Once again, Massachusetts is providing a testing ground for national healthcare policy. While the U.S. Congress is only beginning a debate about regulating and capping insurance premium increases, the Massachusetts government has already denied proposed rate hikes, and insurers' reactions in the state may foreshadow what's to come at the national level.
First, a caveat: It can be risky to read too much into what happens in Massachusetts. Sometimes the state is a leading indicator of the successes and failures of national healthcare reform (the final legislation took a similar approach, after all). But often what happens in Massachusetts is simply what happens in Massachusetts. It is a unique market with its own strengths and challenges, and every change doesn't necessarily portend how other states will react to similar policy.
But in this case it's easy to connect the dots. In April, the state Division of Insurance refused to allow insurers to raise premiums to their proposed levels in the small-group market. Last week, four major Massachusetts insurers claimed that the decision to cap rate increases led to more than $150 million in first-quarter losses. This week, some of those same insurers are telling hospitals and physicians that they will freeze or slash payments in the upcoming round of contract negotiations.
In essence, the insurers are shifting their losses to hospitals and physicians.
When given the chance, most private companies will do what they can to avoid a tax or cost increase. If they can shift the price to the consumer without losing customers, they will. In this case, the government has locked down the amount that insurers can shift to those who buy their product, so now they're looking in the other direction, at providers.
There has already been a similar federal law proposed to regulate health plan premium hikes nationwide by requiring insurers to submit increases over a certain amount to the Secretary of HHS or a state agency for approval. If we stick to the Massachusetts-as-bellwether theory, then it is likely that capping rates nationwide could lead to more insurer losses, and in turn more payment reductions to hospitals and physicians.
But markets and profit margins are different everywhere, and price controls won't necessarily affect a payer in rural Oklahoma the same way it will one with most of its customers in greater Boston.
The warnings coming from Massachusetts payers do very little to address the problem that the rate caps were intended to address: Spiraling costs. Hospitals and physicians are already struggling with cuts to Medicaid and Medicare, and many don't have the margins to absorb a reduction in private rates at the same time.
Maybe providers will take it upon themselves to weed out waste in order to stay afloat with lower reimbursement levels. But the best examples of systems that increase quality while reducing costs seem to come from those that involve partnerships between providers, patients, and payers. Massachusetts insurers are moving in the other direction, with more emphasis on contract negotiations and incentives for adversarial relationships.
Insurers are being pressured by politicians and employers to do something about healthcare costs, and have an opportunity to realign their relationships with providers to dig out some of the waste in the system.
Everyone is partly responsible. There's waste in providers' practices, waste in payer policies, and waste cause by government regulations. If the reform goal is to cut out healthcare waste, each party involved needs to do more than play a game of hot potato and pass costs to someone else.<