...

I own a small Business and I can't wait for this to happen...bring it on...the government has taken over banks, auto companies and now lets move on to health care the faster we do this the sooner people will realize socialism is a disaster and we can return to sanity...if you think the auto industry is temporary I will remind you of Amtrack that was suppose to turn around in three years. Lets destroy this economy quickly the faster the better then we can repeal all of these ridiculous government programs...I am so sick and tired of this yea soak the rich want my money come and get don't care that I employ people and the people I employ think they are getting the short end and I should pay more...well if you don't care about me, don't care about the company that employs you and puts food on your table then I don't care about you...can't wait to hand out those pink slips and pay cuts...I will call it the socialist reform act for my business and laugh at you for getting what you asked for...or maybe I will just retire, shutdown sell all of my assets and kick back on one of the islands laughing at the mess you have created.

Thanks HadEnough

Jim Sabin said...

Dear HadEnough -

The passion you express is clear, but I'm not sure what the "this" is in your first sentence. If your small business is in Massachusetts and if you offer health insurance to your employees, health care cost containment would be a positive for you. But it could be that you're waiting for the program to implode because for some small business owners Massachusetts health care reform has driven up their costs.

Our country has been stuck with the expectation that employers would provide health insurance ever since World War II. We started that system when business were competing for workers but couldn't raise salaries because of wage controls. I think of health insurance as a basic piece of social security - like education, police protection and national defense. I see paying for basic health protection as a public responsibility, but if your point is that business shouldn't be stuck with unique responsibility for paying for health insurance I agree.