The Price of RomneyCare


With health insurance premiums in Massachusetts rising by double-digits each year and the state boasting the nation's high premium prices, there's been little question about whether or not Bay State's 2006 health care overhaul contributed to the spike in health insurance premiums. The only thing we haven't known is how much of the state's rising premium costs can be blamed on the model for ObamaCare.

But a recent study by economists John F. Cogan and Daniel Kessler of Stanford and Glenn Hubbard of Columbia attempts to quantify what we've known for a while: the health care overhaul in Massachusetts has made health insurance in the state quite a bit more expensive, especially for small businesses and their employees. The study, published in the Forum for Health Economics & Policy, found that "health reform in Massachusetts increased single-coverage employer-sponsored insurance premiums by about 6 percent in aggregate, and by about 7 percent for firms with fewer than 50 employees." As these figures suggest, the authors conclude that small business employees were hit particularly hard:

In particular, family premiums for employers with less than 50 employees grew 9.4 percent more from 2006-08 in Massachusetts than the United States. By comparison, Massachusetts had 5 percent lower premium growth in the small-group market from 2004-06. Thus, the differential Massachusetts/US growth in small-group premiums from 2006-08, over and above the growth from 2004-06, was 14.4 percent. At least by this measure, health reform in Massachusetts imposed a very large burden on small businesses and their employees.

The study's author note that although their research design came with a few significant limitations,  their conclusions nonetheless "suggest that policy makers should be concerned about the consequences of health reform for the cost of private insurance." And in general, it's worth remembering that RomneyCare is probably the best predictor of the eventual effects of ObamaCare. As Joseph Rago argued in yesterday's Wall Street Journal, the reforms in Massachusetts don't bode well for the fiscal sustainability of ObamaCare—because, as Rago says, everyone but Mitt Romney agrees the federal overhaul is similar in all the most important ways to the Massachusetts reforms.  

Yes, as ObamaCare boosters frequently note, the Massachusetts plan has increased insurance coverage; at 97 percent, the Bay State now has the highest coverage rate in the nation. But that's a far less impressive feat when you consider that, in the years prior to the new law's passage, about 90 percent of the population was already covered. That's much higher than most other states; the average coverage rate for states at the time was about 84 percent.

What reformers in both Massachusetts and Washington did was to identify two genuine problems with the U.S. insurance system: rising costs and lack of coverage. But then they argued that addressing the latter was the best way to solve the former. The U.S. system has, for a while, suffered problems with both cost and coverage. But the solution offered by liberal reformers—solve the cost problem by expanding coverage—has never made much sense. It's like looking at a slowly sinking cruise ship in which 15 percent of the occupants have been knocked overboard and saying that the best way to stop the ship from sinking is to spend a lot of time and effort bringing everyone in the water on board. With ObamaCare, Washington has chosen to bring nearly everyone back onto the ship; but if Massachusetts is any indication, the result will be a still-leaky ship that sinks far faster.