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Health Care Monopolies and the Massachusetts Model

April 18, 2006

Last week, Massachusetts Governor and 2008 GOP presidential hopeful Mitt Romney signed legislation mandating that all residents of the Commonwealth acquire health insurance. But while many analysts are lauding the Romney blueprint, a new American Medical Association report on the entrenchment of health insurance monopolies shows one of the many pitfalls of the Massachusetts model.
On its face, the Massachusetts law seems like an innovative approach to providing health care coverage for all. Akin to auto insurance, all residents must acquire coverage, either through their employer, in the private market, or at lower-income levels, through state-subsidized programs. Residents must further show proof of coverage with their state income tax returns, or face fines. To pay for it, the state will redirect the $1 billion it spends annually on emergency treatment for the uninsured towards subsidized programs from a range of insurers.
Which brings us to the AMA report and the cloud it casts over the much-hyped Massachusetts model. In most states, the AMA concludes, the idea of choice among competing insurance providers is a myth. The study showed that in each of 43 states, a small group of insurers exerts such market dominance as to merit the Justice Department "highly concentrated" market methodology for assessing potential anti-trust action. In 166 of 294 metropolitan areas surveyed, a single insurer controls over half the preferred provider network and HMO underwriting. In North Dakota, for example, Blue Shield owns 90% of the market. It's no wonder that Jim Rohack, an AMA trustee, concluded "This problem is widespread across the country, and it needs to be looked at."


That's especially the case if other states are serious about adopting the Massachusetts model. Without a choice of providers, mandatory insurance plans have no mechanism to help states rein in costs for their taxpayers-turned-health care subscribers. The insurers growing market power means they can dictate both coverage terms and prices. 400 mergers in the past decade have helped fuel out-of-control health care costs, which rose at a double-digit clip from 2001 to 2004, three to four times the overall rate of inflation. The implications for middle class resident on their own in the health care marketplace are worrisome, to put it mildly.
The rapid concentration of the health insurance industry is just one of several major hurdles for Mitt Romney's Massachusetts plan. Another is its unknown budget busting potential, which Boston University's Alan Sager termed "a reckless gamble." Worse still, the bi-partisan Massachusetts plan contains no carrots or sticks for encouraging businesses to retain or expand their employees' health care coverage. With an eye towards his 2008 run, Romney wants to avoid the charge that he advocated taxes on business. As a result, he has vowed to veto the $295 per employee fine the legislation calls on firms to pay for not providing coverage.
Health care coverage, after all, is not auto insurance. Mandatory auto insurance is essential to managing liability under no fault systems now common in most states. The need for health care, in contrast, is not a remote possibility or contingency; you may or may not have a car accident in the next five years, but you will need medical treatment. And contrary to what advocates of consumer-driven health care claim, the market for health care is not one where perfectly and symmetrically informed equals meet in a fair exchange. When it comes to buying health care coverage, consumers often don't know what they don't know, except perhaps that with today's medical costs, they have no choice.
How right they are.


About

Jon Perr
Jon Perr is a technology marketing consultant and product strategist who writes about American politics and public policy.

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