Tuesday, June 15, 2010

Mass Lessons

Those who ignore the past are doomed to repeat it . . . but only if you are paying attention. The folks who crafted the Obamacare health insurance scheme thought it would be a good idea to copy a small scale version that was introduced in Massachusetts not even 4 years ago.

Romneycare is a mere toddler but is already looking like an old man.

The folks at CNN are reporting there are lessons to be learned from the past.

As the news article reports, Obamacare and Romneycare share similarities. Both expand Medicaid roles. Both provide taxpayer subsidies to those who buy health insurance in the open market and both require citizens to buy health insurance. Both plans required health insurance companies to add expensive new benefits. Obamacare and Romneycare require health insurance companies to issue coverage to anyone, regardless of existing medical conditions.

These are all viewed as features, not flaws.

But what have the residents of Massachusetts experienced since the introduction of Romneycare?

Lesson 1: The Massachusetts plan does not control costs.

When Massachusetts launched its reform program in 2006, it already had the highest medical costs in the nation. Today, the burden is still rising far faster than wages or inflation, from those already lofty levels. A report from that state attorney general in March--remember, this is a Democratic administration--asked rhetorically "Can we expect the existing health care market in Massachusetts to successfully contain health-care costs?" The report concluded, "To date, the answer is an unequivocal 'no.'"

Likewise, neither does Obamacare control the driving force behind rising premiums. The only "cost control" is the decision to penalize doctors who treat Medicare patients by paying them less.

Lesson 2: Community rating, guaranteed issue and mandated benefits swell costs.

How did costs in Massachusetts get so big to begin with? A major reason is the adoption of guaranteed issue and community rating in the mid-1990s. The new federal bill would expand those rules to the entire nation.

If it didn't work in a state with a population of 6.5 million why would anyone expect it to work for 340 million people?

Crickets chirping . . .

Lesson 4: The exchanges reward people for working less and earning less.

Data is lacking on how damaging these perverse incentives are in practice. But it's clear in Massachusetts that low-to-medium earning families often suffer financially if they get a raise, work overtime, move to a higher paying job -- or if a spouse rejoins the workforce. For example, a family earning $33,000 pays no premium at all under Commonwealth Care. But if their pay goes to $46,000, they're obligated to contribute about $2,400. That's an effective tax rate of 18.5% on that $13,000 raise. A pay increase of $44,000 to $46,000 is mostly erased by higher premiums alone.

The law of unintended consequences.

If you provide incentives that encourage laziness you should not be surprised at the outcome.

By penalizing achievers with a higher tax burden the system is basically encouraging people to work and earn less.

Lesson 5: The generous plans and added mandates give employers an incentive to drop health insurance.

In charting the future of healthcare costs, the biggest danger by far is that companies will drop their coverage. It's also the one that's the most difficult to handicap, both for Massachusetts and the entire nation. The problem is simple: If employers stop paying for health care, employees will flood into the government-subsidized programs, enormously raising the cost to already fragile budgets.

Is any of this resonating?

If you like the plan you have you can keep it. That is, unless the government does something stupid like making it less expensive for employers to pay a fine rather than provide health insurance.

Washington reminds me of Star Trek.

"No signs of intelligent life here. Beam me up Scotty!"
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