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More Cost-Containment in Massachusetts

I have written in the past here and here on the state’s landmark 2006 reform passage and current developments. The state is very important to follow as many of the elements in the federal efforts are already in play in Massachusetts. To sum up, the 2006 reform includes an individual mandate, an exchange with consumer protections, and low-income subsidies. The state has successfully achieved near-universal coverage without crowding out employer based markets or other private insurance, and is wildly popular among the citizenry. With ‘Phase I’ accomplished, efforts are now centered on effective cost-containment that naysayers claim are “bankrupting the state.” True, the current growth rate is unsustainable, but this sense of urgency allows lawmakers to aggressively pursue effective strategies to cut costs.

The Governor of Massachusetts unveiled legislation yesterday that would help to address the rapid growth of health care costs by giving the state power to review and reject payment rate increases beyond 3.2% (the current medical inflation rate) by doctors, hospitals, insurers, and medical imaging centers. The law would also prevent health-insurance plans sold to small businesses from raising premiums by more than 1.5 times the rate of medical inflation, and impose a two-year moratorium on lawmakers mandating new health benefits that plans must cover. Watch Governor Patrick’s explanation here.

The idea is commonly known as ‘all-payer rate setting,’ and was used in the 70s and 80s to level varying payments for common services in order to lower health care costs. Nearly 30 states enacted the practice then, but the rise of managed competition caused all but Maryland to drop the law and today, countries such as France, Germany, and the Netherlands have similar all-payer rate setting regulation. Read more about the potential for savings here, where a recent Health Affairs article finds that the law has saved Maryland more than $40 billion since 1976 and a similar system across all states could have saved over $1.8 trillion.

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