What Lessons Can We Draw from MassCare Problems?

About four years ago, Massachusetts installed its version of universal health insurance coverage with a program called MassCare. It is more or less modeled after Medicaid, and is now struggling for its life as health care costs continue to rise.

What went wrong? How can we avert the the same problems with a national rollout of universal coverage?

Rising Premiums; Wait, That Wasn't Supposed to Happen

Even in Massachusetts, where four of the top health plans in the country make their home office and operate on a
non-profit basis, insurers are posting losses. Three of the four non-profit insurers, who turn over 88 percent of their income to pay for medical care, posted huge losses last year.

MassCare was signed into law in 2006 with a simple goal: insure the uninsured. Every resident age 18 or older is required to buy health insurance. Those who cannot afford to do so, receive a subsidy. As a result of this bill's enactment, almost 98 percent of the state's residents are now covered.

However, there is some gaming the system going on.

The cost of insurance rose because of a phenomenon called "jumpers and dumpers." People would buy insurance only when they needed it, and then drop coverage. They gambled that paying a fine for not having coverage was cheaper than buying it. And for them, they were correct. However, everyone else saw their premiums go up because this small fraction of the market was abusing the system.

The mandate to buy insurance did not work because there were not enough rules to enforce compliance. It appears from what I have been told of the Obama plan, that they have taken this lesson to heart, and instituted stiff enough penalties that people will find it cheaper to just buy the low-cost plan and stick with it. You know, the way the system is supposed to work.

A second driver of higher premiums was the fact that individual insurance was merged with small group insurance. MassCare deliberately merged these groups so that individuals could get group rates; this is well and good but it meant that small groups saw their rates increase. Small group rates rose as much as an extra 5-7 percent on top of annual 11 percent increases.

Prices of Services Also Increased

One of the biggest lessons of the MassCare experience is that even making coverage universal does not affect the basic forces driving medical costs upward. Insurance went up because the cost of medical services went up. Part of this is due to inflation, part of it is due to lack of competition and bidding for basic supplies and medical devices. And then part of it is due to the fact that doctors and hospitals got paid more. Doctors may have raised prices in response to a cut in reimbursements for Medicare patients; in order to cover their fixed costs, they were forced to raise fees for the rest of their patients.

Lack of competition can translate as 'contracts in force.' Suppliers and other vendors have locked hospitals into contracts for their basic supplies and medical supplies, often with no bidding. Prices are not tied to quality of care, success rates, or how sick your patients are.

But let's look at what our money goes to pay for, instead of shrugging our shoulders and saying, "well, the money went to the doctors and hospitals and not to paper-shufflers, so it must be OK."

You did see the film, "Sicko," didn't you? What struck me most about the hospitals and clinics in most of the foreign countries that were visited, was the very Spartan quality of the physical plants. The hospital rooms may hold three or four patients, who have barely two feet of space around their beds. There are no TV sets in each room. The floors of the hallways are not covered in marble. Even the examination rooms are rather small.

Whenever I walked into the local major hospital to visit a sick relative, I was faced with marble or granite sheeting on the outer surfaces and inside. Family waiting rooms have multiple televisions and other amenities. The whole atmosphere, frankly, reminds me more of luxury hotels than of a healthcare facility.

I always think that every dollar that goes towards some cushy amenity is a dollar that is not going towards actual health care. And the wastefulness of space means that services that could safely be performed in say, 100 square feet has to bring in enough money to pay for the 250 square feet allotted to it -- or to pay for 'wasted' public spaces that does not actually have a health care function but makes the hospital or clinic look more impressive.
So an examination of whether we want our hospitals to be space-efficient, energy-efficient and dollar-efficient may turn up avenues for budget-cutting that we might never have seriously considered before.

I don't think most Americans would object too much if they could see that their healthcare dollars were actually being spent on healthcare instead of cushy hospitals and clinics.

The other driver of high healthcare costs is that the cost of drugs keeps going up. Pharmaceutical companies are not motivated to produce low-cost drugs. They are motivated to keep producing PROFITABLE drugs, and to keep coming out with new drugs when the patents on old drugs expire. And to top it all off, most patients are not even cured of their diseases with the help of these drugs; the drugs merely manage the chronic condition.

While there are on the horizon some new drugs or treatments that are radically different from what we have now, the drug business as it stands now, is not too motivated to actually cure any disease. Until the people own the pharmaceutical companies, things will not change.

Increased Use of Emergency Rooms

MassCare also saw a huge increase in people using the emergency rooms to obtain medical care. That was partly because the plan did nothing to increase the number of physicians in the state. It is ironic but Massachusetts has the HIGHEST number of physicians per capita in the country. And yet it has the longest wait times to see a doctor (46.7 days). How can that be?

Are people in that state sicker than the national average? Are they going to the doc for relatively minor conditions? Is there a lack of low-cost clinics that they can go to for minor afflictions and services, such as flu shots at Walgreen's or having a hangnail looked at in a Target clinic? Or perhaps many of these physicians are specialists and so do not deal with the average patient's concerns.

Being Locked into Your Local Network

One of the handcuffs preventing patients from shopping around for the best prices is that even with a high-deductible plus HSA account, patients often are not allowed to go outside a network or county for their healthcare services. What if you could save a couple thousand dollars by going to a nice hospital in the next county for the exact same service? You could, if prices in southeastern Minnesota are typical. An appendectomy in populous Hennepin County, where Minneapolis is, would cost about $15,000-17,000.

If one went to a nice hospital in neighboring Scott County or Dakota County, the same inpatient appendectomy may cost a thousand dollars less. The fee at a smaller hospital, in a less populated area, can be a low as $7,000-10,000 for your appendectomy. Yet patients are often locked into the high-roomrate hospitals in their own metro area. The lack of true choice, and the lack of any true price competition, helps to keep prices high.