Insurance Department OKs Health Net’s Plan To Increase Premium Rates

On Tuesday, the California Department of Insurance approved Health Net’s proposal to increase premiums by an average of 16% for about 38,000 policyholders who purchase insurance on their own, the Los Angeles Times reports.

Rate Hike Details

The higher rates are scheduled to take effect on Oct. 1. The insurer had delayed the increases for three months, while the state reviewed its paperwork. Health Net would not reveal how long the higher rates would be in place (Helfand, Los Angeles Times, 9/8).

Increases will range from 8% to 24%, depending on the specific plan purchased by policyholders, according to Health Net’s rate filing (Calvan, Sacramento Bee, 9/7).

Health Net welcomed the state’s approval and said the higher rates stem from the rising costs of hospitalizations, physician visits, medication and other health care services.

State Approves, Not Supports

Ioannis Kazanis, spokesperson for California’s Insurance Department, said the state neither endorses nor supports Health Net’s rate hikes but found the insurer’s filing to be in compliance with California law.

The state weighed whether Health Net’s proposal would allocate at least 70% of the premiums it collects to policyholders’ medical care, as mandated under state law.

Other Premium Increases

Approval of Health Net’s premium increases comes less than two weeks after the state Insurance Department approved rate hikes by Anthem Blue Cross and Blue Shield of California (Los Angeles Times, 9/8).

Anthem’s initial rate proposal would have increased premiums by as much as 39%. However, an external actuary found numerous mathematical errors with Anthem’s rate filing, so the company resubmitted its proposal with substantially lower rate increases (Sacramento Bee, 9/7).

The same external actuary, Axene Health Partners, reviewed Health Net’s rate filing and found that their proposal met state regulations (Colliver, “Chron Rx,” San Francisco Chronicle, 9/7).

Meanwhile, Aetna has proposed raising premiums by an average of 19% starting Oct. 1. Although the insurer began sending notifications about the rate hikes to 65,000 California policyholders last week, Aetna still is awaiting the state’s decision on whether it can move forward with the planned premium increases (Los Angeles Times, 9/8).


Premiums for Safety-Net Health Plans Rise With State Approval

State regulators are allowing insurance companies to raise maximum premiums for Californians with safety-net health insurance, the Los Angeles Times reports.

Approximately 20,000 California residents could experience premium increases of up to $7,500 annually, which could increase their insurance bills to nearly $25,000 annually.

Affected consumers could face the higher premiums until 2014, when the federal health reform law bans insurers from dropping patients based on pre-existing conditions.

Safety-Net Coverage

The federal Health Insurance Portability and Accountability Act requires insurers to provide health insurance to individuals who have lost employer-sponsored coverage and are ineligible for other health plans because of pre-existing medical conditions. The program is available to residents who have exhausted their COBRA benefits.

Background on New Rate Limits

In 2000, California legislators passed a law capping premiums for safety-net insurance. However, the legislation did not outline how the limits would be calculated. As a result, state regulators and major safety-net insurers designed separate formulas that generated different rate configurations.

To reconcile the different formulas, the state Department of Managed Health Care hired an outside actuary to develop a uniform calculation. However, the new formula increased the maximum premium rates for the majority of consumers, particularly for individuals between ages 50 and 64.

Anthem Blue Cross applied the new safety-net rates in January 2010, and Blue Shield of California followed suit a month later. The rate increases received little attention until this spring, when legislators debated a bill (AB 718), by Assembly member Bill Emmerson (R-Redlands), that would have codified the new rate cap formula into law.

The Assembly passed the measure, but the Senate Health Committee rejected it.

Advocates, State Officials Respond

Some health advocates argue that the state’s continued high unemployment level could force more residents to resort to safety-net coverage.

Lucien Wulsin, executive director of the Insure the Uninsured Project, said higher costs for safety-net insurance could prompt some patients to drop coverage altogether.

Lynne Randolph, DMHC spokesperson, said the rate hikes are an “unfortunate consequence” of the new uniform formula. However, she noted that the department is “pursuing a formula for consumers to bring down rates as much as possible” (Helfand, Los Angeles Times, 9/1).


New Plans For Uninsured Off To Slow Start

By Phil Galewitz

Aug 19, 2010

Ruth Titus, a 59-year-old cook from Taos, N.M., leaped at the opportunity in July to sign up for health insurance under a new federally subsidized program for uninsured people with health problems. With her history of bladder cancer, she said “it was hopeless to even look” for private coverage because she’d be turned down.

Titus is one of what some officials say has been an unexpectedly small number of people to sign up for the program, which was touted by the Obama administration as an early benefit of the new health overhaul law. It began last month in 30 states with the expectation that many thousands of uninsured people would apply for the opportunity to get comprehensive coverage regardless of their health status. But that hasn’t been the case.

About 3,600 people have applied and about 1,200 have been approved so far in state plans that started in the beginning of July, according to data from the states and federal government. Officials say the new plans, although a better deal than anything comparable on the private market, still may be unaffordable for many people. Eligibility requirements are another possible barrier. And states have had little time to publicize the plans.

It’s too soon to gauge the program’s impact. The plans won’t be up and running in all the states until September. But some officials are surprised.

“It’s early, but thus far interest in the program is lower than we expected,” said Michael Keough, executive director of the North Carolina Health Insurance Risk Pool, which started July 1. As of Tuesday, 314 people had applied and 158 had been approved.

GettingUSCovered, Colorado’s program, has received 204 applications; 108 people are enrolled.  It’s a “very low number given that there are hundreds of thousands of uninsured in the state,” said Suzanne Bragg-Gamble, the executive director.

Many states were so worried about not being able to meet the demand for coverage with limited federal funding that 22 of them deferred to the U.S. Department of Health and Human Services (HHS) to run the new plans as part of the Pre-Existing Condition Insurance Plan program. The other 28 states and the District of Columbia opted to start their own.

Questions About Affordability

Enrollees must pay premiums for their coverage, which is comprehensive and doesn’t exclude any pre-existing conditions. But the federal government is subsidizing the program with $5 billion until 2014 when the program ends because insurers will no longer be able to discriminate based on a person’s health status. Some analysts had predicted the money would run out before then, leaving states on the hook to help fund the plans or limit enrollment and benefits.

“It is certainly possible that the market for this coverage is smaller than everyone anticipated,”
said Mark Merlis, a consultant who wrote a report on the program for the Center for Studying Health System Change, a Washington group. But he said even with lower than expected enrollment the program may exhaust its funds because only the sickest people will join.

The Congressional Budget Office has estimated that as many as four million uninsured Americans would be eligible and that 200,000 would actually be enrolled by 2013. That projection assumed some people would not be interested or would not be able to afford the premiums.

The new plans are seen as a big improvement over existing “high-risk” programs in many states that provide an option to people who have difficulty getting insurance – but often at a very high cost and after long waiting periods.

Not everyone can afford the premiums of the new plans, which are cheaper than the existing high-risk programs. Federal regulations prohibit the new plans from charging more when people have health problems.

Premiums vary from plan to plan and are affected by the age of applicants, where they live and whether they smoke. For example, the monthly premium for a person aged 45 to 54 who does not smoke ranges from $330 in Hawaii to $556 in Florida, according to HHS. And prices can vary within a state: A 50-year-old non-smoker in Denver would pay $397 a month with a $2,500 deductible; a 40-year-old would pay $275 a month.

Titus pays $251 month for her policy, which includes a $2,000 deductible. “It was a huge relief,” she said after obtaining coverage. “Even though it’s expensive it is nothing like trying to pay out of pocket for every day in the hospital.”

Applicants may also be put off by eligibility criteria. They must have been uninsured for at least six months and have a pre-existing condition. In addition, they must prove they’ve been rejected for coverage by a private insurer within the past six months or been denied coverage for certain benefits. More than a dozen states also give applicants the option to provide a doctor’s note as proof they have a pre-existing condition such as cancer or rheumatoid arthritis, which is how Titus got coverage.

Officials with the state plans also point to a lack of publicity. Government Employees Health Association, the Kansas City company that has the federal contract to run the plans in 22 states, said it hasn’t yet started a major marketing campaign.

HHS is trying to get word out, says spokeswoman Jessica Santillo. “HHS has been working with states, consumer groups, insurance companies and other partners to reach uninsured individuals with pre-existing conditions who may be eligible,” she said.

In the 22 states where the plans are run by the federal government, a total of 2,400 people have applied as of Aug. 13, according to HHS, which would not release numbers for each state because it said they’re “fluid.”

Application numbers vary considerably in other states that launched their own plans July 1: Montana (100); New Hampshire (12); New Mexico (82), Oregon (400) and South Dakota (31). Connecticut could not provide an applicant total but said one person had been enrolled as of last week.

Kim and Eddy Graham of Belen, N.M., are among those who have enrolled. They previously were uninsured. Both have hepatitis C, among other problems. Now, for the $370 a month the couple pays for coverage, Kim Graham, 50, says she’s been able to get physical therapy and acupuncture for her bad back and saves money on medicine. “I love this program,” she said.


Survey: More Employers Plan To Increase Health Care Costs for Workers

Almost two-thirds of large U.S. employers in 2011 plan to ask employees to pay for a larger portion of their health coverage to reduce an expected increase in costs, partly attributed to the federal health reform law, according to survey released on Tuesday by the National Business Group on Health, Bloomberg/San Francisco Chronicle reports (Young, Bloomberg/San Francisco Chronicle, 8/19).

The survey, which drew responses from 72 large employers with 3.7 million workers, was conducted in May and June.

Survey Findings

According to the survey, respondents said they expect their overall health benefit costs to increase by an average of 8.9% in 2011, compared with 7% in 2010 (Lillis, “Healthwatch,” The Hill, 8/18).

Provisions included in the recently enacted health reform law are expected to contribute an estimated one percentage point toward that total, according to Helen Darling, president of NBGH (Bloomberg/San Francisco Chronicle, 8/19).

The survey — titled “Large Employers’ 2011 Health Plan Design Changes” — found that among respondents:

  • 63% intend to make workers pay a higher percentage of their premium costs next year, up from 57% in 2010;
  • 46% plan to raise the maximum level of out-of-pocket costs that workers would pay;
  • 44% plan to raise deductible rates for in-network providers (Reichard, CQ HealthBeat, 8/18);
  • 61% plan to offer a consumer-directed health plan in 2011 (Murphy, AP/MSNBC, 8/18);
  • 53% are willing to revise the design of their employees’ health care plans, such as removing lifetime dollar limits on overall benefits and specific benefits, and eliminating provisions that exclude coverage for children with pre-existing medical conditions (CQ HealthBeat, 8/18);
  • 37% plan to change annual or lifetime limits on specific benefits, including dental, mental health and infertility benefits; and
  • 25% plan to raise copayments or co-insurance costs for prescription drug benefits at retail pharmacies, while 21% are planning to implement similar increases for mail-order pharmacy benefits (“Healthwatch,” The Hill, 8/18).

Implications of Findings

The survey likely will foster debate over the health reform law’s effect on health care costs (“Healthwatch,” The Hill, 8/18).

Some experts have said attributing the cost increases to the reform law could be disingenuous.

Health researcher Igor Volsky of the Center for American Progress suggested that employers could be using the overhaul as the reason for cost increases that they already were planning to implement (Bloomberg/San Francisco Chronicle, 8/19).


California to Open New Health Insurance Program for Individuals with Preexisting Conditions in September

The Managed Risk Medical Insurance Board announced Thursday it plans to begin accepting applications this month and providing coverage to Californians next month in a new health insurance program for individuals with preexisting conditions – one of first major provisions of federal health reform to be implemented in the state.

Preexisting Condition Insurance Plan in California Monthly Premium Rates* Effective through December 31, 2011

Age Band Region 1 Region 2 Region 3 Region 4 Region 5 Region 6
<15 $145 $138 $140 $127 $142 $127
15-29 $199 $195 $201 $180 $200 $181
30–34 $286 $282 $292 $258 $288 $260
35–39 $319 $314 $325 $288 $321 $289
40–44 $337 $332 $344 $304 $339 $306
45–49 $369 $364 $377 $334 $371 $335
50–54 $494 $481 $499 $445 $495 $448
55–59 $627 $608 $624 $564 $625 $567
60–64 $796 $780 $802 $720 $799 $723
65-69 $891 $873 $899 $806 $895 $810
70-74 $939 $920 $947 $849 $943 $853
>74 $995 $975 $1,003 $899 $999 $904

* August 5, 2010

Region 1: Northern 31 counties

Region 2: Valley 14 counties

Region 3: Bay Area 6 counties

Region 4: South Coast 3 counties

Region 5: Los Angeles County Region

6: South 3 counties



San Francisco Chronicle –

Aug. 9: Employers and consumers sorting through their health insurance options may see a bump in their rates next year to account for the potential impact of some of the early elements of the federal health overhaul law, according to some health experts.

Jeff Sher, an independent health insurance agent and consultant in San Francisco, said he’s anticipating employee coverage at mid-size companies to go up 13 percent to 15 percent. “Then we’re supposed to tack on several percentage points for health reform,” he said.

August is a key month for employers to start making decisions about their health benefits because most open-enrollment periods, during which employees select their health insurance plans, begin in the fall for coverage starting Jan. 1, 2011.

While most major pieces of the new health law don’t go into effect until 2014, some reforms affecting health insurance carriers take effect this year. These include provisions that require health plans to cover adult children

until age 26, extend coverage to children with pre-existing conditions, end maximum lifetime spending limits and end the practice of retroactively canceling a member’s coverage for any reason other than fraud.

Health policy watchers say it’s tough to know whether these reforms will have much impact on costs, which routinely outpace increases in wages and inflation. Any savings the new law could offer have not materialized yet, said Laurence Baker, professor of health research and policy at Stanford University. Meanwhile, there is uncertainty about whether changes such as covering children with pre-existing conditions or extending coverage to those under 26 will add costs to the overall health system.

“I can certainly see they (insurers) would look to the future and worry about how things would roll out and be more aggressive in the future about rates,” Baker said. A PricewaterhouseCoopers report released in June found that medical costs nationwide are expected to rise 9 percent next year. That projected increase for 2011 is actually slightly smaller than the 9.5 percent rise the consulting firm is seeing this year.

But Michael Thompson, a principal with PricewaterhouseCoopers, said the reforms going into effect this year will have little to no impact on employer health costs. “If anything, we think the trend will down this year,” he said, adding that the upsurge last year of people staying on their former employer’s health insurance plans due to federal government subsidies had a larger impact on rates.

Several health insurers declined to comment directly on the impact of health reform on their rates. Aetna said people who purchase coverage with additional benefits required under the new health law will have to pay more for those benefits.

California legislators this month will be considering a number of bills designed to curb increases in health rates, such as the 39 percent hike for individual members of Anthem Blue Cross that helped jump-start the national reform discussion earlier this year.

“Regulators need to be vigilant in this period before the health reform kicks in with regards to health insurers gaming the system,” said Anthony Wright, executive director of Health Access, a statewide advocacy group.


Changing Stance, Administration Now Defends Insurance Mandate as a Tax

WASHINGTON — When Congress required most Americans to obtain health insurance or pay a penalty, Democrats denied that they were creating a new tax. But in court, the Obama administration and its allies now defend the requirement as an exercise of the government’s “power to lay and collect taxes.”

And that power, they say, is even more sweeping than the federal power to regulate interstate commerce.

Administration officials say the tax argument is a linchpin of their legal case in defense of the health care overhaul and its individual mandate, now being challenged in court by more than 20 states and several private organizations.

Under the legislation signed by President Obama in March, most Americans will have to maintain “minimum essential coverage” starting in 2014. Many people will be eligible for federal subsidies to help them pay premiums.

In a brief defending the law, the Justice Department says the requirement for people to carry insurance or pay the penalty is “a valid exercise” of Congress’s power to impose taxes.

Congress can use its taxing power “even for purposes that would exceed its powers under other provisions” of the Constitution, the department said. For more than a century, it added, the Supreme Court has held that Congress can tax activities that it could not reach by using its power to regulate commerce.

While Congress was working on the health care legislation, Mr. Obama refused to accept the argument that a mandate to buy insurance, enforced by financial penalties, was equivalent to a tax.

“For us to say that you’ve got to take a responsibility to get health insurance is absolutely not a tax increase,” the president said last September, in a spirited exchange with George Stephanopoulos on the ABC News program “This Week.”

When Mr. Stephanopoulos said the penalty appeared to fit the dictionary definition of a tax, Mr. Obama replied, “I absolutely reject that notion.”

Congress anticipated a constitutional challenge to the individual mandate. Accordingly, the law includes 10 detailed findings meant to show that the mandate regulates commercial activity important to the nation’s economy. Nowhere does Congress cite its taxing power as a source of authority.

Under the Constitution, Congress can exercise its taxing power to provide for the “general welfare.” It is for Congress, not courts, to decide which taxes are “conducive to the general welfare,” the Supreme Court said 73 years ago in upholding the Social Security Act.

Dan Pfeiffer, the White House communications director, described the tax power as an alternative source of authority.

“The Commerce Clause supplies sufficient authority for the shared-responsibility requirements in the new health reform law,” Mr. Pfeiffer said. “To the extent that there is any question of additional authority — and we don’t believe there is — it would be available through the General Welfare Clause.”

The law describes the levy on the uninsured as a “penalty” rather than a tax. The Justice Department brushes aside the distinction, saying “the statutory label” does not matter. The constitutionality of a tax law depends on “its practical operation,” not the precise form of words used to describe it, the department says, citing a long line of Supreme Court cases.

Moreover, the department says the penalty is a tax because it will raise substantial revenue: $4 billion a year by 2017, according to the Congressional Budget Office.

In addition, the department notes, the penalty is imposed and collected under the Internal Revenue Code, and people must report it on their tax returns “as an addition to income tax liability.”

Because the penalty is a tax, the department says, no one can challenge it in court before paying it and seeking a refund.

Jack M. Balkin, a professor at Yale Law School who supports the new law, said, “The tax argument is the strongest argument for upholding” the individual-coverage requirement.

Mr. Obama “has not been honest with the American people about the nature of this bill,” Mr. Balkin said last month at a meeting of the American Constitution Society, a progressive legal organization. “This bill is a tax. Because it’s a tax, it’s completely constitutional.”

Mr. Balkin and other law professors pressed that argument in a friend-of-the-court brief filed in one of the pending cases.

Opponents contend that the “minimum coverage provision” is unconstitutional because it exceeds Congress’s power to regulate commerce.

“This is the first time that Congress has ever ordered Americans to use their own money to purchase a particular good or service,” said Senator Orrin G. Hatch, Republican of Utah.

In their lawsuit, Florida and other states say: “Congress is attempting to regulate and penalize Americans for choosing not to engage in economic activity. If Congress can do this much, there will be virtually no sphere of private decision-making beyond the reach of federal power.”

In reply, the administration and its allies say that a person who goes without insurance is simply choosing to pay for health care out of pocket at a later date. In the aggregate, they say, these decisions have a substantial effect on the interstate market for health care and health insurance.

In its legal briefs, the Obama administration points to a famous New Deal case, Wickard v. Filburn, in which the Supreme Court upheld a penalty imposed on an Ohio farmer who had grown a small amount of wheat, in excess of his production quota, purely for his own use.

The wheat grown by Roscoe Filburn “may be trivial by itself,” the court said, but when combined with the output of other small farmers, it significantly affected interstate commerce and could therefore be regulated by the government as part of a broad scheme regulating interstate commerce.



Firms cancel health coverage With cost rising, small companies turning to state

The relentlessly rising cost of health insurance is prompting some small Massachusetts companies to drop coverage for their workers and encourage them to sign up for state-subsidized care instead, a trend that, some analysts say, could eventually weigh heavily on the state’s already-stressed budget.

Since April 1, the date many insurance contracts are renewed for small businesses, the owners of about 90 small companies terminated their insurance plans with Braintree-based broker Jeff Rich and indicated in a follow-up survey that they were relying on publicly-funded insurance for their employees.

In Sandwich, business consultant Bill Fields said he has been hired by small businesses to enroll about 400 workers in state-subsidized care since April, because the company owners said they could no longer afford to provide coverage. Fields said that is by far the largest number he has handled in such a short time.

“They are giving up out of frustration,’’ Fields said of the employers. “Most of them are very compassionate but they simply can’t afford health insurance any more.’’

Precisely how many small businesses have recently given up offering insurance is hard to pinpoint. The Office of Labor and Workforce Development said the most recent quarterly insurance data collected from small companies has not been compiled.

State officials said they have not seen convincing evidence that there is a trend. There has not been an unusually large spike in enrollment in Commonwealth Care, the subsidized insurance program, according to spokesman Richard Powers. And in any case, Dr. JudyAnn Bigby, secretary of health and human services, said the administration budgeted for higher health care spending because it anticipated that there would be growing numbers of long-term unemployed residents who would be signing up for coverage.

The Massachusetts Division of Health Care Finance and Policy annually surveys employers and found no significant drop in coverage as of the end of 2009, when more than three-quarters of companies offered health insurance.

But insurance brokers say the pace of terminations has picked up considerably since then among small companies, of which there are thousands in Massachusetts. Many of these companies — restaurants, day-care centers, hair salons, and retail shops — typically pay such low wages that their workers qualify for state-subsidized health insurance when their employers drop their plans.

“Those employers are trying to keep their doors open, and to the extent they can cut expenses, they will cut health insurance because they know their people can go to Commonwealth Care,’’ said Mark Gaunya, president of the Massachusetts Association of Health Underwriters, a trade group representing more than 1,000 brokers and other insurance professionals.

The issue is coming to a head as the Patrick administration battles insurers over swiftly escalating rates they have been charging small employers. In February, the governor filed sweeping legislation that proposes to give the Division of Insurance the power to essentially cap health care price increases. That proposal is still pending.

And on April 1, exercising authority the administration had never before used, the division denied 235 of 274 increases proposed by insurers for plans covering individuals and small businesses — base premiums would have increased as much as 32 percent. On July 1, it again held 137 proposed increases to 2009 rates.

The sides have been locked in negotiations for months, with the Patrick administration recently reaching agreement with two insurance carriers on lower rates.

“The Patrick-Murray Administration has taken decisive action to provide small businesses and working families with immediate relief from skyrocketing health insurance premiums,’’ the governor’s press secretary, Juan Martinez, said in a statement. He declined to directly address whether small businesses are increasingly dropping health coverage and directing their workers to subsidized care.

But analysts said the burden of double-digit insurance increases shouldered by small businesses over the last several years is likely to become more of a public problem.

“The more the employer insurance system unravels, the higher the cost is going to be for the state in providing subsidies to low income workers,’’ said Larry Levitt, vice president of the Kaiser Family Foundation, a California-based think tank. “From a state finance perspective, stabilizing employer insurance is definitely important.’’

The state’s landmark 2006 health insurance overhaul included regulations designed to discourage low-wage employees from opting for state health insurance over their companies’ often more pricey coverage. It denied eligibility to any one whose employer had offered him or her coverage in the past six months and paid at least 33 percent toward the individual’s plan.

Most health care advocates and brokers had widely interpreted that to include even workers whose companies had dropped coverage. But recently, some companies that have terminated their group plans have tested those waters and found that their employees were accepted for state-subsidized coverage.

Additionally, company owners say, it has become far cheaper to pay the state penalty for not covering their workers — roughly $295 annually per employee — than to pay thousands more in premiums.

In New Bedford, the Early Learning Child Care center is now paying $1,500 quarterly in fines to the state, instead of the $30,000 it contributed quarterly toward 13 workers’ health insurance premiums. When Executive Director Judy Knox terminated the company’s health plan late last year, she asked Fields, the consultant, to help 10 of those workers enroll in Commonwealth Care. The other three went on spouses’ plans or were eligible for Medicare.

“We had had, in the three previous years, between 17 and 18 percent increases every year,’’ Knox said. “I was so worried about the staff and their coverage, but for most of them, Commonwealth Care seems to be working out very well.’’ The state program covers people with incomes up to 300 percent of the federal poverty level.

Come 2014, when the bulk of the federal health care law goes into effect, the penalties for small companies that do not provide health insurance coverage will be less onerous than those in Massachusetts. That could tempt more small companies to opt out nationally, sending more workers to the public rolls — if health care costs can’t be restrained, some analysts said.

“Struggling business don’t necessarily feel the need to offer coverage to attract workers,’’ said Kaiser’s Levitt.

Massachusetts has not decided whether to adopt the federal rules for small businesses.

The federal law does not impose any penalty on companies with fewer than 50 employees that do not offer coverage, whereas in Massachusetts, employers with more than the equivalent of 11 full-time employees face fines for not offering a health plan and contributing at least 20 percent toward that coverage. But for companies with more than 50 workers, the federal law comes down a lot harder than does the state law.

© Copyright 2010 Globe Newspaper Company.

ObamaCare’s Future Foretold

By Robert Samuelson

WASHINGTON — If you want a preview of President Obama’s health care “reform,” take a look at Massachusetts. In 2006, it enacted a “reform” that became a model for Obama. What’s happened since isn’t encouraging. The state did the easy part: expanding state-subsidized insurance coverage. It evaded the hard part: controlling costs and ensuring that spending improves people’s health. Unfortunately, Obama has done the same.

Like Obama, Massachusetts requires most individuals to have health insurance (the “individual mandate”). To aid middle-class families too well-off to qualify for Medicaid — government insurance for the poor — the state subsidizes insurance for people up to three times the federal poverty line (about $66,000 in 2008 for a family of four). Together, the mandate and subsidies have raised insurance coverage from 87.5 percent of the non-elderly population in 2006 to 95.2 percent in the fall of 2009, report Sharon Long and Karen Stockley of the Urban Institute.

People have more access to treatment, though changes are small. In 2006, 87 percent of the non-elderly had a “usual source of care,” presumably a doctor or clinic, note Long and Stockley in the journal Health Affairs. By 2009, that was 89.9 percent. In 2006, 70.9 percent received “preventive care”; in 2009, that was 77.7 percent. Out-of-pocket costs were less burdensome.

But much didn’t change. Emergency rooms remain as crowded as ever; about a third of the non-elderly go at least once a year, and half their visits involve “non-emergency conditions.” As for improvements in health, most probably lie in the future. “Many of the uninsured were young and healthy,” writes Long. Their “expected gains in health status” would be mostly long-term. Finally — and most important — health costs continue to soar.

Aside from squeezing take-home pay (employers provide almost 70 percent of insurance), higher costs have automatically shifted government priorities toward health care and away from everything else — schools, police, roads, prisons, lower taxes. In 1990, health spending represented about 16 percent of the state budget, says the Massachusetts Taxpayers Foundation. By 2000, health’s share was 22 percent. In 2010, it’s 35 percent. About 90 percent of the health spending is Medicaid.

State leaders have proven powerless to control these costs. Facing a tough re-election campaign, Gov. Deval Patrick effectively ordered his insurance commissioner to reject premium increases for small employers (50 workers or less) and individuals — an unprecedented step. Commissioner Joseph Murphy then disallowed premium increases ranging from 7 percent to 34 percent. The insurers appealed; hearing examiners ruled Murphy’s action illegal. Murphy has now settled with one insurer allowing premium increases, he says, of 7 percent to 11 percent. More settlements are expected.

Attacking unpopular insurance companies is easy — and ultimately ineffectual. The trouble is that they’re mostly middlemen. They collect premiums and pay providers: doctors, hospitals, clinics. Limiting premiums without controlling the costs of providers will ultimately cause insurer bankruptcies, which would then threaten providers because they won’t be fully reimbursed. The state might regulate hospitals’ and doctors’ fees directly; but in the past, providers have often offset lower rates by performing more tests and procedures.

A year ago, a state commission urged another approach: Scrap the present “fee-for-service” system. The commission argued that fee-for-service — which ties reimbursement to individual services — rewards quantity over quality and discourages coordinated care among doctors and hospitals. The commission recommended a “global payments” system to force hospitals, doctors and clinics to create networks (“accountable care organizations”). These would receive flat per-patient payments to promote effective — not just expensive — care. Payments would be “risk adjusted”; sicker patients would justify higher payments.

But the commission offered no blueprint, and efforts to craft consensus among providers, consumer groups and insurers have failed. State Senate President Therese Murray, an advocate of payment change, has given up for this year. “Nobody is in agreement on anything,” she told The Boston Globe.

All this anticipates Obamacare. Even if its modest measures to restrain costs succeed — which seems unlikely — the effect on overall spending would be slight. The system’s fundamental incentives won’t change. The lesson from Massachusetts is that genuine cost control is avoided because it’s so politically difficult. It means curbing the incomes of doctors, hospitals and other providers. They object. To encourage “accountable care organizations” would limit consumer choice of doctors and hospitals. That’s unpopular. Spending restrictions, whether imposed by regulation or “global payments,” raise the specter of essential care denied. Also unpopular.

Obama dodged the tough issues in favor of grandstanding. Imitating Patrick, he’s already denouncing insurers’ rates, as if that would solve the spending problem. What’s occurring in Massachusetts is the plausible future: Unchecked health spending determines government priorities and inflates budget deficits and taxes, with small health gains. And they call this “reform”?


Six Months to Go Until The Largest Tax Hikes in History

From Ryan Ellis

In just six months, the largest tax hikes in the history of America will take effect.  They will hit families and small businesses in three great waves on January 1, 2011:

First Wave: Expiration of 2001 and 2003 Tax Relief

In 2001 and 2003, the GOP Congress enacted several tax cuts for investors, small business owners, and families.  These will all expire on January 1, 2011:

Personal income tax rates will rise. The top income tax rate will rise from 35 to 39.6 percent (this is also the rate at which two-thirds of small business profits are taxed).  The lowest rate will rise from 10 to 15 percent.  All the rates in between will also rise.  Itemized deductions and personal exemptions will again phase out, which has the same mathematical effect as higher marginal tax rates.  The full list of marginal rate hikes is below:

– The 10% bracket rises to an expanded 15%
– The 25% bracket rises to 28%
– The 28% bracket rises to 31%
– The 33% bracket rises to 36%
– The 35% bracket rises to 39.6%

Higher taxes on marriage and family. The “marriage penalty” (narrower tax brackets for married couples) will return from the first dollar of income.  The child tax credit will be cut in half from $1000 to $500 per child.  The standard deduction will no longer be doubled for married couples relative to the single level.  The dependent care and adoption tax credits will be cut.

The return of the Death Tax. This year, there is no death tax.  For those dying on or after January 1 2011, there is a 55 percent top death tax rate on estates over $1 million.  A person leaving behind two homes and a retirement account could easily pass along a death tax bill to their loved ones.

Higher tax rates on savers and investors. The capital gains tax will rise from 15 percent this year to 20 percent in 2011.  The dividends tax will rise from 15 percent this year to 39.6 percent in 2011.  These rates will rise another 3.8 percent in 2013.

Second Wave: Obamacare

There are over twenty new or higher taxes in Obamacare.  Several will first go into effect on January 1, 2011.  They include:

The “Medicine Cabinet Tax” Thanks to Obamacare, Americans will no longer be able to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-the-counter medicines (except insulin).

The “Special Needs Kids Tax” This provision of Obamacare imposes a cap on flexible spending accounts (FSAs) of $2500 (Currently, there is no federal government limit).  There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children.  There are thousands of families with special needs children in the United States, and many of them use FSAs to pay for special needs education.  Tuition rates at one leading school that teaches special needs children in Washington, D.C. (National Child Research Center) can easily exceed $14,000 per year.  Under tax rules, FSA dollars can be used to pay for this type of special needs education.

The HSA Withdrawal Tax Hike. This provision of Obamacare increases the additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent.

Third Wave: The Alternative Minimum Tax and Employer Tax Hikes

When Americans prepare to file their tax returns in January of 2011, they’ll be in for a nasty surprise—the AMT won’t be held harmless, and many tax relief provisions will have expired.  The major items include:

The AMT will ensnare over 28 million families, up from 4 million last year. According to the left-leaning Tax Policy Center, Congress’ failure to index the AMT will lead to an explosion of AMT taxpaying families—rising from 4 million last year to 28.5 million.  These families will have to calculate their tax burdens twice, and pay taxes at the higher level.  The AMT was created in 1969 to ensnare a handful of taxpayers.

Small business expensing will be slashed and 50% expensing will disappear. Small businesses can normally expense (rather than slowly-deduct, or “depreciate”) equipment purchases up to $250,000.  This will be cut all the way down to $25,000.  Larger businesses can expense half of their purchases of equipment.  In January of 2011, all of it will have to be “depreciated.”

Taxes will be raised on all types of businesses. There are literally scores of tax hikes on business that will take place.  The biggest is the loss of the “research and experimentation tax credit,” but there are many, many others.  Combining high marginal tax rates with the loss of this tax relief will cost jobs.

Tax Benefits for Education and Teaching Reduced. The deduction for tuition and fees will not be available.  Tax credits for education will be limited.  Teachers will no longer be able to deduct classroom expenses.  Coverdell Education Savings Accounts will be cut.  Employer-provided educational assistance is curtailed.  The student loan interest deduction will be disallowed for hundreds of thousands of families.

Charitable Contributions from IRAs no longer allowed. Under current law, a retired person with an IRA can contribute up to $100,000 per year directly to a charity from their IRA.  This contribution also counts toward an annual “required minimum distribution.”  This ability will no longer be there.