Learning from Romneycare's Failures

Romneycare provides a glimpse into the future of Obamacare. Romney expanded coverage to nearly all the citizens of Massachusetts, but also brought rising costs and reduced access to the best healthcare.

The success and failures of Romneycare in Massachusetts provide a glimpse into what the future holds for Obamacare. Romneycare has expanded coverage to nearly all the citizens of Massachusetts, but has also brought rising costs and reduced access to the best healthcare in the state.

Romneycare’s mandate for employers to provide coverage and for residents to purchase health insurance or pay a penalty has been successfully enforced, 94% of Massachusetts residents now have health insurance. Only a tiny minority have not been incorporated into the system. This bodes well for the Obamacare mandate.

Unfortunately, this has not reduced costs as promised.  In Massachusetts, healthcare costs are now rising at a rate of about 7.5% annually -- faster than they did before Romneycare, and despite the worst recession since the 1970s. Residents who purchased insurance are now using medical services more frequently since they only need to contribute the co-payment. Blue Cross and other insurers have imposed whopping increases in premiums as a result.

These high costs have hurt the Massachusetts economy. A study has found that they have resulted in 16% fewer start-up companies than in neighboring New Hampshire. Unfortunately, for the Bay State, moving across the border to New Hampshire to set up shop there is easy, given the short commuting times.

Governor Patrick’s solution to the increase has been price controls. Blue Cross and the other insurers are fighting him in court, and while the litigation moves forward, they have stopped insuring new policyholders, because they don’t know what premiums to offer them when they apply for insurance.

The experience with auto insurance and price controls is not encouraging.  Because Massachusetts won’t let auto insurers charge premiums sufficient to pay for the high cost of accidents, State Farm simply refuses to insure new drivers in the state.

Frustratingly, Governor Patrick has decided to embrace shortages as a feature, not a bug. Governor Patrick has now offered Massachusetts state employees the option of so-called "restricted provider networks" -- health insurance policies that actually bar policyholders from receiving care at such "expensive" teaching hospitals as Massachusetts General Hospital. Those who agree to accept "restricted provider networks" get a 20% discount on their premiums. This attempt to cope with rising healthcare costs is best described as bribing residents into accepting second-rate care.

This creates additional bad incentives. These limited provider network policies will appeal to healthy consumers, who will assume that they don't need the best hospitals.  That will siphon off these healthy policyholders, leaving the traditional open network plans with a disproportionate number of sick people filing claims for care from the more expensive hospitals, driving up premiums even further.

Where did Romneycare go wrong? It first failed to deal with the fact that anyone who suddenly finds himself entitled to more healthcare will make the most of it provided that they never have to face the cost of it. Romney also chose to ignore the single largest distortion in healthcare, the tax exemption for group health insurance that gives preference to employee based insurance. Removing this distortion would remove a significant amount of waste in the system.

However, Romney ultimately did expanded healthcare coverage in Massachusetts and there have been some benefits from Romneycare. I was able to keep my health insurance when I developed unexpected kidney failure. Under the previous system I would have lost my coverage. Romney was right to be concerned about insuring more people, even though we now have to figure out how to deal with increasing costs.