Health Insurance Smackdown in Massachusetts: What's Really at Stake

The war between Massachusetts and six insurance companies over "excessive" rate increases will have national repercussions for two reasons: first, because the federal reform program is patterned after Massachusetts'; and second, because the focus of the struggle will inevitably shift to the underlying reasons for the premium increases. When that happens, and the news is reported nationally, public pressure on healthcare providers and drug and device companies will intensify.

In the wake of a court ruling that temporarily upheld state limits on the rate hikes for individuals and small businesses, William C. Van Faasen, the new CEO of BlueCross BlueShield of Massachusetts, called for a truce that would allow the insurers and the state to work with providers to rein in increases in the cost of healthcare. One might suspect Van Faasen of doing this to protect his company's profits, but for one fact: BCBSMA had a $149 million operating loss last year as its membership declined because of company layoffs. Other insurers say that if they can't levy premium increases of 8 to 32 percent, they will lose money next year.

Massachusetts Gov. Deval Patrick warned two months ago that he would block what his administration regarded as "excessive" rate hikes. When the insurance commissioner did so recently, denying requests for 235 premium increases, the insurance companies sued, seeking an injunction against the state's action. While they awaited a court ruling, some of the health plans refused to write new policies for individuals or small firms. They'll have to now after the decision by Superior Court Judge Stephen E. Neel. But Neel ruled only that the carriers must first appeal to the insurance department before seeking redress elsewhere. If that appeal fails, as expected, the ball will be back in state court.

At the national level, the Affordable Care Act doesn't give President Obama the authority he sought to block insurance rate increases across the country. While politically popular, that idea -- tantamount to price controls -- didn't fly even with members of the President's own party. But in the wake of Anthem Blue Cross' much-publicized 39 percent rate hike in the individual market, the California legislature is considering a bill to limit future rate increases, much in the same way as Massachusetts has. Other states that are seeing healthcare become unaffordable may be considering similar moves.

So how would Van Faasen of the Massachusetts Blues tackle the problem of runaway health costs? He'd like to move to narrower provider networks and give consumers more quality and cost data to make better-informed choices of doctors and hospitals. The first approach sounds o.k. in theory, but employers and consumers would have to consent to be restricted to certain providers. That means, for example, that they might not be able to use Massachusetts General Hospital or any other hospital in the Partners Healthcare network if, say, BCBSMA couldn't come to terms with Partners.

As for the idea of providing more information to consumers, again, that's a fine idea if 1) consumers would act on the data, which is difficult if they have no choice of insurance plans and rely on their doctors' advice; and 2) insurance companies were willing to publish data on how much they pay different hospitals. Up to now, says Paul Levy, chief executive of Beth Israel Deaconess Medical Center in Boston, the health plans have refused to do that. Obviously, the insurers don't want anybody to know what they're paying their competitors.

Meanwhile, the Massachusetts Blues has offered "alternative quality contracts" to the few provider networks that are big enough to take substantial financial risk. The risk involves accepting a set amount to provide all healthcare for a defined patient population. To minimize the possibility that providers will skimp on care, the Blues promises them quality bonuses. The state is mulling a similar approach in the interest of holding down costs, but it doesn't appear that it will succeed until most physicians and hospitals are working together in large -- and accountable -- care organizations.

And so we're back to square one. When that will change is anybody's guess, but we'll learn a lot from the battle royal in Massachusetts.

Image supplied courtesy of David Paul Ohmer at Flickr.