do lasting damage to one of America’s top-flight health-care systems.
Last month, Democratic Governor Deval Patrick landed a neutron bomb, proposing hard price controls across almost all
Massachusetts health care. State regulators already have the power to cap insurance premiums, which Mr. Patrick is
activating. He also filed a bill that would give state regulators the power to review the rates of hospitals, physician groups and
some specialty providers. Those that are deemed too high “shall be presumptively disapproved.”
Mr. Patrick ad-libbed that he had “a whole bunch of pals here who are in the health-care field, and I saw the color drain out
of their faces.” Little wonder. The administered prices of Medicare and Medicaid already shift costs to private patients while
below-cost reimbursement creates balance-sheet havoc among providers. Now the governor wants to import these
distortions to save the state’s heavily subsidized insurance program as costs explode.
It doesn’t even count as an irony that former Governor Mitt Romney (like President Obama) sold this plan as a way to
control spending. As with all new entitlements, the rolling cost crisis began almost immediately. For fiscal 2010 taxpayer
costs are $47 million over budget, in part due to the recession, and while the $913 million Mr. Patrick requested for 2011 is a
5% increase over 2010, spending has grown on average 6.7% per year.
Meanwhile, average Massachusetts insurance premiums are now the highest in the nation. Since 2006, they’ve climbed at an
annual rate of 30% in the individual market. Small business costs have increased by 5.8%. Per capita health spending in
Massachusetts is now 27% higher than the national average, and 15% higher even after adjusting for local wages and
academic research grants. The growth rate is faster too.
Those data come from granular studies about the Massachusetts health markets published recently by the state. Not that
anyone on Beacon Hill seems to have to read them, judging by their policy proposals. Besides Mr. Patrick’s latest inspiration,
last year a blue-ribbon commission endorsed a “global budget”—i.e., an arbitrary government limit on medical spending,
with politics shaping what gets covered and what doesn’t.
As in Washington, the political class and providers blame insurers, but a better culprit is the state’s insurance regulation.
Incredibly, the average “medical loss ratio” in Massachusetts for individual policies is 112%—that is, insurers pay $1.12 in
benefits for every $1 in premiums.
This is the direct result of forcing insurers to charge everyone more or less the same rate regardless of age or health status,
which makes it rational for people to wait to enroll until they need expensive coverage. It is also the result of the state’s
decision to merge the individual and small-group insurance markets, which transfers individual costs onto small businesses.
Mr. Patrick actually justified his plan by citing small-business costs.
with less cost-sharing. Patients are thus insensitive to the cost of care.
The insurance industry points the finger back at providers, given that over the entire Massachusetts market they usually
spend 88 cents of every premium dollar on claims. But the Bay State medical system isn’t wasteful by any of the fashionable
measures. The Dartmouth Atlas that measures regional variation in the supposed “overuse” of care ranks the state near the
Though some large hospital systems, especially in Boston, have the market power to drive prices higher, the state’s own
reports mainly show that the dominant reason health costs are rising is medical progress and technological innovation.
Massachusetts health care, with its abundance of academic medical centers and high-quality specialists, is the envy of the
This is the true target of Mr. Patrick’s price controls: The goal is to engineer a cheaper system through brute force so
government can pay for health care for all. What inevitably suffers is the quality of care for individual patients. Thirty states
imposed hospital rate setting in the 1970s and 1980s. Except for Maryland, every one of them eventually eliminated it—
including Massachusetts, in 1991—partly because it didn’t control costs.
And partly because it killed people. A 1988 study in the Journal of New England Medicine found that the states with the most
stringent rate-setting had mortality rates 6% to 10% higher than those that didn’t.
All of this is merely a preview of what the entire country will face if Democrats succeed with their plan to pound ObamaCare
into law in anything like its current form. Massachusetts is teaching the country a valuable lesson in how not to reform
health care, if only anyone would pay attention.
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