The Massachusetts Strategy: Medical Cost Budgets

As the American presidential contest barrels towards the Labor Day holiday weekend and the proverbial “home stretch” of the campaign, the candidates continue to fling charges at each other regarding the health care system.

Mitt Romney, of course, continues to refer to the President’s universal health care plan as a burden on American society and as an unnecessary tax on the middle class. And Barack Obama continues to riposte that his Affordable Care Act is actually modeled on the 2006 landmark Massachusetts law that Romney championed as Governor.

Lost in the squabbling, though, is the fact that the Massachusetts model of universal health care has now been in operation for six long years. So how is it doing? Is it achieving its goals?

Primary Goal: Mission Accomplished!

The primary goal of the Massachusetts law, of course, was to extend health insurance coverage to virtually all state residents. That mission has indeed been accomplished; over 98% of all residents are now enrolled in state-mandated and government approved health insurance plans.

The enrollment process for individual policy holders is managed through an online portal known as the Health Connector. Many industry specialists have praised the effectiveness of the portal; in fact, it has become a model for the state-based “exchanges” that are now being developed across the nation to comply with the provisions of the Affordable Care Act.

Regrettably, investigative reporters at the Boston Globe have noted thousands of cases of individuals who appear to be “gaming” the system by enrolling in health plans for brief periods of time in order to gain temporary coverage to receive medical services. Nevertheless, the vast majority of the 6.5 million residents of the Commonwealth of Massachusetts appear to be complying with the letter and the spirit of the 2006 insurance coverage law.

Secondary Goal: Yet To Be Achieved?

The secondary goal of the Massachusetts law was to reduce the cost of providing health care services to residents throughout the Commonwealth. And the actual results? Pragmatically speaking, the evidence is mixed at best that the costs of medical care are actually trending downwards.

In theory, as a result of the enrollment of all residents into insurance plans, the utilization rates (and thus the costs) of primary medical care and preventive care services should increase over time. Policy makers are hoping, though, that these increases will be offset by concomitant declines in the utilization rates (and thus the costs) of hospital emergency room services and preventable disease treatment regimens.

Many studies have confirmed that these utilization and cost trends are indeed occurring for certain clusters of individuals. But other studies have noted that the overall costs of providing medical services to the population may be increasing significantly.

Next Step: Government Cost Targets

So how do the current Governor Deval Patrick and the Massachusetts Legislature intend to address the challenge of controlling medical costs? Earlier this month, they signed a bill into law that establishes explicit cost reduction targets for levels of health spending throughout the state.

For the next five years, through 2017, the law is designed to limit inflationary increases in health spending to levels that are consistent with the growth of the Massachusetts economy. And thereafter, it is designed to reduce health inflation rates to annual levels that are one-half of one percent below the growth rates of the state’s gross domestic product.

According to government estimates, the aggregate costs of medical care will decline by up to $200 billion over the next fifteen years if the health system meets these targets. Whether or not the system will actually do so, though, is any one’s guess.

It May Take Years

Does the Massachusetts model of universal health care represent an approach that should be replicated across the nation? A successful Massachusetts initiative, of course, can serve as an effective model for the other 49 states.

On the one hand, government mandated universal cost budgets may distort the market for health care services. Let’s assume, for instance, that the Commonwealth experiences an outbreak of influenza in a year when its costs are budgeted to decline by one half of one percent. If it diverts funds from other initiatives to fight influenza, it may force itself to abandon health programs with significant long term benefits.

On the other hand, it is possible that the government of Massachusetts is the only entity that possesses the authority and the power to mandate cost reduction activities on a statewide basis. In other words, no other organization may be able to accomplish such broadly defined goals.

It is, regrettably, too early to assess whether the cost budgeting law will prove to be effective. That is not surprising; after all, it took years to conclude that the original 2006 law could succeed at enrolling most residents in insurance plans. It may likewise take years to assess whether medical cost inflation can be controlled through the use of budgetary targets.