Liberal pundits are thrilled by a recent (non-peer-reviewed) blog post claiming that RomneyCare—the universal coverage program that Mitt Romney enacted in Massachusetts in 2006—has put a lid on skyrocketing health care costs. But they shouldn’t pop the cork yet: The evidence shows neither that the declining costs will last nor that they are the result of the program.
Progressives have long argued that it is not only uncivilized but also uneconomical that America does not offer coverage to all Americans. Uninsured patients impose undue costs because, instead of getting regular checkups and timely care, they rush to emergency rooms or wait until their conditions worsen. It’s no coincidence, under this view, that America is the world’s biggest health care spender (16 percent of gross domestic product) and also has the most uninsured citizens (45 million). Cover the uninsured and, voila, health care spending will stop soaring. But critics argue that savings from overuse of emergency care could not possibly offset the spending increases that patients with lavish coverage and no incentive for prudence would trigger.
So far, the evidence has been on the critics’ side. Indeed, a 2010 study by Stanford University’s John Cogan and others in the Forum for Health Economics & Policy found that in the first two years after Romneycare, premiums in Massachusetts in nearly every category shot up above the national average.
But that picture changed in the subsequent two years—at least according to Fred Bauer, a liberal blogger. Premiums in Massachusetts are growing at a slower rate than the national average. For example, average family premiums between 2002 and 2006 grew 5.5 percentage points more than the national average but 3.1 percentage points less between 2006 and 2010. Likewise, average single-coverage premiums grew 3.6 percentage points more before Romneycare and only 1.7 percentage points after.
This prompted The Washington Post’s Ezra Klein to jubilate in sentence fragments: “Romneycare is working. Across the board.” And Igor Volsky of Think Progress exulted, “The very fact that the law did not meet the doomsday scenario of critics and cause premiums to skyrocket is significant.”
Not so fast, guys.
You could claim success if the premium declines actually stemmed from the logic of universal care—that is, from savings generated through more preventive and timely care and less emergency use. And there is evidence of fewer emergency visits. But is that the cause of the declining premiums? No.
The Boston Globe reported a few weeks ago that the main force driving premium drops was people postponing care in a down economy—and that trend is already ending. Indeed, health plans whose “cost trend” (a combination of overall medical claims and the cost of care) increased 6 to 8 percent during the past few years are likely to return to 8 to 10 percent going forward, once again putting upward pressure on premiums.
But the other thing driving premiums down is that after RomneyCare busted the state budget in its first full year with cost overruns of 48 percent, Massachusetts started aggressively looking for cost-control measures. In 2009, Gov. Deval Patrick blessed an effort to nix coverage for 37,400 legal immigrants (and this from a liberal Democratic governor), but the courts outlawed the move as discriminatory last month. The courts also barred Patrick from imposing a uniform rate cap on insurers in 2010, although individual insurers still face price controls, since they need the state board’s blessing for any premium increases.
There’s more. Massachusetts has implemented something called “global budgeting,” a form of managed care under which providers are given a fixed sum per patient per year instead of being paid on a more traditional fee-for-service basis. Since providers keep any money left over in the patient’s budget, the hope is that they would offer more cost-effective care.
Although one in five Bay State residents are now on this “global budget,” the expected savings haven’t quite materialized: Powerful insurers and providers have simply negotiated a bigger per-patient budget. Hence, in 2010—when Bauer observed the biggest premium drop—the Bay State passed a law requiring insurers to offer cheaper, tiered-network plans that compel patients to get care from community hospitals and cheap providers unless they cough up more for better ones.
There are two points worth making about all this.
One: Massachusetts’ increasingly complex web of price controls and rationing might curb costs—until patients and providers find ways to beat them, that is. But that has nothing to do with the inherent logic of universal coverage. Indeed, if such measures had been imposed before RomneyCare burdened the state with more demand, the Bay State might have reduced health care costs even more.
Two: Desperate to temper runaway costs, universal coverage enthusiasts are embracing the very things that they abhor about the market. Isn’t the whole point of universal coverage to make quality care available to everyone regardless of ability to pay? Yet here they are, mandating “tiered” plans that let rich people buy quality and access while the poor languish in substandard facilities.
The problem with RomneyCare is that after destroying the market’s natural incentives for prudence and efficiency, it is trying to recreate them through bureaucratic fiat. This is something that ObamaCare will confront on an even grander scale. The outcome won’t be more equitable or better care, just loss of patient and provider control. That’s nothing to celebrate.
Reason Foundation Senior Analyst Shikha Dalmia is a a
columnist at The Daily, where this column