Massachusetts Health Reform: Solving the Long-Run Cost Problem

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Posted to Web: January 15, 2009
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Many of Massachusetts's health reforms have brought about positive change: the number of uninsured has fallen by half, access to needed care has increased, and private insurance has not been "crowded out" by public insurance programs. But the Massachusetts initiative has also seen higher than anticipated costs. In a new analysis, John Holahan and Linda Blumberg summarize the state's accomplishments, examine the challenges, and suggest four options for addressing long-term costs. According to the authors, much of Massachusetts's high spending growth is due to the concentration in the state's hospital and insurance markets.


Many of the features included in the Massachusetts health reform law, passed in early 2006, are being discussed as part of national reform. This paper is intended to inform the national debate and ongoing work in Massachusetts. To date, the Massachusetts reform has had positive impacts on insurance coverage and access to medical care. The number of uninsured has fallen by more than half — with no evidence that subsidized coverage has “crowded out” private insurance. Unmet needs for a range of medical services have dropped, as have financial burdens associated with health care.

While the program has seen rapid enrollment, it has also seen higher than anticipated costs. Some of the cost problems are short term and should not be surprising for a major new initiative. But Massachusetts also faces a long-term cost problem.

Massachusetts’ overall health care spending is higher than the national average and has grown more rapidly. We believe much of Massachusetts’ high spending growth is due to problems in the hospital/physician market. The market is highly concentrated with several academic medical centers, most notably the Partners’ Health System, being the dominant providers in local markets. While these academic medical centers typically have excellent reputations, they are also high-cost. Efforts by insurers to negotiate with the leading academic centers have proven difficult, if not impossible.

The problem of limited competition makes it extremely difficult for the state to address the growth in health care costs. If health care costs cannot be controlled, more and more people will become exempt from the individual mandate, and the cost of both Medicaid and low-income subsidies will increase. At stake ultimately is whether the Massachusetts reforms can survive.

We propose four options for addressing the long-term cost issues. The first option is to expand the managed competition model, and we suggest ways to do this. The second is to develop a public plan to compete with other insurers in the market and negotiate more effectively with providers. The third is to have the Connector negotiate on behalf of all CommCare and CommChoice plans over hospital and physician rates. The fourth is to develop an all-payer rate-setting system; all payers other than Medicare would use these rates, and they would apply to all providers.

Last, we suggest that Massachusetts take the final steps toward universal coverage by extending its mandate to children, restructuring subsidies to help more people, and addressing equity problems.

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