Cover Story
Mass. Appeal?The state's health reform plan sharply cut the number of uninsured residents. It also raised costs, threatened safety-net providers and brought other unintended consequences. What are the lessons for national reform?
By one important performance measure, the Massachusetts health reform of 2006 succeeded beyond many expectations. In mid-2008, just 2.6 percent of state residents lacked insurance coverage, down from 9.8 percent in 2006, according to a state report.
Overall, 439,000 were newly insured. These included 72,000 added to MassHealth, the state’s Medicaid program, which raised eligibility from 100 percent to 150 percent of the federal poverty level; and 176,000 in CommCare, a new subsidized program for those between 150 percent and 300 percent of poverty. Another 18,000 obtained insurance through CommChoice, the new state insurance “connector” offering standardized plans to individuals and small businesses, while 14,000 more bought individual polices on the open market. Many more obtained employer-sponsored coverage, particularly among lower-income workers. The federal poverty level in 2008 was $22,017 for a family of four.
Reform also improved access through its first year, according to an Urban Institute study by Sharon Long. From fall 2006 to fall 2007, the percentages of people reporting a usual source of care, receiving preventive services and receiving dental services all rose. Those reporting unmet medical needs due to cost fell from 36 percent to 30 percent, though the percentage of low-income respondents reporting difficulty finding a physician who would see them rose from 4 percent to 7 percent. Long also found that out-of-pocket costs dropped for most groups.
“We are now the national leader in coverage,” says Lynn Nicholas, president of the Massachusetts Hospital Association. “I would very much like to see something like we have done extended to the whole country. I think that requiring that all individuals have coverage and facilitating it for those who don’t have the means to do it alone is critical to improve health status.”
Nicholas’ sentiment is shared by many—perhaps most importantly by U.S. Senate Finance Committee Chair Max Baucus (D-Mont.) and the Obama administration. Both advocate building on existing insurance mechanisms using elements of the Massachusetts plan, including subsidized low-income coverage and a national insurance connector, though they differ on individual and employer mandates. Both also favor a Medicare-like public plan to compete with private insurers for non-elderly enrollees.
But three years into Massachusetts’ bold reform experiment, significant cracks are showing. They include escalating costs, growing concerns about underinsurance for some low- and middle-income groups, and an unintended but severe impact on some safety-net providers. If anything, many of these issues will be even more pronounced in states with higher uninsured rates and fewer available Medicaid dollars.
Moreover, Massachusetts political leaders made a conscious choice at the outset not to tackle cost containment for fear it would alienate critical stakeholders. In the face of an economic downturn, coordinated cost containment efforts are just getting under way.
With the U.S. economy facing even greater financial pressure, these issues have the potential to derail national reform. They will need to be addressed to create not just financial sustainability, but also to ensure continuing access to quality health care services.
“When you design a federal program, you have to make sure it works in states with high uninsured rates,” says James D. Bentley, senior vice president of strategic policy planning for the American Hospital Association. “You can’t just look at states like Minnesota and Wisconsin. You also have to look at Texas, New Mexico and California.”
Cost and Consequences
In the short run, Massachusetts’ reform has done little to slow inflation, according to an Urban Institute study by economists John Holahan and Linda Blumberg. Rapidly escalating costs threaten public budgets and encourage premium and cost-sharing hikes that make private coverage increasingly unaffordable.
Original budget projections for the Massachusetts program were $160 million in fiscal year 2007, $400 million in FY2008 and $725 million in FY2009. At $133 million, actual costs came in lower for 2007, but shot up to $625 million in 2008. The state funding request for 2009 was $869 million, with some estimating that actual costs could reach $1.1 billion. Much of the increase results from higher-than-expected enrollment in MassHealth and the subsidized CommCare programs, possibly because of underestimates of how many people would qualify. With the state about $4 billion short of a balanced budget this year, sustaining these numbers is a huge challenge.
One result: The state rescinded promised Medicaid payment increases. As in most states, Medicaid and Medicare already paid below hospital costs. Nicholas estimates that MassHealth reimbursements are now below 70 cents on the dollar and falling.
This has precipitated the near-collapse of several safety-net hospitals. According to the market-based theory underlying Massachusetts’ reform, hospitals serving many uninsured and low-income patients would no longer need Medicaid disproportionate share or state uncompensated care pool funds because most of their patients would now be insured. But that’s not the way it worked out, says Dennis D. Keefe, CEO of Cambridge Health Alliance.
While fewer uninsured patients now use the three hospitals and network of community care centers that CHA operates, most of them ended up with MassHealth or subsidized CommCare, which pays near Medicaid rates. This leaves CHA’s payer mix at 85 percent government-sponsored programs that do not cover costs. On top of that, the system operates about half of the mental health beds in the state. Most of these patients are publicly funded at rates that Keefe estimates cover about 60 percent of costs. The only thing keeping the system afloat are disproportionate share payments scheduled to phase out by 2010.
Cambridge this year began facing a $55 million state funding cut—on top of $30 million in operating losses. To help close the gap, about 300 positions were cut. Inpatient services are being eliminated at one hospital; six community clinics are being closed or consolidated; several specialty clinics are being consolidated; and several mental health inpatient units are being consolidated and one is being closed, as is a substance abuse unit. This at a time when patient volume in Boston’s 34 federally qualified community health centers is up sharply, according to a Kaiser Family Foundation study.
“I think everyone fell in love with this idea that all you have to do is provide insurance and you automatically solve the access problem, so you don’t need publicly subsidized hospitals,” Keefe says. “They didn’t really analyze why we were receiving these subsidies in the first place.” He believes the transition to the administration of Gov. Deval Patrick, elected in 2006, as the plan was getting under way magnified implementation glitches.
Boston Medical Center faced a similar fate, says Tom Traylor, vice president of federal, state and local programs at the 626-bed facility. Serving about 150,000 low-income patients, Medicaid is about 60 percent of Boston Medical’s payer mix, covering on average about 64 percent of costs. “These programs are losing us $175 million this year,” he says. In response, the hospital cut 250 positions and $60 million from its budget last year and plans additional cuts this year. “It’s difficult. You can’t just cut programs because that also cuts revenue,” Traylor adds.
This spring, Patrick unveiled plans to restore some of the lost DSH and Medicaid cuts using federal stimulus funds. Subject to legislative approval, Boston Medical is to get $60 million and Cambridge $40 million with another $40 million for other hospitals in the state. With this money and its budget cuts, Keefe believes Cambridge will be OK.
“People have recognized the problems and tried to work through them, and that is positive,” he says. Whether the fixes stick past 2010, when the stimulus money runs out, is another question. “I would say that the end of the story has yet to be told.”
The Underinsured
Underinsurance is also emerging as a problem for some populations, notably those between 150 percent and 200 percent of the poverty level, and those just above 300 percent, Arthur MacEwan, professor of economics at the University of Massachusetts Boston, told a congressional panel on health care reform early this year. “Reform helped some people but it hurt others,” he said.
Under the state’s previous free care pool, the threshold for copayments was 200 percent of poverty. It is now 150 percent. Even small copayments can be a strain at this income level, MacEwan said. “If you have four people with a couple of chronic conditions needing several prescriptions, it adds up for a family with a $32,000 income.”
The biggest access problem may be physician specialty care because of low Medicaid and CommCare rates, Traylor adds. “A CommCare card is not the equivalent of a Blue Care card.”
Similarly, families just above the 300 percent level get no subsidy and face high premiums and copayments through the insurance connector. Currently, Boston monthly premiums for family coverage through the connector range from $959 at the “bronze” level , $1,500 to $1,800 for “silver” and $2,300 for “gold.” Most bronze plan deductibles run $2,000 per individual and $4,000 for the family. Hospital and drug copayments are also high. For a family of four earning $70,000, the bronze premiums alone run about 19 percent of after-tax earnings, MacEwan told the congressional panel.
“They may be no worse off than before, but this reform does not solve this very severe problem these families face,” he said.
Recognizing this, the Massachusetts reform includes a sliding affordability scale. Residents are exempt from the individual mandate fine, which this year went above $1,000, if there is no policy available below what is deemed an affordable price for their income level. Last year, 69,000 residents received such waivers, or nearly four times as many as those who bought insurance through the connector.
This year, the affordable premium tops out at $820 for families with incomes between $93,600 and $114,000. So at current Boston premium prices, all families with incomes below $114,000 are exempt from the individual mandate—the same mandate that many policy experts say is essential for a successful private insurance-based system. As costs go up, the numbers falling into this “unaffordable” category will only rise.
Preserving the Upside
Still, there’s no denying the Massachusetts reform has helped hundreds of thousands of residents gain insurance coverage. Public support is high, at 75 percent. Reform also has not driven out private insurers as some feared, and the connector works, AHA’s Bentley points out. In fact, employer-sponsored coverage has increased—72 percent of the state’s employers offer coverage compared with the national average of about 60 percent.
The proportion of costs paid by individuals, businesses and government did not change from 2005 to 2007, according to a University of Massachusetts Medical School study. However, overall health care spending rose 23 percent in the period. The state’s per capita average is about one-third higher than the national average, though some of this may be attributed to the high cost of living there. David Himmelstein, M.D., a Cambridge physician and Harvard associate professor, believes an economic downturn brought down a previous Massachusetts reform effort, as it has in several other states, and that this effort is also doomed. In any case, sustaining Massachusetts’ gains requires taking on the cost issue.
MHA’s Nicholas says hospitals are ready. “We are very proud of what we have done. There are many challenges, but we need to hold onto the progress we have made.” Doing so will require changing the delivery system over time to create a better health care product that reduces both clinical variation and costs, she added. “We do believe payment reform is a very important lever to achieve that.”
A state Payment Reform Commission, including providers, insurers, physicians, employers and patient advocates, is now developing payment plans that encourage coordination of care and cost containment. Pay for performance, capitation and other models that incentivize both efficiency and improvements in quality of care are all on the table. The commission is slated to make recommendations to the state legislature late this spring.
Nicholas says administrative costs also need to come down. “We have been very vocal about standardizing coding, billing and credentialing among all payers,” she says. A voluntary stakeholder coalition is working on that.
Medicaid also must pay costs, she says. “Before the national economic crisis, we were moving in the right direction, but we’ve lost all that ground.”
The Urban Institute’s Holahan believes that the real problem in Massachusetts is limited competition. Both the state’s provider and insurance industries are highly concentrated based on Federal Trade Commission measures, his analysis finds. Possible solutions include a public insurance program to compete with private payers—an anathema to insurance companies, and an issue on which the AHA is undecided, Bentley says. “We are going to the regional policy boards and listening before we take a position on this,” he says.
An all-payer system, enhanced managed competition and allowing all publicly funded and connector plans to negotiate collectively with providers are other cost control options, Holahan writes. Keefe believes an all-payer system would help, and Himmelstein supports a single-payer approach.
Despite these issues, the Massachusetts reforms to date were probably easier to enact than other state and federal efforts will be. In addition to relatively few uninsured, the state had a robust Medicaid program and federal Medicaid waiver funds to draw on for financing and it didn’t try to contain costs. Massachusetts also had—and still has—wide bipartisan support for its plan, an advantage much less likely at the federal level, even if aggressive cost controls are left out of the initial round.
“We have been very progressive,” Nicholas says. “The level of support from everyone is higher here than in many other states. The hill is steeper for them to climb.”
—Howard D. Larkin is a writer in Oak Park, Ill.
This article 1st appeared in the May 2009 issue of HHN Magazine.
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