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Mandated by the Massachusetts Health Reform Law, the Quality and Cost Council is underway. In my first blog, let me advance several suggestions for the Council’s focus. First and foremost the Council should recognize that any attempt to significantly reduce actual healthcare spending could lead to a backlash from some users of health care and provider groups.. Nevertheless, we must find a way to reduce the long-term growth rate of health care spending or our health system could slowly but steadily deteriorate. I will discuss my short-list of ideas to lower spending in future blogs.
As a first step, however, the Council should establish as its goal the reduction of the growth rate in spending to levels that mirror the growth in the state’s economy---3 to 4 percent.
For one group, however, we must find a way to actually lower their health insurance premiums---small business and individuals. I thought the Connector did a superb job in finding a workable balance between helping more groups buy insurance with added subsidies and declaring that for individuals and families just above the zero subsidy level most existing policies can be considered “unaffordable” and therefore not subject to a penalty if insurance is not purchased. But we need additional strategies to help this group.
Although the reform law helps many segments of this group by pooling all small employers and individuals into a common premium system, it still leaves insurance companies vulnerable for the possibility that some of those they insure will require very expensive care. Insurers don’t like such risks and will protect their company by either re-insuring with another private company or setting up special high cost reserve funds. In either case, it adds to the premium costs of all the insured in the pool.
For many of the low and moderate income individuals and families that would seek coverage in these pools, even $25 or $50 per month is a significant amount. To eliminate the add-on costs of covering high cost cases, I would recommend that the state establish and pay for a high cost re-insurance system. One possible approach would be for the state to pay 75% of the expenses of cases that exceed $75,000. The state should require any insurance company receiving such premium assistance to operate an effective high cost case management program. Such programs, when well run, have been shown to both lower the total cost of care and improve the health outcomes of the patients treated. To moderate state spending, I would suggest that the state re-insurance system only be available to companies and individuals insured through the Connector and, only if the employers have wages that average less than $50,000 and if the insured has a wage of less than $75,000.
In an otherwise excellent article in the May 5th edition of the New York Times, Milt Freudenheim analyzed how high cost cases or even potential high cost cases among small employers can lead to very significant increases in health insurance premiums in many sections of the country. What was surprising in the article was his rather negative comment about a plan proposed by the governor of Kansas who proposed that the state pay for the additional expenses of the care of those patients that exceeds $100,000. He called it a “patch to a bigger wound.” True he did go on to applaud Massachusetts for its pooling arrangement pointing out that Massachusetts requires everyone to have insurance which in turn, forces the young and healthy to join the pool. What he did not mention is that Massachusetts allows insurance companies to differentiate premiums based on age. Thus excess premiums collected from healthy younger workers are not available to help reduce the costs for older sicker workers. Only a state supported high cost re-insurance system will provide such help.
In summary, government supported high cost reinsurance should be added to our health financing system either by the state or as Senator Kerry proposed as a Federal responsibility. In so doing we can lower health care spending for the entire system and reduce premium costs for those groups that have the most difficult time paying for health insurance.
Stuart H. Altman
Dean and Sol C. Chaikin Professor of National Health Policy
The Heller School for Social Policy and Management
This program aired on May 11, 2007. The audio for this program is not available.
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