Wealth of Nations June 2006

The Massachusetts Experiment

The Achilles' heel of the new Massachusetts health care plan could be its failure to address rising costs.

Massachusetts Gov. Mitt Romney's new health care law is attracting close attention all over the country. So it should. As Marilyn Werber Serafini explained in National Journal (6/10/06, p. 22), the plan is a remarkable departure.

It proposes to make health insurance coverage universal (or very nearly so), the Holy Grail of liberal reformers. Massachusetts will be the first state to achieve this. And the law promises to extend coverage without affecting the way health care works for people who already have insurance—for them, nothing will change. That reassures conservatives who want to keep the health care market system. Yet somehow, to complete this miraculous trifecta, the law requires no new taxes. The plan won overwhelming bipartisan support, passing the state House 154-2 and the state Senate 37-0.

Wasn't health reform supposed to be difficult?

The plan's biggest idea is the individual mandate. When the law goes into effect in July 2007, every resident will have to have health insurance. Residents who don't have an employer-provided scheme and who are ineligible for Medicare or Medicaid will have to buy insurance for themselves. People not poor enough to qualify for Medicaid but who cannot afford private insurance unassisted will be subsidized on a sliding scale. People on medium or higher incomes will have to buy a plan on their own.

The mandate, according to Romney, is one of the main things keeping the net cost of the plan down. Currently, the uninsured are not denied health care. In an emergency (that term is flexible), people can turn up at hospitals, and care cannot be withheld. The cost is met by taxpayers and the insured. The state maintains a fund of $1 billion for the purpose. In forcing people to get insurance, the plan will curb the demand for uninsured care. Some of that $1 billion fund can then be set against the cost of the new subsidy.

The next thing is to force down the cost of insurance that the uninsured must buy. The state will let insurance companies offer policies with higher deductibles and co-payments, stricter limits on provider networks, and fewer mandated benefits. The plan also creates a health care "Connector"—a kind of regulated market for insurance. Coverage bought through the Connector will get tax relief.

A third component, which Romney resisted but which the Legislature forced through, is a levy on firms with more than 10 employees that fail to provide health insurance: They will have to pay an annual fee, which a pedant might call a tax, of up to $295 per worker. Later, if the plan's arithmetic fails to add up, this levy could be asked to bear the strain. In principle, it could be set so high that even small employers would be forced to buy insurance. In that case, the plan would be striving for universal coverage by, in effect, mandating all businesses to provide it. Many would argue that there is a good case for doing exactly that—but such a scheme would no longer have the appearance of "costing nothing."

The least that one can say of the Romney plan is that it includes some good new ideas and will be a fascinating experiment. To do something so radical and to align strong bipartisan support behind it is an impressive political feat. The plan, and the governor who pushed it through, are plainly worth watching.

But will it work? If extending coverage were the only aim, the plan would get a good grade. But wider coverage is only one of the tests facing the country's health care system. The other is what it costs, and is going to cost in future.

The Massachusetts plan makes a great stride on access, though it does not solve the problem entirely. Only time will tell just how "universal" coverage becomes under the scheme. About 20 percent of Massachusetts' uninsured residents are already eligible for Medicaid but have not signed up. (The plan aims to increase enrollment of those people.) Further up the income scale, some people will prefer to remain uninsured rather than pay for coverage, even with the subsidy, the tax relief, and the cheaper new policies. The plan requires them to do otherwise, but who knows how effectively the new individual mandate will be enforced? The Romney plan is not going to make the problem of the medically uninsured disappear.

But the greater challenge—in its own right, and because of its implications for access—is the mounting costs across the system as a whole. The Romney plan, by design, does not address that problem. System-wide costs will continue to rise, because nothing new is holding them down. And the cost of Romney's widening of access will rise in proportion. When that happens, how will he and his successors respond? The state can tell people to pay more for their mandatory insurance (thereby increasing noncompliance with the mandate). It can increase the burden on businesses (either through levies or new obligations). It can modify the Connector's rules (for instance, on permitted deductibles and other cost-saving features). Or it can try some mixture of all of the above.

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