Massachussetts Health Plan Pushes for Capitation

By Megan McArdle

The Massachussetts health plan has been successful by some metrics--the recorded number of the uninsured has gone down--and unsuccessful on others.  According to the chap who runs the Massachussetts exchange, the state and medical providers still face a hefty expense for treating those who don't have insurance, with over half the cost of medical care for the uninsured still persisting.  And the new system is very expensive, particularly in a time of fiscal trouble.

It's thus predictible that a commission appointed by the governor wants to move in a new direction:  capitation.  That's when the state pays providers a fixed amount for each person (in the plan, or in their practice) and lets the providers figure out how to treat them.

Capitation looks attractive, because it discourages doctors and hospitals from doing too much.  But, as with all good things in life, it has a few downsides:

  • It shifts the insurance risk to smaller entities who are less easily able to bear it
  • Correspondingly, it eliminates many of the benefits of pooling.  Doctors who happen to get stuck with a sicker population go broke.  If you try to rig the payments to account for degrees of sickness, you will quickly get mired in a system even more complicated than the current health insurance system.  This is why "paying for health rather than procedures" never pans out.
  • It exacerbates the existing problem with fixed payments in health insurance, where doctors compete to get you in and out of their office as quickly as possible
  • Single payer advocates are fond of complaining that when you force consumers to bear the cost of their own health care, there's no guarantee that they'll cut back on unnecessary services.  Well, there's arguably even less guarantee when the guy making the cuts isn't the one who gets to die if it turns out that test was needed
  • The political incentive will be to mandate an ever-greater number of services and treatments at the same time as they cap the payments.  The result will be an outflow of doctors from the state, or medicine.

I don't like a system where the doctor has a financial incentive to give me unnecessary tests.  But I'm even less fond of the idea of giving her financial incentives not to give me necessary ones.  

I predict this lasts about half a news cycle before the public outrage overwhelms state legislators, who start screaming for the heads of the traitorous, heartless bastards who suggested it.

This article available online at:

http://www.theatlantic.com/business/archive/2009/07/massachussetts-health-plan-pushes-for-capitation/21555/