Recognizing that controlling health care costs is a shared responsibility, the bill provides oversight of health insurance company and provider rates by the Division of Insurance and the Division of Health Care Finance and Policy, respectively. Oversight of the reasonableness of rates charged by both insurers and providers, a temporary two-year measure, is meant to exert downward pressures on escalating health care costs as the Governor and the Legislature continue to move toward systemic changes to the state’s health care payment system. For a period of two years, this oversight triggers a presumptive disapproval for those health insurer and provider rate increases that exceed benchmarks based on the prior year’s consumer price index for medical services (2009 medical CPI is 3.2%). These rates would be disapproved, unless there is a compelling reason not to. Requires the Commissioner of Insurance to examine small business health insurance rating factors and prevent any duplicative or unjustified administrative charges that may drive up costs for small businesses. The legislation also empowers the Commissioner of Insurance to protect small businesses from rate shock caused by drastic increases in premiums driven by changes in the composition of their workforces (particularly the age of their workforces). A two year moratorium on the adoption of any new mandated benefits. Beginning in July, the bill gives smaller companies the choice of more affordable plans by requiring health insurance carriers in the small group market to offer at least one selective network plan with premiums that are at least 10 percent lower than the premiums for the full network product. Requires insurers to establish bi-annual open enrollment periods for individuals who purchase individual coverage to encourage people to maintain their health insurance.
And how badly does something need to be done? This is from the Gov’s testimony.
A woman wrote me from Hopkinton the other day. She told me about her husband’s small business located here in Boston. His business’s premiums just went up 41.17%…. The owner of a physical therapy business on the Cape got notice her premium would increase by 35% this month. In Pittsfield, a broker saw a health insurance premium increase of more than 90% this month. In Lawrence, a self-employed, single mother’s premium increased by 44%….
The Gov summed up the situation as follows:
Members of the Committee, enough is enough. On the main streets of the Commonwealth, we have an emergency on our hands. We can debate the whys and the hows of health care increases, but the strivers who are investing their energy, their time and their money to help the Massachusetts economy flourish can wait for answers no longer.
We filed our proposals in a Jobs Bill for one reason: Without small business, we will have no economic recovery. Small businesses and sole proprietorships make up 85% of businesses in our Commonwealth. If they don’t start hiring, complete economic recovery will elude us. Next to access to capital, soaring health care costs are the consistent reason given for why they can’t see their way to add more jobs. Thanks to the recommendations of the Payment Reform Commission, we have a good path to a permanent and comprehensive fix to escalating health care costs. But small businesses and families need help now-as a bridge to payment reform.
We recognize that controlling health care costs is a shared responsibility between insurance companies, providers, businesses and government. But our goal is simple: lower health care costs now, freeing up resources for businesses to hire new workers and spark growth for our Commonwealth.
And so Patrick’s winning streak continues. This bill strikes me as a political home run — and if the legislature actually passes it, it might do some real good. And the Gov is taking the opportunity to ask hard questions of his opponents — exactly what he should be doing. Looking forward to hearing what they have to say in response.
have proposed rate hikes of “8-32%”, which appeared to be subject to approval or disapproval of the Governor’s office. That’s the impression I got from the story, anyway. At the time it occurred to me that this is a make or break moment for Deval- will he stand up to insurance companies or not? Has there been any indication what’s going to happen with those proposed increases?
About that business model Reining in costs requires changing the business model, not just rearranging chairs on the deck.
where the Governor wants them. Much better view of that lovely iceberg, for instance.
I don’t see how that is rearranging chairs.
This is definitely something to hammer home in defining candidate Baker.
<
p>Yes, he has blogged about it many times and I do agree with some of what he has to say about transparency, but ultimately he hasn’t done a thing. His actions while at HPHC have caused significant increases to the cost of health care.
<
p>Here is the Herald’s and Lenny’s best spin in response:
<
p>So Lenny is there a second step anywhere? That’s it, that’s all you can come up with in response? That’s pretty damn pathetic.
<
p>The fact of the matter Governor Patrick has posted cost information online per the recommendation from the Health Care Quality and Cost Council which Charlie Baker was a member. A few years back Baker heralded this at the solution to health care cost issues. How’s that going Charlie?
<
p>I’m not arguing that transparency is not good, I think this is a great idea, but this is not the solution.
<
p>Case in point, today’s Globe article about the skyrocketing costs on imaging and the impact on outpatient care costs. Governor Patrick commissioned a study as to why costs were growing so rapidly and found that insurers like HPHC and hospitals are charging more for digital imaging when there is no evidence that it has any benefits over traditional ones. Hospital also use digital imaging when lower cost alternatives such as an X-ray is all that is needed.
<
p>So Charlie why did you agree to skyrocket costs for outpatient services with no difference in outcome?
Baker points to how local governments have cut jobs and have made sacrifices when he makes the argument that the State needs to cut jobs as well but he seems to care little for one of the leading reasons why these cities and towns have had to cut budgets and jobs. Skyrocketing health care costs starting in the late 90’s (from what I could gather) are crushing municipal budgets. When I sat on the Chelsea City Council I remember being stunned when I saw these double digit jumps, the graph looked like a pre bust Silicone Valley technology stock.
<
p>A small business only has so much capitol, if their rates are raised %40 every year while business declines how are they supposed to hire more employees?
You know- pay cuts, layoffs, doing more with less, that kind of thing. Maybe the CEO’s agree to shave a million or so off their salaries. How’s the recession been treating the insurance companies themselves? Are they feeling the pain, or just passing it along to us?
not only caps insurance at its already outrageous rates, but is the only tested proven method of lowering costs.
Not saying we don’t have cost problems. But capping prices by government fiat has been shown since the beginning of time NOT to affect cost, only reduce supply. Any student of economics can draw the supply and demand curves for you to prove this.
<
p>Health care — hospitals, doctors, Rx, nurses, bed pans — cost X. Capping insurance prices doesn’t affect those costs. It’ll only make insurance harder to secure. Is this not self-evident?
<
p>If you’re going to make the argument that the mean insurance companies jack up X to 2X, then figure out a way to let me pay for health care in an open market. Like Whole Food’s popular Health Savings Accounts. And the Indiana state employees HSA program (70% of the 30,000 Indiana state workers chose it voluntarily.)
<
p>I reach back to the Nixon and Ford administrations which tried to control costs by mandating prices. The results were shortages and inflation, not lower prices.
<
p>Rent control created a shortage of housing, and increased dramatically the cost of uncontrolled rentals. It never controlled overall housing costs.
First, the Gov’s bill applies to the rate of increase of the cost of health care itself as well as insurance. If it was just insurance, it wouldn’t work, as you point out. (Plus, they already have the authority to cap insurance, so they wouldn’t need a bill.)
<
p>Second, this is a temporary solution — two years, IIRC.
<
p>Third, if AIM is on board (which they are), it’s hard to imagine that this is as straightforward as you say.
<
p>What? He’s going to dictate nurses’ wages? Set MRI prices? Determine the shrink’s hourly fee? Drop bed pan prices by 7%
<
p>How is this politically possible? How is it bureaucratically possible?
<
p>And isn’t there a little bit of a problem interfering with existing contracts? See US Constitution, Article 1, Section 10.
AIM has come out for a firm price cap on medical services (which is truly, truly amazing).
<
p>I don’t believe the Gov’s proposal does that. It caps total insurance premium increases but in essence lets the insurers figure out how make those numbers work in their negotiations with providers. It vaguely reminds me of “managed competition, within a budget” for those with long memories.
<
p>The real problem with the market right now is that the insurers lack “walk away” bargaining power with certain, perhaps most, providers. Some of that is because of consolidation (cough, Partners). But honestly most of it is because customers insist on seeing any doctor they want, or going to any hospital they want, without paying extra for it. Back in the 90s, insurers tried to create low-cost managed care networks and were willing to drop providers who refused to agree to reasonable terms. It was good for the big-picture costs problem. But people who were affected got pissed; they called their HR departments, who in turn got pissed; and the companies threatened to change insurers. Insurers also undertook a lot of other, more questionable, cost-control measures like drive-by deliveries. So now, insurers no longer try to drive a hard bargain; the HMO model has become the PPO model (and everyone is “preferred”); and they’ve found it’s just easier to pass along rate increases. An 8 vs. 10 percent premium increase just doesn’t result in the same blowback as dropping certain peoples’ doctor or hospital from insurance coverage. It’s similar to the public choice paradox of concentrated costs, diffuse benefits. We’ve met the enemy, and it is us.
Around 1:00 into the video clip. Did I misunderstand?
I notice you’re talking about things, rather than people. Rent control may have caused a shortage of housing, but also a “shortage” of homeless people.
Sorry. It kept the turnover of controlled units at zero, while the rents on uncontrolled units soared. Cambridge had Draconian rent control, hardly ANY new rental housing stock was created until rent control was abandoned.
<
p>New York has very strict rent control. They also have a lot of homeless.
But rent control was an unmitigated disaster.
<
p>Take economic fairness for instance: Rent Control created arbitrary sets of “insiders” and “outsiders” and one group was basically subsidizing the other’s rent, even though the “insiders” were often better off than the “outsiders” (think young people, immigrants). Charlie Rangel had four rent controlled apartments. Why on earth is he entitled to this when some 22 year old kid in NY is paying 75% of his salary to live in a shoebox?
My concern is price caps on insurance and medical services, however “soft”, create the same distortions.
<
p>If you put a price cap on, you do in fact reduce price (if the cap is below the market clearing price). The problem is that you create a shortage. At the lower price, you have both less demand and more supply, assuming both curves have slopes strictly between 0 and infinity in the region in question.
<
p>
<
p>For candy bars and pickle jars and fancy cars, it is self-evident. After all, while the marginal benefit decreases with quantity, it remains positive. Who wouldn’t want more candy bars or pickle jars or fancy cars? These are known as normal goods.
<
p>It isn’t, however, so clear with health care. Why? For starters, the marginal benefit of an increased quantity is zero. If I need a kidney treatment, I only need one. The second one is worthless, or even of negative value. If I need 100 pills, I need 100 pills. The 101st is worthless. Health care is sometimes neither a normal good nor an inferior good. I mentioned the other important difference above — the demand curve for health care, depending on the severity of the condition, may very well be vertical. If a loved one of mine needed a procedure or faced incredible pain or loss of life, I’d sell everything I own to help pay for it.
<
p>
<
p>
S-D curve for bars, jars, and cars.
<
p>
S-D curve for kidney transplants.
<
p>See the difference? In the first one, the quantity demanded is a function of price. Cheap pickle jars? Sign me up for extra! For kidney transplants (and loads of other medical procedures), it doesn’t work that way. Consumers are strict price takers. If health care providers (or insurers) raise the price, there’s nothing the consumer can do but pay extra.
<
p>In these situations, competitive marketplaces should keep the market in check anyway — if Alpha insurance is collecting rent by charging too much, then Beta insurance comes in with a slightly lower supply curve and captures the market. The two agents, if not colluding, will drive price down to a non-rent-seeking price anyway.
<
p>But, herein lies the problem. There isn’t a competitive insurance market in many states. Even if there are two or three providers, there’s no certainty that they’re not colluding. In these cases, if the gov’t determines that AS1 is feasible but the insurers are setting the price consistent with AS2, setting a price cap at AS1 does not result in a reduction of supply — it simply moves the producer surplus to consumer surplus. The end result is that more people have access to treatment, and the insurance companies don’t rake in the profits but merely remain moderately profitable.
<
p>Of course, if the gov’t draws AS1 too low, then the price is so low that the company can’t even cover their variable costs — in which case, the supply offered will drop to zero (if permissible). That’s clearly not good for anyone.
<
p>
<
p>At the end of this economics lesson, I hope that you have learned that
1. A price cap does in fact keep prices low — but it also does stimulate a shortage. This only applies, however, for situations where the supply and demand curve have slopes strictly between 0 and infinity (or negative infinity in the case of demand).
2. Some goods are neither normal nor inferior — their demand is fixed and are completely insensitive to price. These examples include life-endangered situations, including many medical situations.
3. The market doesn’t find the optimal price and allocation of goods if there are insufficient competitors or an imbalance of information. Health insurance tends to violate both of these criteria. In those cases, producers will be able to seek rent.
4. When a market is operating in such a way that supply is able to inflate price and seek rent, one way to alleviate the situation is to introduce more competition (think: public option). Another way is to correctly cap the price to any lower price where the value where the marginal revenue to the producer still exceeds the marginal cost. At that price, the supplier will continue to produce enough to satisfy the entire market demand and, with a lower price, that allows more people to purchase (demand) in the marketplace. For candy bars and pickle jars and fancy cars, that’s not so important. For kidney transplants, that is quite important.
Holding prices fixed, while costs are rising, will result in a decrease in supply, because price is a function of marginal costs. A decrease in the supply of health services will result in a longer waiting periods for the procedure, not decrease the demand for it.
… testing in the system as is. Combine caps with comparative effectiveness studies and MEDPac provisions and you’ll put a dent into the provider waste that is putting upward pressure on prices.
get suckered into doing something fairly ineffective, (rate caps) vs nothing at all?
<
p>The public option and single payer are time tested proven methods or bring down health costs.
What ever happened to bulk purchase of prescription medication? Hasn’t the legislature passed that? Why is that not being put into practice?
<
p>Don’t you tire of being asked to promote and defend policies that you don’t really have a lot of faith in?
<
p>Time to fight for something you believe in – Single payer.
If you don’t demand it, you won’t get it.
…is the fact that American healthcare is largely a conflation of guild socialism and oligarchic corporatism.
<
p>An example of the former would be the medical profession, through its control of the number of doctors and their specialties; and their restrictions of certain practices and procedures that could be performed by other credentialed professionals – e.g. nurse practitioners – to MDs. Cultural denigration of preventive specialties within the profession reinforces the dynamic.
<
p>Hence structural problems in Massachusetts – the relative lack of primary care physicians, for example – are built into the system, and not even acknowleged, much less addressed by existing reforms.
<
p>HMOs and insurance companies are an example of the latter, where niche marketing limits the desired consumer base to people who can afford the highest premiums, but who statistically need care the least.
<
p>Market dynamics in the classical sense are minimal.
However, in response:
<
p>(1) Sure, in the aggregate, a price cap reduces the aggregate marginal price, but only in theory. There’s plenty of leakage in the health care world, just as there was with rent control. Unless the price cap is 100% enforceable, there will be plenty of cost increases in other areas — a move toward out-of-pocket cash for services, cooperatives, who knows what else. Beacon Hill couldn’t legislate fast enough to plug all the holes.
<
p>The Department of Insurance can not possibly impose price caps in a perfectly totalitarian way.
<
p>(2) Very few medical services are 100% price inelastic, or even close to somewhat inelastic. You cite some that are. But in the aggregate I suspect the curves look pretty normal. There are plenty of substitutions, too; for every CAT scan, there’s an MRI, or other imagining diagnostic available, and plenty of competition among each.
<
p>I’m no expert but I bet the bulk of health care spending is not in cutting edge bone marrow and kidney transplants but in vast numbers of routine medical procedures with conventional looking S and D curves. Instead of going to the doctor’s office 3 times, maybe I go just once, that sort of thing.
<
p>(3) Your points here are valid and spot on but they cry out not for price caps but for (a) MORE competitors, and (b) BETTER information. Besides, health insurance is HIGHLY regulated in MA … so maybe it’s our state government and their heavy handed regulators that are to blame for too few competitors and imperfect information.
<
p>You think state insurance bureaucrats can redraw AS1 and AS2 just right? Really, now. Get real.
<
p>We should take a cue from the (partial) DEREGULATION of the auto insurance market. It promoted MORE competition, BETTER information, and LOWER costs.
<
p>(4) You’ve explained exactly how the market should be setting a market clearing price. Unfortunately, you confuse market forces with Deval Patrick, and attribute to him and the Dept. of Insurance some magical ability to “correctly cap the price.”
<
p>This is absurd. No regulatory body can do this with candy bars let alone the vast spectrum of health care products and services. Political pressure will FORCE them to set it too low. Then watch utilization shoot through the roof while revenues mysteriously fall short.
<
p>As a matter of fact, that EXACTLY the problem with a public option (a.k.a., “affordable health care for all”) … if the government controls it, it will be priced too low, demand will skyrocket, and revenues will crater.
<
p>This is the MBTA’s problem … $2.00 for a ride that really costs $5.
from this:
that you favor either massive gas tax increases, or converting all roads to a toll basis (or perhaps selling the entire road system off to for-profit corporations)? Some things are public goods, and as such are worth spending public money on.
Public transit and highways are good examples of public goods (although private ones work , too.) As are nuclear-tipped missiles, aircraft carriers, and the Supreme Court. I’m fine with all that.
<
p>My point is only that at $2 a ride, demand for trips on the T far outstrips the revenue it should be creating to meet that demand.
<
p>The same thing occurs with health care. Subsidize the premium and utilization zooms but without the revenue to support the supply (MD’s, Rx, and bed pans.)
<
p>Government NEVER prices anything rationally, it always prices stuff TOO LOW, unable to resist the political call for making that stuff “affordable,” and so demand is always HIGH and revenues FALL WAY SHORT.
…does not necessarily mean government control.
<
p>If, say, there was a government tuition remittance program providing medical school and retroactive college tuition in exchange for x years of primary care practice in the Commonwealth, there would be a cost savings as patients are treated at earlier stages of a given illness.
<
p>Similar programs, plus license reform could make accelerated medical school available to non-MD medical professionals who desire to expand their expertise, and who have the ability and discipline to complete the program.
<
p>At present, the structural distortion in healthcare creates a seller’s market, reinforced by the limited numbers of MDs at the bottom of the patient curve, where patients can be treated for the least expense.
Now that’s a radical idea. I like that very much.
Career change, anyone?
You cite auto insurance:
<
p>First, please note that we have had an “individual mandate” on auto insurance for decades. Second, please note that rates are still set by the Commonwealth of MA. Third, please note that the “high risk pool” (the auto insurance counterpart to exchanges) has existed for decades.
<
p>You fail to mention the most important aspect, however — owning an automobile is optional. Anybody who either can’t afford or who chooses not to accept the costs of keeping an automobile on the road can “opt out” at any time.
<
p>This is the crucial difference that destroys your argument.
First, I said “partial” deregulation. And when Nonnie Burns forced that onto the Commonwealth, suddenly we double or triple the # of ins companies operating in the state, and auto insurance became less expensive.
<
p>Pricing flexibility is an order of magnitude better today when contrasted to before when buying insurance for your car required the (a) make/model/year, (b) your zip code, and (c) what deductible you wanted … that’s it. Then the agent read from the Dept of Ins’s rate table. Total gov’t price control.
<
p>Sure, minimums are still required, and there’s a high-risk pool. Nothing changed there, so the increased competition AND price reductions are even clearer evidence the market is a better allocator of scarce resources than government.
<
p>Second, opting out has nothing to do with the price of auto insurance, which is the example I use.
<
p>And how do you opt out of car ownership if you live in the suburbs? Only a tiny minority of MA residents can live without at least one vehicle.
Grace Ross worked on this legislation.
Where was the Governor?
that that Econ 101 student’s neat little supply/demand graph only “proves” anything if the assumptions underlying it are correct, and you haven’t made the case that, with regard to health care, your assumption of a standard X-shape is.
<
p>But stomv said it way better, so read his comment instead of mine.
… from WWII that ‘stuck’ after the ware? The ones that arguably gave us an extremely strong middle class and fueled economic expansion through the 60’s? Those controls?
My only experience with price controls was in the 70’s. Massachusetts had no gasoline anywhere – I probably ran out of gas 5 or 10 times. Price controls do result in rationing and it will happen in health care.
<
p>The expansion in the 1960’s started in the 1950’s and the price controls were abolished under President Eisenhower in the early 1950’s.
<
p>
<
p>Our current system of employer paid health insurance started because of price controls. During WWII there was a huge shortage of labor, employers were not able to raise wages because of wage and price controls – so they started adding benefits – one was health insurance.
<
p>
Haven’t you noticed that we have rationing in health care now? Maybe you haven’t, if you and your friends all have insurance and the funds to pay deductibles and copays, or have the good fortune (health) to not need health care. For people who lack those things, rationing is already real.
Which I’ll bet you is greater than Canada.
All Canadian citizens are covered by its health care system. If you don’t want to admit that, it’s up to you to provide some evidence that it is false.
<
p>Having insurance does not automatically bestow the ability to pay for health care for those who have to pay premiums and co-pays.
Actually immigrants and those returning from long overseas stays are either not insured or subject to a waiting period. I think Massachusetts is probably better.
<
p>http://www.cmaj.ca/cgi/content…
<
p>If you can’t afford a copay in this state chances are you are on medicaid – medicaid has very low or no copays.
That article you linked to said that, “In 2004 we admitted 204 000 landed immigrants and 31 000 refugees.” And: “our patients’ wait [for coverage] has averaged 2.1 years.”
<
p>So, there are 493,500 (235,000 per year * 2.1 years) people without health insurance in Canada, a nation of 34 million. Which means that, according to you, 98.5% of Canada is covered. Still better than Massachusetts, contrary to your original claim.
and it doesn’t include returning Canadians from extended overseas assignments, but I doubt there are 408K of them.
<
p>My point was even countries with National Health Insurance aren’t 100% insured, and our state is very close to them with regards to participation.
<
p>Thanks for doing the math.
if he keeps up with this string of success, Baker, Cahill and Mihos won’t know what hit ’em.
<
p>Seriously, though, the legislature should definitely pass this bill. This sort of reform could honestly be more beneficial to the rank and file Bay State resident than 2006’s HCR effort that established the exchange.
I am supportive of the Governor’s ideas, but I think the idea that his opponents are no where to be found is going to backfire on him. He’s been in office for 3 years. Rates have been going up for three years… where was he? Now in an election year he takes bold action? Dicey to spin that.
<
p>Plus, Baker went to the State House a number of times to push for transparency of costs, which someone mentioned above. I am sure he can produce testimony or video from it… so he was there years ago pushing for the things that Deval is coming to today.
<
p>I just don’t see how this is a bell to ring loudly for him.
<
p>It has been an emergency for years, where has he been?
has been acted upon already, it didn’t happen this year (election year) by Patrick but rather in 2008, and it wasn’t “his” idea but rather the Health Care Quality and Cost Council which Baker was a member.
<
p>The Globe article was a study reviewing the skyrocketing outpatient costs, the study didn’t just happen now during an election year, it was started a while back. Governor Patrick has been working on reducing costs. But the institution is rotten to the core, including Baker who worked with hospitals to create these high rates in the first place. Insurers like HPHC are paying for unnecessary testing, like those defined in the outpatient treatment. That is Baker’s doing.
<
p>What I pointed out is that it’s something that Baker is touting as the solution to health care costs. So what’s the impact of the HCQCC site? Is it good? Yes. But is it the solution? No.
You think Baker, as the head of an insurance company, WANTS to pay for unnecessary testing???? I think you need to think that through some. Insures want to limit expenses, for it eats into their bottom line.
<
p>As I said I support the Gov’s plan, I just think he coming to the party late. Baker was talking transparency before anyone else was, because as an insurer, it was in his best intetrests to see patients go to lower cost settings. That over the grand scheme can bring down hc costs.
<
p>I just don’t think this is Baker’s weak point.
but is obviously not a solution by itself. It’s part of an overall cost containment strategy. Has Baker talked about anything beyond transparency? If not, he’s got nothing.
David, if government could control costs by placing caps on stuff, why wouldn’t we want the government to run/own/control everything? The more caps, the cheaper stuff becomes?
<
p>By that logic, totalitarian regimes enjoy everything for free! It’s magic!
<
p>Transparency, then caps? What does this really accomplish? Competition, not politically imposed price caps, promotes cost containment.
This is a temporary solution — no one, including the Gov, wants these “soft caps” in place for more than two years. The point, though, is that health care costs could single-handedly squelch any hope the economy has of recovering if they are allowed to run amok, as they appear to be doing. The Gov correctly sees that as an unacceptable result, and proposes to do something about it. Ya know, sometimes the gubmint has to step in. Even AIM is on board, for God’s sake.