Health Care Reform Center

Joel S. Weissman, Ph.D., and JudyAnn Bigby, M.D.

Massachusetts has long been known for its academic medical centers, biomedical research, high-quality health care, and perhaps not unrelatedly, high health care costs. In 2006, the state captured national attention when it passed a landmark health care reform bill, under which it has achieved near-universal coverage of state residents. Some observers, however, have questioned whether this reform has been too costly.

The Massachusetts reform law expanded Medicaid coverage; created state-subsidized insurance, called Commonwealth Care, for low-income persons who are not eligible for Medicaid; merged the individual and small-group insurance markets; instituted an employer “fair share assessment” and an individual mandate; and created the Commonwealth Connector, an insurance exchange that also sets standards for coverage and affordability. Under this reform, nearly universal coverage has been achieved, with 97.3% of all residents covered as of the spring of 2009 by health plans that meet a “minimum creditable coverage” standard. There is no evidence of private insurance “crowd-out,”¹ and access to care has increased, with fewer people encountering financial barriers to care.² Nevertheless, under the microscope of the national health care reform debate, questions have been raised about the appropriateness of the Massachusetts model for the country as a whole, given the costs of the program for individuals, employers, and the state; some have also questioned whether recent actions to reduce costs represent a retrenchment as compared with the law’s original intent.

Spending in fiscal year 2008 was higher than expected and led to fears of rapid future growth and charges that the crafters of the reform had underestimated the size of the uninsured population and its needs. It is now recognized that Commonwealth Care’s early spending growth was due to effective marketing and outreach campaigns, which made it easier than expected for people to enroll in public programs.³ Commonwealth Care enrollment reached a peak of 176,000 in mid-2008, declined in early 2009, and has returned to its mid-2008 levels in recent months. Through fiscal year 2010, the increase in the annualized per-enrollee cost has been under 5%.

The media have raised a more fundamental question about whether Massachusetts’ experiment is too expensive — a “budget buster.”⁴ The only responsible way to address this question is to assess the new burden on state taxpayers by examining the net new costs to the state’s general fund (see table). Before reform, the state provided about $1.4 billion annually in subsidies to institutions to cover services for the uninsured, about $33 million of which came out of the general fund. After reform, with revenues redirected to support Commonwealth Care subsidies and expansions of MassHealth (the Massachusetts Medicaid program), a decrease in spending on the uncompensated care pool, and a phasing out of subsidies for managed-care organizations associated with safety-net institutions, the net new spending was $591 million, of which $172 million — less than 1% of the state budget — came from the state’s general fund. With all spending projected to decrease in fiscal year 2010 because of recessionary belt-tightening, the draw on the general fund will decrease substantially.

Moreover, a central premise of the formative political negotiations over the Massachusetts reform was “shared responsibility” — and indeed, a recent report showed that employers, government, and individuals pay approximately the same proportion of health coverage costs after reform as they did before reform.⁵ In fact, only about half of the more than 400,000 residents who gained coverage by December 2008 were publicly subsidized. From this perspective, the individual mandate and employer incentives have provided good value for Massachusetts taxpayers, costing about $1,060 in net new state spending per newly covered state resident in 2008. The state succeeded in enacting a government program that stimulated private parties to use private dollars to help fulfill a public good.

Of course, the recession has created substantial challenges. Facing a deficit of more than $5 billion over 2 years, the Massachusetts legislature imposed major cuts in funding to subsidize coverage for about 30,000 legal immigrants who had qualified for Commonwealth Care but are not eligible for the federal Medicaid match. MassHealth has also had to eliminate certain planned increases in provider payment rates that were not part of the original reform legislation. Like other states facing economic difficulties, Massachusetts is raising new revenues, using reserves, and taking advantage of increased federal assistance. The state has also made cuts across the board, including reducing aid to cities and towns, reducing the number of state workers, and increasing cost sharing for state employees’ health insurance. In this context, reductions in core funding for health care reform were not extraordinary and do not signal a retreat from the original commitment.

There is little doubt that the high cost of care in Massachusetts is causing major strains. From 2006 to 2008, the average price of a family insurance premium increased by more than 12%, and premiums increased by about 10% statewide this autumn. If insurance becomes less affordable, the number of people who are exempted from the individual mandate could increase. Some small businesses have reportedly suffered hardships in providing insurance for employees and say that rising premiums could threaten their continued participation. But costs were high before health care reform. In contrast to the state’s approach to expanding coverage, its cost-control strategies have been incremental, and costs must now be seriously addressed.

Massachusetts was unusual in 2006 because it already had a low proportion of uninsured residents, a highly regulated insurance market, and an uncompensated care pool. Nevertheless, the national debate could be informed by our experience.

First, the philosophy of shared responsibility behind our reform provides a sense of fairness and allows government spending to be leveraged to accomplish societal goals. The individual mandate works hand in hand with employer incentives to expand private coverage, as long as government subsidies are available for low-income individuals. For example, initially, the greatest number of newly insured individuals obtained coverage through their employers rather than the individual market, suggesting that more employees decided to take up their employers’ offer of insurance, quite possibly to avoid the mandate’s tax penalty. At the same time, though the employer assessment did not increase the number of firms offering insurance, neither did the number decrease, as many had feared, perhaps because employers did not want to force their employees to buy insurance on the individual market at higher rates. How this plays out in national reform will depend on the design of the incentives. Massachusetts employers in 2006 were more likely than employers nationally to offer insurance. If national reform were to include policies that achieved rates of employer offers and employee take-up similar to those in Massachusetts, it could have a substantial effect on spreading the costs and reducing the government’s burden.

Second, the cost of national health care reform should be framed in terms of new expenditures and predictable funding streams that can be redirected to other uses. These should include, at a minimum, projected savings, at all levels of government, from potential reductions in the costs of paying for public clinics and uncompensated care. Savings from the latter should also accrue to private entities.

Third, the changing roles and funding schemes for the safety net must be addressed head-on. Uninsured patients will not disappear and will have needs. Safety-net providers will find it challenging to continue functioning, given their dependence on Medicaid and Medicare, which pay lower rates than commercial insurance. One goal of reform should be to decrease cost shifting.

Finally, national reform must support the gains made in Massachusetts by supporting the building blocks that made change successful: expansion of Medicaid eligibility, subsidies for the poor, the individual mandate, and fair-share employer contributions.

In Massachusetts, achieving near-universal coverage was the right first step, providing thousands of residents with access to care and protection against financial uncertainty due to medical bills. Now, tackling costs has risen to the top of the agenda. As we move toward national health care reform, we must balance individuals’ needs for high-quality care with the obligation to be socially and fiscally responsible.

Dr. Weissman is a senior health policy advisor at the Executive Office of Health and Human Services, Commonwealth of Massachusetts; and Dr. Bigby is the Massachusetts secretary of health and human services. No other potential conflict of interest relevant to this article was reported.

Source Information

From the Massachusetts Executive Office of Health and Human Services, Boston.

This article (10.1056/NEJMp0909295) was published on October 21, 2009, at NEJM.org.

References

1. Gabel JR, Whitmore H, Pickreign J, Sellheim W, Shova K, Barrett V. After the mandates: Massachusetts employers continue to support health reform as more firms offer coverage. Health Aff (Millwood) 2008;27:w566-w575. [Free Full Text]
2. Long SK, Masi PB. Access and affordability: an update on health reform in Massachusetts, Fall 2008. Health Aff (Millwood) 2009;28:w578-w587. [Free Full Text]
3. Massachusetts health reform: the myth of uncontrolled costs. Boston: Massachusetts Taxpayers Foundation, 2009. (Accessed October 20, 2009, at http://www.masstaxpayers.org/publications/health_care/20090501/massachusetts_health_reform_the_myth_uncontrollable_costs.)
4. Tanner MD. Massachusetts miracle or Massachusetts miserable: what the failure of the “Massachusetts model” tells us about health care reform. Washington, DC: Cato Institute, 2009. (Accessed October 20, 2009, at http://www.cato.org/pub_display.php?pub_id=10268.)
5. Seifert R, Swoboda P. Shared responsibility. government, business, and individuals: who pays what for health reform? Boston: Blue Cross Blue Shield of Massachusetts Foundation, 2009.