Friday, February 18, 2011

A Cautionary Tale on Government Controlling Costs

The Boston Globe reports this morning on the rollout by Massachusetts Governor Deval Patrick of a series of “reforms” intended to lower skyrocketing health costs within the Commonwealth.  Among the key takeaways – the legislation would give the Commonwealth “the authority to scrutinize insurers’ contracts with, and fees paid to, hospitals and doctors and consider whether those fees are appropriate before approving insurers’ requests for premium increases.”  In other words, under the proposal, government would micro-manage not just insurance companies’ practices, but the spending habits of thousands of doctors and hospitals as well.

It’s worth noting the sequence of events that led Massachusetts to this point – which provides a cautionary tale to those who believe the Patrick Administration’s latest plan will actually reduce costs:

  • In the 1990s, the Commonwealth (along with other states) enacted requirements requiring insurance companies to accept all applicants, regardless of health status.  This government regulation led many healthy Massachusetts residents to wait until they got sick to purchase insurance.  As a result, premiums skyrocketed.
  • Because the new insurance regulations quickly caused a market failure, Massachusetts legislators decided the solution to a government-imposed problem was…more government – specifically, a mandate that all residents purchase health insurance.  Unfortunately, data from multiple insurance companies show that many people are paying the tax associated with the mandate while healthy, only to obtain coverage and run up high health costs once becoming sick – placing more upward pressure on insurance premiums.  Moreover, the reforms passed in 2006 focused solely on expanding coverage, to the exclusion of cost control efforts – a further recipe for skyrocketing health expenses.
  • As costs continue to rise – and the Commonwealth is forced to hire private enforcers to police its controversial government-imposed insurance mandate – the Patrick Administration thinks the cost pressures created by the insurance regulations and mandates can be remedied by yet more government involvement, by regulating health insurers’ private contracts with doctors and hospitals.
  • And if the Patrick Administration’s proposals for new regulations don’t work, what will be the solution to them?  You guessed it – more government.  As one executive put it, if the new proposals don’t contain costs, “it’s likely we’ll see even bigger sticks coming our way,” imposed by government elites and bureaucrats.

The article admits that health costs are threatening to bankrupt the Commonwealth, and that the “reforms” of the past two decades if anything have increased, not decreased, those cost pressures.  At what point will Massachusetts learn that when it comes to containing costs, “government is not the solution to our problems – government IS the problem?”