PAINFUL HEALTH CARE LESSONS FROM MASSACHUSETTS: HEALTH CARE EXCHANGES
June 23, 2010
How did health care costs in Massachusetts get so big? Generous state-run plans and added mandates give employers an incentive to drop health insurance, says Shawn Tully, a senior editor-at-large with CNN.money.
In charting the future of health care costs, the biggest danger by far is that companies will drop their coverage. It's also the one that's the most difficult to handicap, both for Massachusetts and the entire nation. The problem is simple: If employers stop paying for health care, employees will flood into the government-subsidized programs, enormously raising the cost to already fragile budgets.
Surprisingly, health reform in Massachusetts has actually increased the number of workers covered by employers, says Tully:
- Over 100,000 more employees are covered by corporate plans today than when the program debuted in 2006.
- The main reason is that the plan imposed a $1,000 fine on employees who refused their employers' plans.
- Then, families were paying around $3,600 a year towards their company policies.
- Many decided that, when faced with a fine, the better choice was paying the extra $2,600 for full coverage.
- The plan was shrewdly calibrated by the administration of then-governor Mitt Romney to tilt the market towards company-provided care.
The Massachusetts plan also bans any employee from getting coverage from Commonwealth Care if his or her company offers coverage. Hence it would appear that corporate coverage is solidly entrenched. But that's by no means certain, either in Massachusetts or under the Obama plan, explains Tully:
- The reason is the fast escalation in costs, for both companies and employees.
- From 2007 to 2009, the employee contribution for family policies rose a steep 17 percent, or $624 a year, to $4,200.
Employees can only move into Commonwealth Care if their employers drop their plans. The danger is that the incentives are tilting in that direction as the costs of coverage for employers, and the price of premiums to employees, keep climbing. The point is rapidly approaching where both will pocket big savings if employers drop their plans and workers buy their policies through the heavily subsidized exchanges, says Tully.
Source: Shawn Tully, "Five painful health care lessons from Massachusetts," Fortune, June 15, 2010.
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