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The Massachusetts Model

Health Care Reform for the Insurance Industry

by SHARON SMITH

"Affordable healthcare for all" has become a bipartisan rallying cry, echoing from governors’ mansions around the nation, while members of the new Congress have already introduced ambitious proposals for healthcare reform. On January 22, the Wall Street Journal observed that corporations represented by the Business Roundtable have responded positively to the recent reform proposals, noting that businesses complain they are "unable to compete in a global economy when companies from other countries don’t have to pay for healthcare."

Even the White House is jumping on the bandwagon. After assuring listeners in his January 20th radio address that "Americans are fortunate to have the best health care system in the world," Bush unveiled his plan to forcibly wean workers away from so-called "gold-plated" health insurance policies that were the mainstay of union contracts during the post-World War Two era and into "basic" bare-bones plans that are rapidly becoming the model for the non-union twenty-first century. Bush will implement income tax penalties for non-compliance, while his plan will force workers to use fewer healthcare services-because they will be paying for them out-of-pocket due to their "basic" plans’ enormous deductibles.

At first glance, Bush’s punitive proposal seems to bear little in common with the "Healthy Americans Act" introduced by Oregon’s Democratic Senator Ron Wyden or the "bold plans" of Republican governors Mitt Romney and Arnold Schwarzenegger, as the Chicago Tribune described them, to mandate universal coverage in Massachusetts and California.

But don’t be fooled. These bipartisan plans aim to provide a cash cow for the insurance industry, while demanding nothing in return: no curtailing of the obscene profits of healthcare conglomerates and no caps on skyrocketing insurance premiums or deductibles that sharply increase out-of-pocket costs.

Instead, these plans will be financed by further bleeding workers. Since 2001, workers have already endured a 58 percent increase in costs for family plans and 63 percent for single policies. According to the Economic Policy Institute, 58 percent of U.S. workers had an average wage of less than $15 per hour in 2005-and only 39 percent of these were covered by employer-provided insurance benefits. Millions of these workers-including the healthy and profitable twentysomethings the insurance industry is yearning to enroll-will be forced by law to purchase insurance that they cannot reasonably afford or face steep financial penalties. And the only plans on offer are those with high deductibles, leaving covered services unused-to the delight of insurers.

Finally, employers will be encouraged to drop healthcare benefits for their workers by making it cheaper for employers to pay penalties than to provide health benefits. Wyden’s proposal actually requires employers to terminate their existing health coverage-delivering the final blow to employer-provided insurance with nothing to replace it.

Every healthcare reform package under serious consideration, including Schwarzenegger’s, is modeled on Massachusetts legislation enacted in April 2006. The Massachusetts model is therefore worth examining, as it shines light on how bipartisan healthcare reform looks once it is implemented.

Presidential hopeful Mitt Romney plans to stake his 2008 campaign on the agreement he reached with Massachusetts Democrats to enact sweeping healthcare mandates last year. As BusinessWeek Online remarked in April, "Romney, a moderate Republican expected to run for the White House in 2008, champions this as a conservative victory that leads residents to take responsibility for their own health insurance."

Indeed, Massachusetts law now requires the following:

"Massachusetts’s residents, age 18 and older, [must] obtain and maintain health insurance coverage beginning July 1, 2007. Residents will confirm that they have maintained heath insurance coverage for the previous year on their state income tax returns beginning in 2008. Non-compliance with the individual mandate will result in a loss of personal tax exemption for the tax year 2007. Beginning with the 2008 tax year, penalties will increase up to 50% of the premium individuals would have paid if they had purchased health insurance The Bureau will maintain a database of all health plan membership to confirm who in the Commonwealth has health insurance coverage and during what time frames."

BusinessWeek noted that in 2005, "coverage for an individual ran about $4,000 a year, and nearly $11,000 for a family, according to the Kaiser Family Foundation." Massachusetts residents could thus pay a penalty of between roughly $2,000 and $5,500 per year for failing to purchase health insurance.

As the consumer advocate group MassCare argued, "The Bill includes provisions requiring that uninsured families purchase at least stripped-down, poor quality health insurance through the private market, or face stiff penalties on their tax forms."

How much will employers pay for flouting the new law? According to BusinessWeek, "The bill would require companies with 11 or more employees that don’t provide health insurance to pay up to $295 a year per worker." Small wonder that "there’s strong support in the business community for this measure," as Michael Widmer, president of the Massachusetts Taxpayer Foundation, observed: the $295 per worker annual penalty on employers who fail to provide health benefits dwarfs in comparison to the thousands of dollars in yearly penalties the IRS will force on taxpayers who cannot afford to buy individual plans.

Even some insurance conglomerates have thrown their weight behind Schwarzenegger’s plan that, like Massachusetts’, would require all California residents to purchase health insurance. The plan would "present real possibilities for our business," UnitedHealth Group CEO Stephen Hemsley commented. Although UnitedHealth took in $1.2 billion in net earnings during the fourth quarter alone-a 38 percent increase from a year earlier-its new enrollment has been waning of late. "The California proposal could expand the industry’s market to four million to five million currently uninsured Californians," the Wall Street Journal remarked.

"Shared responsibility" and "personal responsibility" are the watchwords of the new trend. Schwarzenegger advocates "an approach that supports cost containment and recognizes the shared responsibility of individuals, employers and government. That promotes personal responsibility and builds on existing private and public systems." Brookings Institution Senior Fellow M. Gregg Bloche wrote in the Los Angeles Times on January 21 that the California plan is expected to tie individual insurance rates to positive health choices: "The trim and the fit, [Schwarzenegger] said, ‘should be treated differently’ from the obese and the inactive. California should ‘reward healthy lifestyles,’ not just compliance with recommended care."

Schwarzenegger, however, has no plan to rein in the California insurance industry, which rejected one out of every five people who applied for individual coverage according to a 2006 consumer survey. In a speech to the Commonwealth Club last July, Schwarzenegger declared candidly, "I don’t believe in universal healthcare."

On December 31, the Times reported that minor ailments such as varicose veins, ear infections, previous psychological counseling and even "expectant fatherhood" have been grounds for rejection by California insurers. "Sometimes the reasons can seem absurd," the Times observed. "In a letter to an otherwise healthy recent college graduate, for instance, Blue Cross listed among the reasons it denied coverage a past bout of jock itch, ‘successfully treated with cream.’"

With 47 million uninsured and many millions more underinsured, the current batch of bipartisan reform proposals brings the U.S. no closer to addressing its healthcare crisis than the Clintons’ disastrous plan in the 1990s-and for the same reasons. Instead of challenging the industry’s never-ending quest for profits, these proposals dangle the possibility of yet more profits. If anything, as Ron Pollack, executive director of Families USA, predicted, "You’re going to see the number of the underinsured grow enormously in the years ahead," while those with illnesses will be those most affected.

Yet, by a margin of 88 percent, respondents to a Harris Interactive poll in November and December 2006 regarded "expand[ing] health insurance coverage for the uninsured as "absolutely essential" or "very important"; 81 percent strongly supported "reforms to moderate rising health care costs; 75 percent wanted to ensure that "families don’t pay excessive out-of-pocket costs relative to income; and 64 percent want to "reduce racial/ethnic disparities in care."

These goals can only be achieved by eliminating the unremitting drive for profits that has maintained the status of healthcare in the U.S. as a privilege rather than a human right, in stark comparison to the rest of the industrialized world. This is the only way to explain why the U.S., the richest society in the world, has the highest infant mortality rate and nearly the lowest life expectancy among the world’s industrial economies.

In September, Schwarzenegger vetoed SB 840, passed overwhelmingly by both Houses of the California legislature, that would have brought California one step closer to truly universal healthcare in a single-payer system modeled on Canada’s. In his veto remarks, Schwarzenegger stated, "Socialized medicine is not the solution to our state’s healthcare problems."

On the contrary, it is the only viable solution.