March 21, 2008

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The State’s Universal Health Care Program Needs TLC Itself

Graham Ramsay Joseph Ladapo

Massachusetts health insurance reform, still in its infancy, is stumbling and struggling to maintain its balance. The universal insurance program that was boldly proposed by then Governor Mitt Romney and approved by the legislature is now experiencing growing pains, bowing under the weight of heavy enrollment and unexpectedly high costs. Despite these challenges, however, the Massachusetts health insurance program ultimately represents an important experiment in health policy, and lessons learned from its successes and failures will benefit states across the nation.

The Massachusetts plan was enacted nearly two years ago amid a convergence of ideals held by government officials and political activists. The brainchild of Mitt Romney, it laid out a plan to both reduce the number of uninsured residents and control costs, relying primarily on a business case to win appeal: the half million or so Massachusetts residents who were uninsured before the legislation was passed still consumed health services, often in costly settings like the emergency room. Frequently unable to defray their medical bills, these patients passed on their unpaid expenses to hospitals, which internalized some of the burden (resulting in lower profits) and passed on the remainder to taxpayers and insured patients (resulting in higher prices and premiums). Romney argued that insuring these patients would lead to more efficient care utilization and could be achieved at the cost of their unpaid bills.

A New Necessity

Driven by an individual mandate, the Massachusetts insurance initiative requires that individuals obtain health insurance, and they can meet this requirement through private offerings or employer-sponsored plans. Frequently, individuals and families cannot afford to purchase health insurance in private markets because these plans are prohibitively expensive. But the Massachusetts reforms include the creation of subsidized health insurance plans and expansion of Medicaid, putting coverage within most residents’ reach. To help facilitate this transition, the law utilizes a carrot-and-stick approach, coupling the subsidized health plans with fines for residents who fail to comply.

So now that the reform is in full stride, where have things gone wrong? The biggest problem thus far is a large budget shortfall, which appears to be the result of a gross underestimation of the number of uninsured residents in the state. Massachusetts legislatures designed the program using estimates of the size of the uninsured population that were, for reasons that are unclear, lower than federal estimates. Now, new enrollees in the subsidized plans have far outpaced projections, and costs have risen considerably as a result. According to Joseph Newhouse, an HMS professor of health care policy and the John D. MacArthur professor of health policy and management at HSPH, “more people took up the fully subsidized product than was projected because there were more uninsured in that income range than had been estimated.” He also said that utilization of the uncompensated care pool has been greater than expected.

The Falling Safety Net

The uncompensated care pool, which is used by hospitals to pay for the care of uninsured patients, is generated through a combination of taxpayer contributions and assessments on insurance companies and hospitals. Given the new reforms, however, the state has reduced the amount of funding designated for this pool, but costs have not fallen as rapidly as expected. Now, some of the “safety net” hospitals that have traditionally taken care of low-income residents no longer have the resources to support these patients.

These challenges are surmountable and ultimately must be overcome, though the path toward solutions is uncertain. Governor Deval Patrick is currently negotiating with the federal government for additional funding, and his administration is also considering cutting payments to physicians and hospitals. No matter what the outcome of these measures, the Massachusetts program stands as a bold initiative—an experiment—which other states can watch as they devise their own strategies to address the crippling problem of uninsurance.

—Joseph Ladapo is a Harvard medical student and a PhD student in health policy.

The opinions expressed in this column are not necessarily those of Harvard Medical School, its affiliated institutions, or Harvard University.

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Copyright 2008 by the President and Fellows of Harvard College