Regulations Drive Up Cost Of Massachusetts’ Health Plan

April 19, 2007

Massachusetts enacted an ambitious plan for near-universal health insurance coverage in 2006, the product of a compromise between then-Gov. Mitt Romney and the state Legislature.  Yet the regulations and mandates imposed on the insurance market by the plan have driven up costs and made insurance more expensive, according to a new report released today by the National Center for Policy Analysis (NCPA).  The report's author suggests five solutions that can increase insurance coverage while keeping costs low.  

            "Massachusetts' highly regulated health insurance market puts private coverage out of reach for many who want and need it," said Devon Herrick, senior fellow with the NCPA.  "The inability to pay premiums is one of the primary reasons people lack health insurance."

            According to Herrick, five simple steps could reform the Massachusetts plan and promote insurance coverage for all residents. The five steps are:

1. Request a Block Grant: Massachusetts could tailor their federal Medicaid funds to fit the needs of different enrollees or subsidize employer health plans.
2. Allow Consumers to Choose: Residents need to be allowed to purchase the type of coverage they want, at a price they are willing to pay.
3. Remove the Employer Mandate: Employer benefits are a form of non-wage compensation, so forcing employers to provide them becomes a tax on labor that inhibits job growth.
4. Eliminate Costly Insurance Regulations: Regulations requiring insurance companies to issue policies to all people who request them drives up costs and prices some out of the private insurance market.
5. End Costly Benefit Mandates: Forcing insurers to cover benefits that many consumers may not want (or need) also drives up premiums, driving even more patients out of the market.

            As premiums rise, lower-income and healthy people are driven out of the individual market.  The pool of insured people grows smaller and less healthy, driving up premiums even more.  While proponents claim this cannot happen when everyone is required to have insurance, a tax penalty of $200 is unlikely to entice young, healthy people into buying expensive coverage.

            "Massachusetts should establish a state-subsidized, high-risk pool to help high-cost individuals obtain affordable coverage," said Herrick.  "Instead of community rating and guaranteed issue, it should allow insurers to charge risk-based premiums."

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