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Response: In Massachusetts, We Got Reform Right

Jonathan Gruber is a professor of economics at the Massachsuetts Institute of Technology, an adviser to the nation's top policy-makers on health care, and--as readers of this space know--a frequent source for expertise on The Treatment. He was an architect of the Massachusetts health reforms and now serves on the board of the Massachusetts Connector, which oversees that program. Diane Archer's criticism of the Massachusetts plan prompted him to write this response:

Diane Archer argues that replicating the Massachusetts model on the national level would be “throwing good money after bad.” The Massachusetts reform is not perfect, although the problems are not nearly as bad as painted by Archer. As Jonathan Cohn originally wrote, the issue is whether you look at this as glass half full or half-empty. The former approach is realistic. The second is idealistic, and runs the risk of missing the best chance at universal coverage we have had in at least fifteen years, if not longer. Despite her protestations to the contrary, Archer’s arguments are perhaps the classic illustration of letting the perfect be the enemy of the good. Indeed, that point permeates my response so fully that I will refer to this as the “PEG principle”

What we have accomplished in Massachusetts is nothing less than the most significant expansion in insurance coverage, in percentage terms, in the history of the United States. In less than three years after passing health reform we have covered at least two-thirds of the existing uninsured individuals in the state.  Compare this with the enormous effort expended in promoting the S-CHIP expansion, a worthy and sorely needed piece of legislation, but one which, most optimistically, will cover fewer than ten percent of the uninsured.

Archer focuses on three shortcomings of the Massachusetts law. The first is incomplete coverage. There are two fronts on which her arguments are misleading. First, she ignores the fact that the level of financial protection extended by the Massachusetts model is sufficient for virtually every citizen in the state. We are the first state in the entire nation to actually regulate (as part of minimum coverage to qualify for the mandate) that insurance plans must cover prescription drugs, and that no plan can have an out of pocket maximum exceeding $5000.  

It is true that out of pocket maximums can exclude prescription drugs, so in theory it is conceivable that an individual could gather $10,000 in medical bills. It is also true that for young adults in the state there is the ability to purchase a plan with a cap on reimbursements of $50,000. But I am aware of no examples of individuals reaching this level of medical expenditure under our law, and to date no single young adult has reached the $50,000 limit. So Archer would dismiss unprecedented financial protection for the citizens of our state on the basis of a theoretical example. If that doesn’t illustrate the PEG principle, what does?

The second problem with her argument is that Archer ignores the decades of evidence in health economics that it is a good idea for individuals to pay a non-trivial share of their health expenditures. As I review in this piece for the Kaiser Family Foundation, ever since the RAND Health Insurance Experiment in the 1970s we have known that for non-poor individuals, a high level of medical cost sharing induces efficient medical use with no negative consequences for health. Significant cost-sharing may be a burden for lower income groups, but these groups receive insurance benefits that are at least as good as those provided by employer-sponsored insurance under our Commonwealth Care Program. We are also the first state in the nation, through our minimum creditable coverage, to regulate that health insurance cover preventive care visits before any deductible is applied.

The second shortcoming highlighted by Archer is that the law does not provide universal coverage; roughly 15 percent of our uninsured are exempted from the mandate. This is an unfortunate feature of our law arising from the position taken by Governor Romney that subsidies not be offered above three times the federal poverty line. Rather than burden individuals at that level with high costs near that cutoff point, we have an affordability exemption from the mandate for a range of incomes. In a perfect world, and I hope in any federal legislation, subsidies would extend further up the income scale and this would not be necessary. But given the constraints under which we are operating, I would think the state deserves praise for the exemption rather than forcing individuals to buy insurance they can’t afford.

Yet somehow critics take this as another opportunity to criticize the Massachusetts law. This really boggles the mind: somehow the fact that we only were able to make insurance affordable for 85 percent of the uninsured is a failure! I think it is totally reasonable to criticize the structure of our subsidies and suggest they go higher up the income scale so that exemptions aren’t necessary. But to somehow call this a failure is once again living up to the PEG principle.

The final shortcoming is the fact that the Massachusetts law did not incorporate meaningful cost control. This criticism is largely true, although the accomplishments of the state along this front are worth noting. Premiums for non-group insurance in our Commonwealth Choice program (which serves the non-subsidized population) rose only 5 percent last year, below the rate of increase of employer-sponsored insurance. And due to an innovative competitive strategy for bidding for our subsidized Commonwealth Care program, the costs of this program will actually fall in 2009.

Nevertheless, the Massachusetts law explicitly did not take on the fundamental determinants of medical cost growth--and this is, in my mind, the genius of the approach. For decades, efforts to move towards universal coverage have always floundered on the shoals of cost control. For thirty years we have seen growing numbers of uninsured for one reason: because well-meaning reformers have tried to fit the square PEG (pun intended) of cost control into the round hole that is political viability. And when they lose, they take the uninsured with them.

What is particularly frustrating is that Archer and others miss the fact that doing coverage first is the single most important thing we can do to get to cost control. To see this once again we need look no further than our experience in Massachusetts.

We have one of the strongest and most effective advocacy groups for health care for the poor in the country, Health Care for All (whose former director and key architect of the Massachusetts law, John McDonough, is now directing the efforts for national reform at the Senate Health, Education, Labor, and Pensions Committee). After playing such an important role in passing our law, this group suddenly realized that their hard won gains may be lost if we didn’t eventually figure out a way to control health care costs. The result was an intense and broad-reaching campaign that resulted in the most significant cost-control legislation we have seen in Massachusetts in at least fifteen years. This includes the appointment of a commission that will revisit exactly the type of provider payment disparities that Archer highlights in her response.

This legislation, and commission, would simply not have happened without our reform law motivating concerted action to preserve the gains we have made for the uninsured. Whether this commission can make headway in a state so dominated by the health care sector is uncertain, but at least more progress is being made than had been made in recent years.

So the choice between coverage first or coverage as part of a comprehensive cost control package is a false one. Coverage first is the natural stepping stone to a comprehensive cost control. By bringing everyone into the tent of insurance coverage, and getting all the interest groups behind a common goal, a move to universal coverage could be viewed in retrospect as the key step towards the cost control this country so desperately needs. So let’s move beyond the PEG principle and recognize the successes of what we have accomplished in Massachusetts and the promise it provides for universal coverage in the entire nation.

--Jonathan Gruber