As most people know by now, Massachusetts insures almost 98% of its residents, top in the country. That is the good news, the bad news is the significant cost problem – by most estimates, health care costs are 15-20% higher here than the national average, putting a real strain on employer and consumer budgets.

In response to this cost crisis, the Massachusetts legislature passed Chapter 224 of the Acts of 2012 and Governor Deval Patrick signed it into law on July 31, 2012 – it will take effect on November 4th. This legislation relies heavily on government intervention and introduces some free market principles that suggest our messages might finally be getting through.

What is it?

In large part, Chapter 224 is a “payment reform” law which restructures 18% of the state's economy and promises over $150 billion in cost savings over 15 years. According to the Governor’s office, this new law will, "completely alter the landscape of the Massachusetts delivery system and make  Massachusetts the first state in the country to manage the cost-quality conundrum." Big promise … the question is how?

In somewhat of a familiar refrain, Chapter 224 creates hundreds of millions of dollars of new surcharges, assessments and penalties that will be passed along to consumers – and it re-labels and re-packages many failed cost containment “solutions” from the past. It promotes more government intervention in the delivery of care by re-arranging the health care system into Accountable Care Organizations and mandates global payment methodologies for doctors and hospitals.

The problem is there is little evidence that these approaches really contain costs. In fact, a 2011  Massachusetts Attorney General’s report on health care cost trends and drivers states that, “a shift of payment methodology by itself is not the panacea to controlling costs and that globally paid providers do not have consistently lower total medical expenses.” Further, the report suggests “shifting the risk and responsibility for efficient care management from health insurers to providers through Accountable Care Organizations will NOT result in lower costs.”

How will it work?

Government intervention – This legislation imposes rate caps in health care cost increases by tying the rate of health care cost increase to the  Massachusetts Gross State Product (GSP), currently projected to be 3.6%. It empowers two new state agencies to provide oversight of the health care system and scrutinize health care provider pricing, referring “outliers” to the AG’s office to determine whether those organizations are engaging in unfair methods of competition or anti-competitive behavior. This thinking is well intended but history shows it is a path that will lead to further provider consolidation – with the unintended effect of driving up costs.

Employer and consumer engagement – This legislation also acknowledges the promise of engaging, educating and empowering consumers to lead healthier lifestyles and make more informed health care choices to lower costs. It requires increased transparency and the promotion of workplace wellness programs. More specifically, it mandates health plans to create transparency tools for consumers to better understand the cost and quality of health care services – and provides tax credits of up to $10,000 to employers for the implementation of a wellness program along with the creation of a wellness participation rating factor in health plan product pricing.

Why is it important?

There is little doubt that Massachusetts is ahead of the country when it comes to “health care reform.” In 2006, Massachusetts avoided losing almost $400 million in Medicaid funding by passing health care reform legislation to insure the uninsured – that was the “easy” part. Now we are focusing on the cost challenge – and it appears there is genuine effort to blend government intervention with sound free market principles like transparency and wellness. With a committed legislature and an engaged Governor’s office interested in maintaining a leadership position on health care, Chapter 224 is a state-based, cost control experiment that may prove to be a glimpse of the future in your state … stay tuned.

Gaunya, GBA, is principal at Methuen, Mass.-based Borislow Insurance. He can be reached at 978-689-8200 or mark@borislow.com.

 

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