Did Health Care Reform Help Massachusetts?

Ezra Klein has a post up trumpeting a new paper from MIT economist Jon Gruber which purports to show that Massachusetts significantly reduced individual health care premiums through its 2006 health care reform bill — which in many ways was similar to the Democratic proposals currently moving forward in congress. (Needless to say, this would be contrary to what most people who have actually experienced health care in Mass., even this liberal speech writer, have experienced.) However, looking at all the findings is key:

In their December 2007 report, AHIP reported that the average single premium at the end of 2006 for a nongroup product in the United States was $2,613. In a report issued just this week, AHIP found that the average single premium in mid-2009 was $2,985, or a 14 percent increase. That same report presents results for the nongroup markets in a set of states. One of those states is Massachusetts, which passed health-care reform similar to the one contemplated at the federal level in mid-2006. The major aspects of this reform took place in 2007, notably the introduction of large subsidies for low-income populations, a merged nongroup and small group insurance market, and a mandate on individuals to purchase health insurance. And the results have been an enormous reduction in the cost of nongroup insurance in the state: The average individual premium in the state fell from $8,537 at the end of 2006 to $5,143 in mid-2009, a 40 percent reduction, while the rest of the nation was seeing a 14 percent increase.


So while it’s true that individual premiums have fallen in Massachusetts, they’re still 70% higher than the national average — they’ve only become less outrageous. Why? It turns out that the 2006 bill was the second half of a health care reform effort that started in the mid ’90s. Back then, the state passed a law requiring guaranteed issue and community rating: that health insurance companies have to accept people regardless of their health condition, and that they had to charge them according to their zip code not their individual health. This drove up the cost of health care insurance in the state drastically, with the result that healthy people dropped coverage, driving up the cost even more by making the pool worse.

In 2006, Massachusetts passed law requiring that everyone buy health insurance, and requiring that health insurance policies hit certain minimum levels of coverage. If you didn’t buy the required insurance, you had to pay a hefty fine. By forcing healthy people back into the insurance market, this started to drive costs down again. However, it seems unlikely, given the rate of change so far, that this will drive them down to below the national average. We can be virtually certain from these results that the cost of medical coverage will go up significantly under the current Democratic proposals, it’s just a question of how much.

6 Responses to Did Health Care Reform Help Massachusetts?

  • We can be virtually certain from these results that the cost of medical coverage will go up significantly under the current Democratic proposals, it’s just a question of how much.

    Depends. It’ll go down for the sick. I’ll go up for the healthy. On average, it’ll go up because more sick people than healthy people will buy insurance. But then guaranteed issue will naturally lead to a mandate. So under the current Democratic proposal, it’s virtually certain that in the long term the cost of medical coverage will not be affected.

  • Blackadder says:

    RR,

    I’m not sure I follow your logic. Let’s be simple-minded for a moment and assume that health insurance is subject to the law of supply and demand (ridiculous, I know, but bear with me). A mandate means a increase in the demand for health insurance (since people who wouldn’t otherwise have bought insurance are now forced to do so). Shouldn’t we expect this increase in demand to lead to an increase in the price of insurance?

  • c matt says:

    Insurance isn’t like a manufactured product or service with finite supply, in a sense. A company can make only so many widgets; lawyers can only provide X amount of hours per day (theoretically). A health insurer can write as many insurance policies as the law will allow. There may be some regulatory issues wrt reserves and financial health, so that may restrict the supplyside somewhat, but if the Govt wants universal coverage, they will have to allow adjustment for it.

    So, with a potentially unlimited (or near unlimited) supply, an increase in demand should not affect price. Change in risk pool, however, would.

    Oh, and for those who think tort reform will help – Texas has had tort reform for 30 years. One of the larger health insurers (Unicare) is now calling it quits in Texas. So much for tort reform.

  • I’m not sure that increasing the demand would increase the cost of health insurance, since it doesn’t seem to me that coverage itself would necessarily be a supply constrained product. (If this resulted in the total consumption of health care services significantly increasing, which is certainly possible, that might result in a temporary cost of care increase as contrained provider supply resulted in higher prices to slow demand and fund building new infrastructure, training new people, etc.)

    More to the point, though, is this: Unlike the proposals that center around high deductible insurance combined with funded health care spending accounts — the proposals being pushed by the Democrats do nothing to increase price competition among medical providers, and nothing to encourage people to avoid unnecessary treatment.

    That said, it’s main effects will be guaranteeing issue to those with medical problems that current have them outside the individual insurance market and forcing into the market those who are currently staying out voluntarily. (Employer insurance generally doesn’t have this problem, so this is really just an issue for about 10% of Americans.) It will probably do a lot more of the former than the latter, because for people who are being kept out of the insurance market by costs, the fine for not getting health insurance will almost always be a lot less than the amount you’d be required to pay out of pocket for getting health insurance (even after government subsidies.) On top of this, the CBO is projecting that the “public option” will actually cost more than the average individual plan currently does.

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