Is RomneyCare Working?

Here's the latest good news about RomneyCare, the 2006 Massachusetts health care overhaul that served as the model for President Obama's 2010 reform: It might not wreck the state's budget quite as fast as previously thought.

As Ezra Klein noted yesterday, a new analysis of the 2010 Medical Expenditure Panel Survey (MEPS) data by Fred Bauer indicates that health premiums in Massachusetts are not rising as fast as they were. The most favorable statistic? After several years of family health insurance premiums rising faster than the national average, average family premiums in the Bay State actually dropped slightly in 2010. As The Boston Globe noted last December, instead of boasting the most expensive employer-sponsored family health insurance premiums in the U.S., as it did in 2008 and 2009, the state's 2010 premiums are merely in the top quintile, coming in at number nine. By other measures, Massachusetts' premiums are still rising, though the rate of growth slowed in 2010.

Klein argues that this means that "RomneyCare is working. Across the board." But at minimum, I think it's too early to tell. Bauer notes—and Klein quotes—that between 2006 and 2010, "employer-sponsored health-care premiums for a family rose about 19% in Massachusetts, while they rose about 22% in the US as a whole."

This suggests a four-year shift starting in the year that RomneyCare passed. But in fact, between 2006 and 2009 family premiums in Massachusetts rose faster than in the rest of the nation: Bay State premiums were 108 percent higher than the U.S. average in 2006, 112.1 percent higher in 2008, and 113 percent higher in 2009 (no data is available for 2007). The favorable comparison to the U.S. growth rate is accomplished by the change in the final year.  So far, at least, this isn't a trend—it's a blip.

With individual premiums, the story is similar, though the difference is even less dramatic. Bauer notes that although "health-insurance premium growth did not slow as much for individuals as it did for family plans… it still did slow in absolute terms and relative to the nation as a whole." He continues:

By the 2008-2010 period, the individual premium in Massachusetts grew about 5% slower than it did for the US (Bay State premiums grew 11.9% while US premiums grew 12.6%), so the gap between the two premium growth rates did narrow over the period. 

As with family premiums, however, the change that makes the story is in 2010. From 2006 through 2009, Massachusetts average individual premiums rose steadily faster than the national rates, going from 108 percent of the national average in 2006 to 112.8 percent in 2009. But in 2010, the growth rate dropped: Bay State premiums came in at 109.6 percent of the national average. Once again, the work is done by a single year.

And what happened during that single year? For one thing, the economy was in the midst of a miserable recession: The crash at the end of 2008 led to layoffs and thrift throughout 2009. Given the lag in premium-setting cycles, the corresponding changes in premiums would've shown up most prominently in 2010.

What else happened in 2010? As Bauer notes, Massachusetts Governor Deval Patrick and his insurance commissioner underwent a very public fight over rate increases in the small group health insurance market, rejecting nearly 90 percent of proposed increases under emergency legislation. The insurers eventually settled and limited their rate hikes, despite a judgment by an appeals panel overturning the administration's rate caps for one of the state's insurers. Bauer argues that the rate hike fight does not "fully explain" the drop in family premiums. Surely, however, it explains some of it; in the short term, political pressure and price controls can reduce prices, even if such controls are not sustainable long-term cost-control measures. And for a time, they can also exert more subtle pressure throughout a system, acting as an implicit threat. 

And price controls typically reveal themselves in other ways, which is why it's worth asking what those premiums were actually buying. Part of the explanation for the dip in 2010 prices may simply be that insurers and employers were scaling back in terms of what they were buying. In April of 2010, amidst both the specific fight over rate hikes and a broader climate of worry about the state's rising health care costs, The Boston Globe reported that health insurers in the state were beginning to limit access to popular but expensive hospitals; one way to cut back on premiums is to cut back on services.

Meanwhile, in a presentation on premium trends in private health insurance sponsored by the state's Division of Health Care Finance and Policy last June, Dianna Welch noted that premiums in the state weren't merely increasing: consumers, in response, were also buying substantially less insurance. That can disguise the growth of premium prices—what she calls "buy down."

Think about it this way (these numbers are hypothetical): In 2010, you buy a plan for $100. In 2011, you have the option to either buy the same plan for $106 or pay $103 for a less comprehensive plan than in 2010 sold for $90. If you take the latter option, you're actually paying a lot more, on a unit basis, despite the smaller dollar increase. It's not clear how much buy down accounted for the 2010 figures, but we know it was already happening in the years prior:  Welch notes seeing "significant" buy down in 2008 and 2009.

Finally, it's worth noting that during the same series of presentations, which reviewed data through all of 2009 and preliminary data from 2010, Massachusetts officials and influencers did not view the state's health spending trends as successful. Over the course of three days last summer, various policy bigwigs in the state heard from a who's who of Massachusetts' health policy hotshots. Here's a sampling of what they said about the state's health system. 

Jeffrey Sanchez, Chairman of Massachusetts Joint Committee on Public Health:

There's one graph that I enjoy bringing out to groups throughout my district, and even throughout the Commonwealth. It's that Mass taxpayer foundation pie chart that shows how much our health care costs were in 2000 as opposed to how much we're spending now. In 2000, we were spending about 20% of our costs.  Now, we're up to, what, 34, 35%? It's just unsustainable.

 JudyAnn Bigby, the state's Secretary of the Executive Office of Health and Human Services:

Just in case people don't know, we spend nearly $37 billion annually on health care in Massachusetts. Given that number, it's no surprise that it's the number one player in Massachusetts. Between 2007 and 2008, spending overall increased by nearly 5%. That growth was highest in the private market, at about 6%…

Jay Gonzalez, from the Executive Office for Administration and Finance:

Health care costs are eating up a bigger and bigger share of the state budget. In 1998, fiscal '98, it was about 21% of all state spending. Next year, it will be about 40% of all state spending.   Based on our analysis, if things just continue to go the way they have been going, by 2020, just eight years beyond next year, it will be 50% of the state budget. It is crowding out everything else state government needs to do. …We're on a path that if we continue, we will end up being—government will end up doing nothing more than providing health insurance, which obviously is not an acceptable result.

…I just want to end by making clear, in case I haven't already, health care costs, and the growth trend in health care costs, threaten the very viability of government. Everything government does is threatened if we do not address this challenge.

This is not a picture of a system that is working—or even on the verge of working. It is not a system that's on an obvious track to success, or that has shown mostly positive signals. As recently as last summer, armed with data running through all of 2009 and the early part of 2010, these officials—most of whom have voiced some generalized support for Romney's health overhaul and its insurance expansion—did not perceive a state health system that was in any way fiscally sound. Which suggests that the 2010 data does not tell us that the Massachusetts health system is firmly headed in the right direction; at very best, it suggests that the system may have taken a single step towards somewhat slower cost growth. If so, this would be welcome news. But nationally, premium growth declined in 2010, dropping to about three percent after several years running at five. In 2011, however, they shot way up, rising by nine percent. Which suggests that this brief slowing of the Bay State's premium growth may well be just a temporary stopover on the too familiar road to fiscal ruin.