Devotees of big government, like Archimedes, believe that if they have a long lever and a place to stand, they can move the world.
In 2006, a bipartisan band of such politicians in Massachusetts immersed themselves in wishful thinking, ignored both hard facts and proven theory, and used their political muscle to build bureaucracy, increase taxes, and aggregated power to remake health care in the Bay State.
President Obama, House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid took the act nationwide with the passage in March 2010 of the Patient Protection and Affordable Care Act. Like the canary in a mineshaft, Massachusetts provides a strong indication of our fate.
By now, Bay Staters should be celebrating reform. It promised to benefit all. The bureaucrats would design and broker affordable health plans, doctors and hospitals would get a bump in Medicaid rates, and the uninsured would no longer be a burden.
The system was cracked from the beginning, its promises undelivered even as it picked the pockets of business owners and taxpayers. The crack turned into a chasm this spring, when the state’s private carriers filed for double-digit rate increases for individual and small group plans.
This incensed Democratic Gov. Duval Patrick and the bureaucrats who simply said no. A court upheld their authority, and carriers were forced to continue at 2009 prices, booking loses daily.
They are still fighting in court, and another ruling is expected on the applications for rate increases on plans this summer.
In early June, two large carriers came back with more double-digit increases for plans renewing in July. They expect them to be declined. They are simply positioning themselves for a two-front war: One with the regulators and one with the providers they pay.
The system is inherently unstable and primed for a series of nasty fights. Like dry season at an Everglades watering hole, all the players confined in a tight space, hungry, and all eyeing the same receding resources. Like this tight ecosystem, the players will start to feed on each other, as survival of the politically-fittest takes hold.
This is the case in Massachusetts now. The state’s four largest carriers are hemorrhaging $150 million a month. Roughly a third of contracts are up for negotiation and they are pushing for givebacks.
Providers are crying poor. Reform actually hurt their numbers, as most of the newly-insured enrolled in government-run and subsidized plans under Commonwealth Care that pay less than the actual cost for care.
When you lose money on every unit, you can’t make it up on volume. Traditionally, the cost has been shifted to those with private insurance, but those days are over.
Hospitals and clinic operators maintain that two-thirds of the monies they collect are simply passed on to doctors, nurses, and other essential staff. Cuts here are akin to cuts in wages. Wage cuts will be resisted. The unionized will strike. Those who aren’t will slow down on the job. Doctors will reduce their level of service and some will take early retirement.
The political and bureaucratic response is naturally to clamp down with more control. Massachusetts’ political leaders and activists are making a strong push for a structure of mandatory global payments, which is merely a state-dominated HMO or single payer system. This, they claim, is the next logical step of health care reform.
Meanwhile, a bill in the state senate would force doctors to accept cut-rate reimbursements for Medicaid patients as a condition to practice medicine in the state. When voluntary exchange doesn’t work for politicians, they move to conscription.
In Massachusetts, it took four years to get to this point, and it’s certainly a downhill slide from here. Nationally, Obama’s bureaucrats are just getting started. The administration has yet to comply with the law’s requirement that it detail the myriad of powers it’s been granted, yet it has put the bureaucrats in place to get the job started.
While Obama did not get his Health Insurance Rate Authority into the final bill, the newly-created Office of Consumer Information and Insurance Oversight within HHS will perform the same function.
The new authority has been staffed at the top by four individuals known to be tough on private insurers and more comfortable with the views of Ralph Nader than Adam Smith.
Former Missouri Insurance Commissioner Jay Angoff is the head watchdog. We can expect this team to pick up where Obama and Democrats in Congress left off beating up the insurance carriers including writing regulations to define when premium increases are reasonable.
At the end of the day, the carriers are merely pass-through entities that are necessary to administer the system. They will probably survive but, like regulated public utilities, will be guaranteed after their Medical Loss Ratios (the percentage that an insurer must pay out in claims) and administrative costs are controlled by government, a modest surplus for their efforts. The ultimate payers will be consumers and taxpayers, who will either pay more for less or more for nothing at all. What happens in Mass won’t be staying in Mass.
Sally C. Pipes is president and CEO of the Pacific Research Institute, and author of The Top Ten Myths of American Health Care.