Mass Disaster, July 29, 2009

The Bay State shows how not to reform health care.

“Will Commonwealth care cost taxpayers more? No!” So wrote Massachusetts Gov. Mitt Romney in November 2004, the economy then still in full bloom. “Neither the state nor the taxpayers can afford to pay more.”

It’s worth pondering ex-Gov. Romney’s promises just over three years after he crossed partisan lines to reform health care in the Bay State. The Obama administration and congressional Democrats are modeling reform on the Massachusetts model, promoting bureaucratic health exchanges, increased restrictions on health insurance and vastly expanded taxpayer-subsidized care. Like Romney, they promise more coverage at lower cost, even as the evidence suggests otherwise.

So how’s health in Massachusetts? People are not pleased, according to a recent poll. Only one in four considers the reform a success. Just one in five thinks it has made health care more affordable.

Romney marketed the plan as a private solution. Yet it’s a massive expansion of taxpayer-subsidized care. Medicaid has increased by 76,000 enrollees and the subsidized plans by 177,000. Forty-six percent pay no premium, and another 12% are highly subsidized. Only 19,000 have signed up for the much-touted non-subsidized private plans offered through the Commonwealth Health Insurance Connector.

And it comes at a steep cost. Residents are expected to spend as much as 10% of their income on premiums or face fines.

The big lie in Massachusetts was that costs and taxes would not increase. “Health insurance for all our citizens does not require new taxes,” declared Romney on the eve of the bill’s passage in 2006.

The government’s expansion has cost taxpayers far more than projected. Premium inflation in the state has not been muted by the increase in the number of insured residents, and politicians are scrambling to fund the program. Smokers got hit for $1 a pack in July 2008.

At the federal level, it’s a foregone conclusion that new taxes will fund the expansion. The lies are in just how many new taxes will have to be imposed, existing ones increased or trillions of dollars in federal debt issued.

It could be the bait-and-switches that have Massachusetts residents cranky. They were promised affordable coverage. The plans were so expensive that 20% of the uninsured were exempted from having to purchase them.

They were told the plan would provide near universal coverage. But not everyone is insured. Even the most optimistic estimates put the uninsured at nearly 3%. To cut costs, the legislature cut thousands of legal immigrants from the program and will quit automatically enrolling all eligible people.

Bay Staters were told they wouldn’t have their current arrangements disrupted. Yet thousands of residents have had to purchase more expensive coverage after the new bureaucracy deemed their existing plans inadequate.

Much was made of the young “invincibles,” the free riders on the system who transferred costs to the privately insured and clogged up emergency rooms for non-urgent care. It was money that had been spent on them, so Romney and others claimed, that would fund new, more efficient insurance. Yet three years in, the successor uncompensated care pool is still spending hundreds of millions of dollars. Emergency rooms are more crowded than ever.

This was predictable and predicted, as the largest users of emergency rooms are Medicaid patients. The largest categories of spending from the old uncompensated care pool were for mentally ill substance abusers–not exactly the folks that rush out to purchase insurance on threat of a fine.

Whether Romney believes his hype is unknown. There can be little doubt that his Democratic partners, including Sen. Edward Kennedy, D-Mass., viewed the Massachusetts experiment as a “no-lose” proposition. If it somehow worked, great. But if the scheme failed, Democrats understood that they would have moved the state one step closer to government-run health care, with thousands more hooked on subsidized coverage.

Indeed, Jon Kingsdale, the person in charge of the Health Insurance Connector, recently wrote that it is a better strategy to expand access first, let costs run and only then worry about containing spending.

This lesson too is being applied at the national level. Peter Orszag, who spent years fretting about budgetary expansions while at the Congressional Budget Office, is more flexible in his new role as President Obama’s budget director. “I think it’s important for those of us wearing the green eyeshades to take them off,” he told Slate.

In the end, the only way to control costs inside a bureaucratic structure is to cut doctors’ pay, transfer patients into managed care, impose government global budgets and introduce price controls.

And that’s exactly what Bay State leaders have announced they’ll do. Last week, a state commission recommended that the government stop paying health care providers for each procedure and instead compensate provider networks with a flat fee per patient. Of course, such a system of global payments, or “capitation,” encourages provider groups to skimp on care, as they get to keep as profit any money not spent treating patients.

If congressional Democrats get their way, every American can look forward to a similar system of capitation in the future. This would upset the care of 85% of Americans who are currently insured and greatly increase government control. Exactly the results Democratic leaders assure can’t possibly happen.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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