Massachusetts health program, model for Obama’s reform, strains state budget

Font Size:

In 2006, the state of Massachusetts passed a sweeping overhaul of the state’s health-care system. The system, which influenced the Obama administration’s plans for national reform, has since faced unexpected and unchecked growth in costs, both to the government and individuals, forcing the government to cut benefits and raise taxes. Now analysts say that without significant policy changes, the program’s long-term viability is in doubt.

State officials have successfully increased health insurance coverage in the state: With only 2.6 percent of the population now lacking health insurance, its insurance rate is the highest in the nation. But high coverage levels have been achieved at a substantial price, and one that is expected to increase over time.

For the state’s policymakers, rapidly rising health-care costs are the central problem with the plan. Since 2006, the cost of the state’s insurance program has increased by 42 percent, or almost $600 million. According to an analysis by the Rand Corporation, “in the absence of policy change, health care spending in Massachusetts is projected to nearly double to $123 billion in 2020, increasing 8 percent faster than the state’s gross domestic product (GDP).”

Meanwhile, the cost of insurance premiums in the state is the highest in the nation, and double-digit rate hikes are expected again in 2010.

The worry, shared across the political spectrum, is that the state’s health-care spending will overwhelm the state’s budget. Already, it has forced service cuts that have irked those on both sides of the aisle.

Physicians for a National Health Plan, a doctor’s group that supports a fully socialized, single-payer health-care system, warned in a February 2009 report that the new system had failed to reduce medical spending, and has subsequently drawn funding away from crucial health resources such as emergency room care.

Michael Tanner, a health policy analyst at the libertarian Cato Institute notes that huge deficits and skyrocketing public expenses already have resulted an increased cigarette tax of $1 a pack, as well as $89 million in new fees on the health-care industry.

And in summer 2009, the state announced plans to drop coverage for 30,000 legal immigrants with a goal of cutting $130 million in health-care expenses.

One problem the state has faced is that it failed to accurately anticipate the true cost of the program. At the time the program was signed into law, estimates indicated that the cost of Commonwealth Care, which is responsible for the program’s biggest single cost, its health insurance subsidies, would be about $725 million per year. But by 2008, those projections had been revised. New estimates indicated that the plan was to cost $869 million in 2009 and $880 million 2010, an upwards increase of nearly 20 percent.

Massachusetts would not be the first state to face a budget crisis due to unexpected cost spikes after instituting policies designed to increase insurance coverage. In 1994, Tennessee launched TennCare. The program successfully cut the state’s uninsured rate to about 6 percent. But in 2005, the state was forced to scale back significantly, slashing 170,000 people from the rolls after the program’s rapidly increasing costs threatened to send the state into bankruptcy.

Some of the program’s critics have argued that the state’s $5 billion budget deficit is a result of health care costs. Defenders of the Massachusetts system note that the deficit is a result of decreasing tax revenues and long-term effects of policy changes in the 1990s. The state would likely be facing budget deficits even without the 2006 program.

Others say budgetary concerns have been blown out of proportion. A November 2009 article in the New England Journal of Medicine, for example, notes that the cost to the state’s general fund has not been unmanageable.

But should costs continue to rise apace, they could easily dip further into the general fund in the future. And the report’s authors agree that the “high cost of care in Massachusetts is causing major strains,” and that now, “tackling costs has risen to the top of the agenda.”

Peter Suderman is an associate editor at Reason magazine.