May 23, 2006
Patchwork system working in Massachusetts
On July 1, 2007, every Massachusetts resident will have health insurance. Let’s do the same for Washington citizens.
The Massachusetts trick lies in foregoing the search for a magic bullet. Rather than a single great solution to universal health insurance, Massachusetts has cobbled together a whole bunch of “good enough” approaches into a patchwork system. While messy, this approach is based on one sound intellectual idea supported by three practical pillars that brace the whole system.
The intellectual underpinning is this: The economics of health insurance doesn’t fit the usual supply-and-demand model because of “adverse selection,” a vicious cycle which runs as follows.
Insurance companies know that customers who are especially interested in buying health coverage are frequently the customers with the greatest medical needs and the highest expected claims. So insurance companies raise premiums. But higher premiums lead some relatively healthy—and cheap to insure—customers to drop their coverage. Since the remaining customers are more expensive on average, premiums rise yet more. And so it goes. And so premiums rise.
Massachusetts’ breakthrough is to recognize that if everyone is covered, then insurance companies can pool risks across all health groups without having to raise rates. The Bay State plan takes advantage of this risk-pooling opportunity to keep rates down precisely by making sure that everyone must be covered.
The first pillar—one that sounds shocking at first—is that Massachusetts will require every individual to carry health insurance, and to prove they’re doing so. For the large number of families satisfied with their current insurance, they get to keep what they already have. This gets buy-in from those fortunate enough to have an employer-supplied plan.
The other side of the requirement is that the state will make modest plans available to individuals and small businesses. What’s more, the insurance plans will be subsidized for those who can’t afford to buy insurance on their own.
The second pillar of the Massachusetts plan is to redirect tax money now spent on providing uncompensated care to the uninsured toward paying for insurance for those who need the help.
In Washington, it’s estimated that the uninsured pay for about 35 percent of their medical care. The public picks up the rest. One estimate places the annual bill in our state for uncompensated care above $400 million. Redirecting that money so that everyone’s insured eliminates uncompensated- care costs and is a big part of solving the “insure everyone” problem.
The last pillar of the Massachusetts system is to avoid overloading the system by equalizing insurance for everyone. The coverage of some of the insurance policies is going to be pretty minimal. This compromise is the glue that makes the whole deal work. Really good health insurance, the kind typically offered by large companies and to state employees, is very expensive. It’s a great fringe benefit, but it’s not a necessity.
Basic insurance, on the other hand, is a necessity. Families need to be protected against the kind of medical expenses that can wipe out budgets. While it would be nice to cover everyone for everything, the cost is (politically at least) prohibitive. Under our current system, people with good jobs typically have good health coverage and those without good jobs have nothing. The Massachusetts plan leaves those with good jobs with good coverage and gets those without good jobs something modest.
There’s one more lesson we could learn from Massachusetts. This was a bipartisan effort. The new plan passed the Massachusetts House 152-4 and the Senate 37-0. The details of health insurance for every Washington citizen may be messy, but with an example in front of us there’s no reason our Washington legislature can’t pull this off in the coming session.
