Massachusetts Universal Coverage Bill is No Such Thing

Legislators around the country are looking to the law recently passed in Massachusetts for answers on how to cope with the health care crisis in their states. Will Massachusetts really be the first state to achieve universal health insurance? Should Republican voters across the country see this legislation as evidence that Republican Governor Mitt Romney, who is likely to seek his party’s nomination for president, is an effective leader, or a ​“Republican In Name Only” who believes in too much government?

Proponents of the new law say it will result in near-universal coverage in the state by 2010, reducing the uninsured rate in Massachusetts to 1 percent from its 2004 rate of 11 percent. Beginning July 1, 2007, the law will require uninsured Massachusetts residents to either buy health insurance or face fines. Romney signed the bill on April 12.

The law has drawn an enormous amount of media coverage, much of it superficial. On April 12, the Associated Press reported, ​“The bill, intended to extend coverage to Massachusetts’ estimated 550,000 uninsured, is being touted as a national model, thrusting the state to the forefront of the national debate about how to provide near-universal health care coverage without creating a single government-controlled system. It’s also a political coup for Romney as he weighs a potential run for the Republican presidential nomination in 2008.”

Romney, who has repeatedly stated that the bill represents his thinking more than that of the Democratically controlled House and Senate, told the New York Times, ​“This is really a landmark for our state because this proves … that we can get health insurance for all our citizens without raising taxes and without a government takeover. The old single-payer canard is gone.”

However, Romney’s expectations of the law are going to be dashed, and his obituary for single-payer will prove to be premature. The fundamental flaw of the Massachusetts law is that it does little to reduce health care cost inflation. The bill attempts to improve coverage by funneling money through the bloated insurance industry. Insurance companies allocate roughly 20 percent of their revenue to cover their administrative costs (which include marketing, telling doctors how to practice medicine, providing dividends, and financing high management salaries). That is 10 times the overhead of Medicare, which allocates only 2 percent of its expenditures to overhead, and about 20 times that of Canada’s single-payer system, which allocates 1 percent. Moreover, a system of multiple insurers drives up the administrative costs of clinics and hospitals. This is especially true if all or most of the insurers practice managed care.

Nor is it likely that lowering the uninsured rate in Massachusetts will lower total health spending and premium inflation. Although the argument is often made that the cost of extending coverage to the uninsured will be more than offset by the reduction in medical costs due to improvements in the health of the formerly uninsured, there is little evidence for this claim. It is true that having health insurance is associated with better health. But it is also true that the insured use many more medical services than the uninsured do – some studies have estimated nearly twice as many.

The failure of the Massachusetts law to cut health care costs will be aggravated by its method of reducing the number of uninsured: It requires all Massachusetts residents to buy health insurance. Health insurance, in other words, will be treated like car insurance – you have to have it or you’ll be in violation of state law and subject to a fine.

This provision, known as an ​“individual mandate,” is supported primarily by Republicans. AFL-CIO president John Sweeney characterized it as a regressive measure that only Gingrich Republicans would support. ​“Forcing uninsured workers to purchase health care coverage or face higher taxes and fines is the cornerstone of Mr. Gingrich’s health care reform proposals,” Sweeney said. ​“It is unconscionable that Massachusetts has adopted this misguided individual mandate.”

To meet their obligations under the mandate, most employed Massachusetts residents will continue to buy health insurance from their employer. But because the law does little to reduce premium inflation, employer flight from the health insurance market will continue, forcing more and more employees to purchase insurance on their own. In Massachusetts today, it costs employers about $4,000 per year to insure an employee without dependents and $11,000 a year to insure an employee with dependents.

So, how will the state’s uninsured be able to afford such a big-ticket item? The law requires the state to pay the entire premium for those under the federal poverty level (about $10,000 in annual income for an individual), and to provide sliding scale subsidies for those between poverty level ($20,000 for a family of four) and 300 percent of poverty (about $29,000 for an individual). Unfortunately, it is impossible from reading the law to know what the minimum level of coverage will be, how much insurance companies will charge for it, and how much the subsidy will be for any given income level. The law merely tells us that a state board with the odd name ​“board of the connector” will determine what constitutes ​“minimum creditable coverage,” and that this board will determine how big the subsidies have to be to make the coverage ​“affordable” to residents. (The term ​“connector” in the board’s title reflects its central task of assembling individuals who don’t have insurance through work and small employers into a large pool so that they can purchase insurance at the lower rates large employers get.)

To get some sense of how the law is going to work, we must turn to statements by the lawmakers who wrote it. They claim they can reduce insurance premiums for individuals, for example, from $4,000 down to $2,400 a year. This seems extremely unlikely. The only way the Massachusetts insurance industry can reduce premiums even a little, never mind by 40 percent, will be by offering substantially reduced coverage. This will not endear residents to Governor Romney and his ​“model” legislation. If, on the other hand, coverage is not reduced and premiums therefore remain near current levels, subsidies will have to be raised, which means taxes will have to go up, which won’t endear Romney to Massachusetts residents or to voters, especially Republican voters, in other states.

What will probably infuriate residents most will be the enforcement of this bill. The bill requires employers, providers, and residents to make reports to the government about who has insurance, and it punishes the uninsured with fines enforceable by the Department of Revenue. Residents who don’t have insurance in 2007 will lose their personal income tax exemption (worth about $150). In succeeding years they will be fined half the price of the cheapest health insurance policy that the ​“connector” deems to be ​“creditable coverage”: about $1,200 if premiums indeed fall to the $2,400 range, and closer to $2,000 if premiums are in today’s $4,000 range. Penalties for families will apparently be even higher.

The spectacle of hundreds of thousands of Massachusetts residents having to buy insurance with awful coverage that they cannot afford, and many refusing to buy insurance and taking steps to avoid paying their fines (such as not filing income taxes) will come into focus in the latter half of 2007 and the first half of 2008 – that is, in the year leading up to the 2008 Republican national convention. The media, in short, will have plenty of time to unearth horror stories about Romney’s ​“model” legislation. Odds are good that Romney will rue the day he took credit for this bill.