Governor Patrick on Cost Control: “We have to dial up the sense of urgency”

Governor Patrick issued a set of bold proposals this week to control unchecked growth in health insurance costs for small businesses and individuals. The Governor’s proposals embrace the shared responsibility framework that we believe is critical to addressing the problem. We applaud the Governor for taking action and putting a number of valuable ideas on the table, and we urge the legislature to move quickly on fashioning a package to control health care costs in the short term. At the same time, the hard work of comprehensive payment reform must not be set aside and should move forward quickly.

The proposals are part of a broad jobs bill that would create or retain 20,000 jobs, and save small businesses upwards of $400 million. On the state jobs initiative website, there are links to the Governor’s speech, a summary of the bill (click here to jump directly to the health care provisions), and the bill text. The House scattered the parts of the bill yesterday to several committees, with the health provisions (sections 24 to 31) referred to the Health Care Financing Committee.

The proposals respond to the findings of the AG’s report from two weeks ago that competitive mechanisms are not working in our health care marketplace. We are sure more information will come out when DHCFP and the AG begin their hearing process on March 16. Here are some of the Governor’s proposals, and our thoughts:

1. Oversight of prices: The proposal gives the Insurance Commissioner the power to disapprove rates charged by insurers to small businesses if they exceed 1½ times medical inflation, and authorizes DHCFP to reject provider rates increases if their rates are increasing faster than medical inflation.

   –We welcome making insurers and providers publicly accountable for unjustified, excessive rate increases. To be fair and effective, the system should have flexibility; for example, a hospital in financial distress might need special consideration. We are concerned that this approach could lock in existing disparities, and we are curious why insurers would be permitted 50% greater latitude to raise premiums. The proposal also increases transparency, which is sorely needed in the health market. While this dramatic step must be carefully examined to avoid unintended consequences, the approach responds appropriately to the current crisis.

2. Limited Network Plans: Require all insurers in the small business market to offer at least one limited network plan (with fewer providers available) with premiums that are at least 10% less than the premiums for the full network product.

   –These plans already exist in the market, and employers and individuals have shown modest interest in limited networks. However, in the current environment they may have more appeal than in the past.

3. Control Volatility: Empowers the Insurance Commissioner to create “rate shock bumpers,” controls that protect small businesses from drastic increases in their premiums driven caused solely by changes in the age composition of their workforces.

   –This is a promising idea that will protect businesses from steep increases. Small businesses that report facing 35% or 45% rate increases are typically experiencing a change in the average age of their workers. By moderating these increases, employers won’t be penalized for hiring older workers.

4. Discourage New Benefit Mandates: The bill includes a non-binding statement of intent to avoid instituting new required health benefits for two years.

   –Mandates are not a major driver of health care costs, and the state already has a rational process to evaluate the costs and benefits of proposed mandates. This provision is essentially window dressing, and will have no real impact on premiums.

5. Open Enrollment: Allows insurers to set up semi-annual open enrollment periods in June and December for individual coverage, to prevent adverse selection where people enroll in coverage when they have a medical need and then drop it once the need has passed.

   –This provision does impose restrictions on individuals. DOI is looking at the cost of short-term enrollees, and having the data would allow everyone to better understand the impact of this proposal. We understand the concern that drives this idea, and think it would be acceptable if the data shows it would have a measurable impact on premiums.

The Governor’s actions recognizes that there is a public interest in health care prices, and a public policy response is appropriate. As the Governor looks to regulate premiums, we recommend also looking at regulation of insurer medical loss ratios and reserves. The state is past due in releasing a study of insurer and hospital reserves, which should shed some light on this issue. Regarding provider rates, we recommend looking to the recent recommendations of MedPAC to have Medicare pay more for primary care relative to specialty care, and to reduce payments for potentially preventable readmissions and complications. All of these of these would be steps towards re-orienting our delivery system.

We also think that the Connector could play a more significant role in the small business insurance market. The Connector is in the process of taking over the micro-employers (1-5 employees) from SBSB and this could be expanded to include the remainder of the micro-employer market. Expanding the Connector’s authority could also reduce administrative costs for small employers.

It is clear that small business insurance premiums are a symptom of the larger health care cost problem facing Massachusetts. These can only be repaired by reorienting our delivery system to promote wellness, prevention, and coordinated care. Payment reform can also address the market factors which drive cost increases, and the extreme variability of prices for the same service. This variability is not linked to quality or other factors, and too often is due to contracting practices identified by the AG report, such as supplemental payments, parity agreements and guaranteed inclusions provisions.

The proposal crafted by the Governor must be seen as a temporary first step, to be followed by real payment reform. the proposals provide some of the financial fixes for only a segment of the health care market (about 15%). However, it does nothing to curb the costs for the remaining 85%, nor does it alter the quality of care delivered or lead us into a coordinated care system. For those, we need comprehensive payment reform.
-Georgia Maheras and Brian Rosman