Plummeting coverage and soaring costs characterize the nation’s health insurance crisis. With much coverage for the nonelderly based on employment, job loss contributes to this misfortune. In response, Congress seems headed to emulate the 2006 Massachusetts “reform.” That’s an unpromising prescription because it seriously increases costs — just the opposite of what President Barack Obama cogently and correctly asserts that we need.
The “reform” requires all adult residents to obtain medical care insurance through individual purchase if they are not covered by an employer-provided plan, Medicaid — called MassHealth and limited to those with very low incomes — or CommonwealthCare, a means-tested subsidized program for those with income above MassHealth’s limit but below 300% of the poverty line.
The Massachusetts Reform Model: Increasing Costs, Not Reducing Them
None of these programs produces efficiencies. The design does not reduce total health insurance outlays. Rather, CommonwealthCare adds massive costs to determine eligibility and then the amount of subsidy due, on top of the subsidies themselves. Those individualized determinations must be done hundreds of thousands of times in Massachusetts (many million times if applied nationally), not once but again and again because incomes don’t hold still.
Moreover, the “reform” does nothing to reduce the untamed costs of matching hundreds of thousands of billings with thousands of plans containing differing, confusing rate schedules. Hordes of provider personnel must generate the billings, and then hordes of insurer administrators process them and pay — or often reject — billed items and then frequently wrangle over them with providers and patients. These procedures consume hundreds of billions of nonbenefit dollars a year. CommonwealthCare imposes not only premiums, but also deductibles and copays, which further complicate and add costs to processing bills. Those features often prevent the “insured” from using their insurance.
Individuals and families with incomes above 300% of the poverty level get no subsidy, but they must participate in their employer’s insurance plan, if there is one. Many employees have declined employment-based insurance because they could not afford the premiums, deductibles, and copays required. Under the “reform,” with those costs rising, they must participate or incur a penalty — over $1,000 in 2009. They can obtain an exemption only by persuading the Commonwealth Connector, the entity administering the program, that they cannot afford the least costly available policy. Success means no penalty — and no insurance.
The Connector, which solicits policies from private insurers, rejected all of the initial proposals as unaffordable. The insurers responded with policies with lower premiums but higher deductibles and copays. The law permits annual deductibles up to $2,000 for an individual or $4,000 for a family. Little wonder that the Connector has so far exempted more than 62,000 employees.
So the “reform” increases nonbenefit costs by the tens of billions (that would be hundreds of billions if used nationally) to ascertain eligibility, more tens of billions to ascertain how much subsidy each applicant qualifies for, plus the tens of billions for those subsidies. Then add the estimated 4 percentage points of cost to operate the Connector.
Subsidies Through Tax Credits: Dishonest And Inefficient
Reportedly the Senate Finance Committee favors providing the subsidies through tax credits, a favorite legislative dodge to hide the costs. (Tax expenditures, the government revenue lost through targeted favorable tax treatment, are the functional equivalent of direct government expenditures for purposes of determining deficits but are much less efficient.) And they require people to apply. Many people simply do not know what’s available and how to navigate the bureaucratic maze. So the tax dodge incurs costs and discourages participation.
On top of these obvious inadequacies, the cost of medical care insurance continues to rise for employers and employees. State and local governments see increased costs for their own employees and for government programs. The Massachusetts individual mandate does not reduce the second major factor in our crisis – out-of-control costs. It does just the opposite.
President Obama sensibly proposes that we build our economy on rock, not sand. But few programs are so shifting as means-tested programs, as the history of Medicaid demonstrates. State governments repeatedly downsize such plans when the economy worsens, demand for benefits increases, and tax revenues to pay for them shrink.
If Massachusetts Can’t Afford Its Reforms, Who Can?
As candidate Obama pointed out repeatedly, individual mandates are costly and hard to enforce. The commonwealth is struggling to meet the costs of the program, which are running higher than originally projected. Massachusetts has a high-wage economy that generates above average-tax revenues. But that income is proving insufficient to pay for the “reform”; as a result, the state is poaching on the funding for other health programs. If wealthy Massachusetts is in a bind to pay for this brand of reform, what can we expect of less fortunate states?
Massachusetts provides subsidized coverage to individuals and families with incomes up to 300% of the federal poverty level. Only nine other states have equally generous limits. With state budgets now stressed by falling income and property tax revenues and increased outlays caused by growing unemployment, it is dubious that other states could afford to match Massachusetts’ level of subsidies even if they wanted to. Nevertheless, the House reportedly is fashioning a Massachusetts-like measure with subsidies available up to 400% of the federal poverty level.
The Massachusetts “reform” that congressional committee chairs seem about to advocate will neither provide universal coverage nor rein in costs. Nor will the toothless “pledge” by the “health care industry” to save two trillion dollars “voluntarily.” Announced by President Obama on a Monday, the pledge had been disowned by hospital, insurer, pharmacy, and doctor participants by Thursday.
Until we confront the billions wasted by matching hundreds of thousands of bills with thousands of differing plans, we will not achieve the savings needed to pay for covering everyone comprehensively. Our present course seems headed for reform in name only.
A Better Way: Medicare For All
There is a better, easier way: simply expand Medicare to non-aged and non-disabled Americans. Medicare has been up and running for over four decades, has a better cost-restraint record than both private insurance and public means-tested programs, and actually put reasonable limits on provider payments. It would cover everyone without the huge costs of means-testing. Medicare uses private insurers for administration and should continue to employ thousands of their experienced employees. Eliminating the nonbenefit costs of private insurance — commissions, Wall-Street-size executive compensation, and advertising — would save tens of billions of dollars. Simplifying billing — by using one payment schedule instead of thousands — would save hundreds of billions.
Medicare for All offers the most practical way to achieve universal coverage and reduce per capita costs. Now that’s reform we can believe in.