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.