Will Massachusetts Health Plan Repeat Past Failures?

Trouble in Massachusetts? For years, liberals have pointed to the Bay State and urged America to follow Boston’s lead in health reform. But all is not well in the land of near-universal health care.

Three years ago, Massachusetts enacted perhaps the boldest state health care experiment in American history, bringing near-universal coverage to the commonwealth with Paul Revere speed.

To make it happen, Democratic lawmakers and Gov. Mitt Romney, a Republican, made an expedient choice, deferring until another day any serious effort to control the state’s runaway health costs.

The day of reckoning has arrived.

Let’s be clear: Kevin Sack at the New York Times is hardly the first to note problems with the Massachusetts’ experiment.

Others, like Shakia Dalmia, have written lucidly on the issues of cost. Her piece in the Wall Street Journal last year is a must read (and not just for the line about TonySopranoCare):

No one is escaping the financial sting. The state health-care bill for fiscal 2008-2009 is expected to touch $400 million -- 85% more than originally projected. Still the state won't be able to fully shield those it subsidizes from the premium increases. But uninsured folks who don't qualify for government help really get pounded. Before the hike, the cheapest plan for uninsured couples in their 50s cost $8,200 annually. Now, unless government bureaucrats hand them an exemption, they might well find it cheaper to pay the penalty -- up to half the price of a standard policy -- than purchase insurance. That is, pay to remain uninsured. This is legalized extortion: TonySopranoCare.

And, of course, my friend and colleague Regina Herzlinger just wrote a piece for The Boston Globe noting the lack of competition in Mass. health care (again, with a great one-liner).

Real markets, like those for computers or cars, feature many competitors who offer differentiated products, and consumers who search for the best value. Innovators easily enter the market. Consumers separate the good from the bad with readily available information about quality and prices. They use it to reward the good guys and penalize the bad. That is why the Digital Equipment Corporation is no longer among us.

These conditions are absent in the Massachusetts healthcare market. Boston hospitals form an oligopoly, dominated by an almost monopolist Partners Healthcare, which last year earned around half a billion dollars in profits. As for health insurance, many employers offer a choice of one - or a choice of firms with virtually identical policies. And if you need an operation, there's no way to learn about histories and prices of potential surgeons.

If this is a market, I am Angelina Jolie.

If the New York Times suggests that a government program is a bit pricey, there are problems. And if state legislators give in to the temptation of price controls, these problems are unlikely to be resolved.

Massachusetts is beginning to look like Tennessee. Back in the mid-1990s, that state embarked on a massive experiment to insure the uninsured, invest in preventive care, and trim costs – all at the same time. When the program took effect on January 1, 1994, the New York Times ran not one but two front-page stories on the health reform. A fawning essay in Health Affairs commented: “TennCare has reversed the central paradox of American health care: continuous increases in health care spending accompanied by an equally steady decline in the number of insured Americans.”

TennCare proved to be a debacle, with a heavy reliance on managed care, price controls, and central planning. It took a Democratic governor – after bipartisan abdication on this issue – to help reign in costs.

The Bay State may soon follow, with years of cost rises, “reforms,” and reviews.

Republicans and moderate Democrats should take note. When Gov. Romney signed the health reforms into law, he had negotiated a reasonable compromise with Democrats: one that expanded coverage with mandates, yes, but also smartly focused subsidies and de-regulated part of the insurance market. Many of the details, however, were left to committees – almost a dozen in all. Liberal Democrats dominate these committees and have reshaped the plan in their image.

As Congress considers health reform, Republicans and moderate Democrats may be tempted to work out the big compromise now, and leave the details to later. Alas, remember the Massachusetts miracle.