FIFO-first in, first out

By Bill Hill

Will Massachusetts drop universal health care before everyone else adopts it?

The current Governor of Massachusetts just breathed a sigh of relief while he announced a three year $26.7 billion agreement with the Centers of Medicare and Medicaid(CMS).  This agreement is actually an increase of $5.69 billion over the previous waiver from the days of George Bush.  Why is this Massachusetts model the focus of so much buzz when the plan is bankrupting the state?  Read the comments of two Congressmen from Massachusetts as released by Governor Deval Patrick’s official website.  Congressman Edward Markey stated, “The Medicaid waiver serves as the cornerstone of Massachusetts’s health reform, and I’m pleased that the agreement announced today will provide the resources our health care providers need to care for our residents and will allow the Commonwealth to continue leading the nation in innovative health care solutions.”   In the same press release, Congressman James McGovern is quoted, ”We need to build on that success.  The initiatives supported by this waiver will continue to provide affordable access to high quality care for all patients while containing cost.” (emphasis added)

I just have one question for these representatives of the Commonwealth?  Which health plan are you referring to?

 

The Commonwealth should change its moniker to The Commondebt

The Massachusetts plan has been running a deficit since its inception and were it not for the cash injections from the Federal government, the Commonwealth would be bankrupt along with many of its hospitals.  It appears that the Federal Government has to keep the poster child healthy until the mandates in the Patient Protection Act take effect on January 1, 2014.  However, it does not take a great deal of research to reveal that the Commonwealth has severe fiscal problems that cannot be artificially propped up for long.  Here is a brief sampling of some of the reports:

  • A report for the Massachusetts Business Alliance for Education by Edward Moscovitch states,           ”From 2000 to 2010, health care consumed two thirds of the entire increase in state spending.”-one of the solutions suggested was for all municipal employees to move to the Group Insurance Commission(GIC) which is touted as a lower cost option
  • In 2009, Heartlander Magazine reported that Massachusettes had to cut funding for Commonwealth Care by rationing care and delaying benefits to legal immigrants -In 2011, funding was reinstated to provide coverage until  the end of the year for legal immigrants as a stop gap until 2014 when funding will be provided by the federal government.    
  • In 2009, The New York Times reported on a lawsuit filed by Boston Medical because they were only receiving 64 cents for every dollar spent on Commonwealth Care.
  • In 2010, according to The Boston Globe, GIC had to cut the benefits mid-year in order to avoid a “rather substantial deficit” mid-year deficit according to the executive director of GIC -Notably, one of the changes the president of the firefighter union thought was so unfair was the addition of a $250 deductible and $750 for the family
  • The Worchester Region Chamber of Commerce recently reported that the city was faced with a $7 million deficit and the largest expense must be addressed, wages and benefits which represent  85% of the city budget. -Chamber was recommending a change to a “high” deductible plan of $500- $1,000 which is not uncommon     (For those in the industry, this is laughable.)
  • In 2011, Wicked Local Newton reported that Newton, MA public schools were considering a move to GIC from their self-funding plan so they could save $2.3 million in 2012
  • The Lowell Sun just reported this month that Lowell, MA is facing a $432.7 million liability for retiree healthcare benefits -To pay for these services, Lowell would need to hike property taxes by more than 20% which liability pales in comparison to cities like Worcester  ($765.3M), Springfield($761.6M) and    Brockton($693.6M)
  • Just this month, Massachusetts Budget and Policy Center has just given a budget review and stated that the projected savings from the MassHealth program will unlikely materialize.

There is so much smoke here about the future of universal healthcare that any shout of “fire” would trigger a five alarm response.   Massachusetts does not have the cost contained and if their scheme is the cornerstone for the nation then the delivery of health care will crumble as the only success they will experience is forcing the entire country to fund their folly.

As an Employee Benefits consultant for the last 24 years I can share some insights from my national experience that will help you understand how irresponsible the bureaucrats of Massachusetts have become. Every state that has tried universal health care has failed (Washington and Kentucky come to mind) which resulted in a dramatic increase of cost as insurance companies and medical providers either left the state or went bankrupt.  It usually takes five to ten years before the marketplace returned to some normalcy.  The people of Massachusetts will suffer once the Commonwealth defaults.  Unfortunately, it appears to be a sad preview of what is to come nationwide on January 1, 2014 if the Patient Protection Act is not repealed. 

Governments at all levels are and have been providing benefits that do not reflect the market realities of comparable jobs in the private market.  To make matters worse, a large segment of the employees working at governments sought those jobs precisely because they have more serious health concerns and want someone else to pay for the treatments.  For an indication of the mindset that develops when a good or service is perceived as free, please refer to the point above in which the president of the firefighters union thought it was unfair that members of GIC had to suffer the expense of a $250 deductible.  In the heart of the Midwest(The lowest cost area in the country!), insurance companies have not offered a $250 deductible in the last five to seven years!  In fact, most employers are offering deductibles in the range of $1,000-$2,500 and those are creeping up at a fast pace as employers try to reign in cost.

As a further testament to the loss of reasoning in Massachusetts, look no further than the decision made by Newton Public Schools to move from a self-funded plan to GIC which will generate a savings of $2.3 million a year.  Self-funded plans are special in that the entity (Newton PS) actually pays the claims and they can control the claim expenses paid out by modifying benefits.  They do not pay “premiums” to an insurance company in the same manner most people understand.  As such there is no profit margin in the plan for an insurance company.  The costs of the plan are for the most part the actual claims incurred by those insured.  Newton PS can never save any money in a traditional sense because the claims represent the true cost of the plan.  If they do switch to GIC, it simply means that someone else will be footing the bill for the $2.3 million in savings.  Although this might prove difficult as GIC is already in a deficit position.

The only thing one can ascertain from the consolidations going on in Massachusetts is that the state GIC will become the single payer (at a huge loss), ultimately becoming too big to fail and bailed out by the federal government.  The main concern for people living in Massachusetts is whether or not the hospitals and doctors can survive.  I don’t care how efficient the system becomes, a business cannot sustain losing 34 cents on every dollar spent as Boston Medical detailed in 2009.

Fortunately there is an answer and after witnessing the mess he helped to create, Tim Murphy who was the Secretary of health and Human Services for Massachusetts under Mitt Romney, has decided that Massachusetts should scrap the system and move to a defined contribution model as reported in an article published on Politico.com in March 2010.  He goes on to comment that “the state must avoid market-distorting action, like Governor Patrick’s recent price control recommendations. Instead the state should reduce burdensome insurance regulations, promote the direct purchase of health insurance by consumers…”.  So now he wants the free market to fix the mess he has created!

Don’t think this change will come easily.  Back in 2007 when I implemented my first defined contribution plan, I received a call from a lawyer at a large carrier because they had received a call from the Office of Insurance Commissioner who did not like the fact that the group plan was being cancelled.  (The employer was paying $841 per employee/per month for a $5,000 deductible on 120 employees.)  Evidently, the Insurance commissioner thought the business should continue to pay the excessive premiums until they went out of business.  After five weeks of negotiations, the employees were able to buy individual insurance (the carrier finally issued them) with their defined contribution but the Insurance Commissioner was successful in quickly changing the statutes to ensure the process is as painful as possible for future employers.

If you want to know the future of health care financing, look no further than Massachusetts to determine what will happen in every state.  As the situation worsens, the government will do what it always does, consolidate and control, go bankrupt and then drop the coverage. Massachusetts will be the first state to drop universal health care because they are already bankrupt.  There will be no stopping this train.  The insurance companies have already invested millions in the changes mandated by PPA.  Your best strategy is a tried and true one used by libertarians everywhere- leave!  Get off the train before the wreck.  Terminate your group medical plan today and give your employees access to the funds via a Cafeteria Plan.  Not only will you drain the energy from the health insurance debate but you will be finally taking control of your business expenses.   

 

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