The Massachusetts health care mess

In 2006 Massachusetts enacted health care legislation which was supposed to achieve the left-wing holy grail of "universal coverage". Like legislation being debated on the federal level, Massachusetts requires everyone to either purchase insurance or pay a fine. By spreading the risk of insurance over a greater pool the Massachusetts law was supposed to bring down health care premiums.

Except that isn't happening:

Bob Carroll, owner of a Billerica distributor of paint spraying equipment, recently got some really bad news from Blue Cross-Blue Shield: His company’s health insurance rates are going up 47 percent in January.

So did Dan Greenbaum, president of a research firm in Boston, who’s been told to expect a 35 percent jump. And Sandy Bouchard, chief financial officer at Coady’s Towing Service in Lawrence, is trying to fathom a 28 percent hike - an extra $58,000 - in 2010.

“We’re a small company, and that’s a huge raise,’’ said Bouchard. “How much more can you expect an employer and its employees to contribute?’’

At a time when both the state and the nation are struggling to rein in health care costs, many small businesses in Massachusetts say they’re receiving the largest premium increases in years for their Jan. 1 renewals. Insurers in September said they expect to raise premiums an average of 10 percent next year, but some employers are facing increases that are double or triple that - or even higher.

So why is this occurring? Is it despite the Massachusetts attempt at universal health care? No, in large part it's because of it:

“The main driver in insurance premiums is the cost of health care,’’ Maltz said. Another factor, he said, is the state universal health care law, which has compelled insurers to merge newly insured individuals - a high-cost group - into small-business insurance plans.

With government capping reimbursements for Medicaid and Medicare, health care providers are seeking to make up the difference from private insurers, who pass the higher costs onto businesses. “There’s a cost shifting going on,’’ said Vincent M. Graziano, vice president at the benefit consulting firm Segal Co. in Boston, which advises larger employers. “Small business usually bears the highest costs because they don’t have the same clout as the big companies.’’

How insurers set rates for employers, including small businesses, is one of the subjects of public hearings being held throughout November by the state Division of Insurance.

Cost shifting? Really? But Princeton economist Uwe Reinhardt has assured us this is impossible! Left-wing theory again comes out on the losing end when it clashes with reality.

Other blog posts on the Massachusetts mess here and here.