Massachusetts balancing act
We’re getting into the devilish detail part of the new Massachusetts health care law that aims for universal coverage. The Commonwealth Health Insurance Connector is setting rates for lower income residents and an argument is brewing over whether the proposed rates are too high or too low.
The Connector is trying to pull of a tough balancing act:
- If rates are too high, people won’t be able to afford insurance, and the problem of the uninsured will remain
- If rates are too low, some employees who are offered insurance through their employers will find it is cheaper to skip the employer coverage and buy the state-subsidized plan. That will drive up costs for the state and undermine the incentives for employers to provide health insurance
The root cause of this dilemma is high health care costs. If costs were lower premiums would be more affordable to lower income residents and to employers. For the health care law to succeed, costs are going to have to be brought under control. After all, with health care costs rising faster than incomes, the balancing act of rate setting will be harder every year. Not only that, if the state is unable to negotiate “affordable” premiums with health plans then the requirement to purchase health insurance is off, and we’re back where we started.
As this debate was coming to a head, it was interesting to see the reporting on the NEJM article asserting that health care in the US is a good deal. Lead author, Harvard Economist David Cutler was quoted as saying:
“The rising cost of health care has been the source of a lot of saber rattling in the media and the public square, without anyone seriously analyzing the benefits gained. But the dramatic increase in life expectancy that we’ve seen over the last decades shows that rising medical costs have been largely justified”
That statement is fine as far as it goes, but it’s comparing the rate of growth of costs with the rate of improvement of life expectancy, rather than looking at absolute cost and life expectancy levels. In classic economist fashion, that assumes away two problems:
- Other countries have higher life expectancies and much lower health care costs
- Costs are so high that implementing programs like the health reform law in Massachusetts is extremely difficult