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Baker's Health Price Cap Plan May Be Seen As A Hybrid Between A Free And Regulated Market

Gov. Charlie Baker fields questions from the media after announcing his budget proposal on Wednesday. (Jesse Costa/WBUR)
Gov. Charlie Baker fields questions from the media after announcing his budget proposal on Wednesday. (Jesse Costa/WBUR)

In the raging battle about what's next for the Affordable Care Act, some experts argue the real problem is getting little or no attention: that health care in the United States is just too expensive and neither the ACA, nor any of the replacement plans, map a strategy that promises to make it more affordable.

But the rising cost of Medicaid in Massachusetts is a worry Gov. Charlie Baker can't ignore. The program, known as MassHealth, consumes 40 percent of the state budget. Baker's health and human services secretary, Marylou Sudders, says that by the end of 2017, MassHealth will cover more than 2 million low-income individuals and families. That's 30 percent of residents, nearly one in three people.

The number of Massachusetts residents who qualify for free coverage has jumped 50 percent since the launch of Obamacare. The federal law is more generous than the state law it superseded in the following two ways:

-- It increased the Medicaid income eligibility from 100 percent of poverty ($11,880 for an individual in 2016) to 138 percent ($16,394), so more Massachusetts residents qualified.

-- It removed a barrier that had kept many low-income residents out of MassHealth. The 2006 state coverage law barred employees who had access to insurance through their employer from the MassHealth rolls. But the Baker administration said now, at least 379,000 MassHealth members are employed. It's not clear if all of these people are employed full-time or if their employer offers coverage, but the number of residents enrolled in private health insurance has dropped by roughly the same amount.

The budget Baker filed Wednesday tackles the second point, the shift from employer coverage to MassHealth.

"We stand at a crossroads with respect to the intersection between what we were doing in Massachusetts and the overlay with the Affordable Care Act and that is what our proposals are designed to address," Baker told reporters.

Baker would charge businesses with 11 or more employees $2,000 for every full-time worker who is not on their employer's health plan. The governor argues he's just reinstating an employer penalty that was part of the original state law. But many business leaders -- some of whom are longtime Baker allies -- have told him they'll fight the fee. The business community says the state hasn't done enough to hold down the cost of health insurance so that firms and their employees can afford it.

To make insurance more affordable, Baker said the state should cap the prices many hospitals, doctors and labs are paid for the next three years. (The administration says three years seems like a reasonable period of time to test the impact of price caps on the health care market.) Providers would be divided into three categories. Insurers would continue to negotiate contracts with hospitals and physician groups. But the state Division of Insurance could reject the contract if insurers don't follow these rules:

-- Tier 1 - The lowest-paid hospitals and physicians would face no cap on price increases.

-- Tier 2 - Those providers with moderate rates could get an increase of up to 1 percent a year.

-- Tier 3 - The most expensive doctors and health care facilities in the state would not be eligible for any increase.

There are a couple of caveats in Baker's proposal. Primary care physicians and behavioral health providers would be exempt. And any provider in any of the tiers who is in an Accountable Care Organization (ACO) could receive an additional 1 percent increase.

By leaving the contract negotiations to insurers, Baker is suggesting what his aides call a hybrid between a free and regulated market. He's not setting rates, but he is setting limits.

Actual rate setting would be more effective, said Dr. Elliott Fisher, director of the Dartmouth Institute for Health Policy and Clinical Practice, but he congratulates Baker for proposing caps.

"If pressured," Fisher said, "hospitals and health systems will be able to reduce the actual cost of delivering care rather than passing on their inefficiencies."

The administration is not promising the tiered caps would moderate premium increases, but there are reasons to think they might. The state's Center for Health Information and Analysis has found that most of the money spent on health care in Massachusetts goes to the most expensive hospitals. And a report from the Health Policy Commission shows that the cost of care at those expensive teaching hospitals can be up to three-and-a-half times higher than at a community hospital.

Secretary Sudders said the price caps plan is a starting point for discussion about how to rein in health care costs in the coming year.

"There have been a lot of conversations about affordability in Massachusetts and about price variation," Sudders said. "So we wanted to put a serious proposal on the table about capping the rate of growth in the health care market for certain providers."

The Massachusetts Health & Hospital Association said in a statement that members have significant concerns about the governor's approach, but agreed the proposals are a place to begin discussions.

"As the state considers how to move forward, it should do so collaboratively with hospitals and with the utmost caution so that it does not imperil the ability of hospitals to serve their communities and to maintain their role as safety nets for all,” the statement read.

Some hospitals say the only way they could keep spending flat would be through layoffs. Hospitals are the major employer in many parts of Massachusetts, and research conducted in labs fuels the biotech medical device sectors.

Partners HealthCare and Boston Children's Hospital, whose facilities and physicians would likely not receive any rate increases under Baker's plan, declined to comment.

Baker appears both bold and cautious as he outlines these health care spending measures.

His proposal -- an employer fine and government price caps — is perhaps surprising for a Republican governor.

There was no mention of the plan in his State of the Commonwealth address Tuesday, or the press release highlighting elements of his budget proposal.

Related:

Martha Bebinger Twitter Reporter
Martha Bebinger covers health care and other general assignments for WBUR.

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