"Gentleman's Agreement" Drives Health Care Costs in Massachusetts, Highlights Need for "Public Plan" Option in Health Reforms

In 2000, the CEOs of the largest hospital system and largest insurance company in Massachusetts shook hands on a plan to manipulate the health care market and ensure each other greater profits and market-share, an extensive report by the Boston Globe has revealed.  Under the wink-and-a-nod handshake deal, Blue Cross insurance agreed to raise reimbursement rates to Partners HealthCare - the largest hospital system and private employer in the state - in exchange for Partners' insistence that other insurers pay them at least the same rates paid by Blue Cross.  

The agreement enabled Partners to secure higher reimbursements from all insurers and gave Blue Cross a competitive advantage in the market.  Since the agreement, Blue Cross has raised its payment rates to Partners by 75%, far more than it pays to other hospitals, helping Partners hospitals earn 30% more than other teaching hospitals - resulting in hundreds of millions in extra payments to Partners each year, as the Globe reports. Blue Cross, for its part, dominates with 60% of the health insurance market and has seen profits soar from $82.7 million in 2002 to more than $200 million each year since.  Consumers in Massachusetts have faced ever-rising premiums, with individual insurance premiums raising 9% each year, twice the rate of the late 1990's, before the handshake deal.

In response to the Globe report and as part of lawmakers' efforts to sustain the Massachusetts health care reforms, Gov. Deval Patrick is considering hearings into insurance premiums and hospital charges, as well as tougher regulations. Some insurers have expressed support for the hearings, which could shed additional light on the 2000 Partners/Blue Cross side-deal and the extent to which it artificially increased profits and health care costs.  Additionally, a new legislatively created commission on payment reform is getting extra billing in light of the Globe report.  The commission will look at how to shift provider reimbursement to pay for healthy outcomes, rather than based merely on the number of tests and procedures performed. 

The Public Plan Option - Increasing Choice and Value in Health Care, and Preventing Industry Collusion:  This kind of collusion between insurers and providers to keep costs up is chronic across the nation.  In a report by the New York Times, Linda J. Blumberg, a health economist at the Urban Institute, said:

Large insurers do not seem to use their market power to drive hard bargains with health care providers. The presence of a well-run public plan could constrain private spending because private insurers would have to compete on price, in a way they do not often do today.

Together with traditional Medicare, this new program would have tremendous clout to bargain for the lowest prices from providers and push them to improve the quality of care.

In voicing opposition to the idea, Congressional Republicans and conservative insurer and business organizations express an ideological allegiance to free-market principles and argue that private insurers would not be able to compete with a government plan.  A recent USA Today opinion, however, deconstructs the arguments opposing a public plan and, in part, points out that a public plan would "test the [conservative] notion that private health insurance plans operate more efficiently than government." In short, conservatives fear that a public plan would expose the failings of private insurance.

Short of a new and coordinated health care system that eliminates the manipulative profit-motive from health care, the Massachusetts experience and Globe report offer many lessons for lawmakers and regulators. Along with creating a public plan option, these include: government to serve as a watchdog; increased oversight and transparency of premiums, payment rates, quality metrics, and other financial arrangements; and greater public review and control over hospital mergers, as a 1993 merger created the Partners behemoth.

House Passes SCHIP Reform, but States Still Need Help on Insuring ALL Kids

Last night, the US House of Representatives passed H.R. 2, an expansion of SCHIP, a federal program that provides medical insurance to lower income children, across strong bipartisan lines (289-139) with forty Republicans voting in favor of the bill. SCHIP currently covers 6.7 million kids and expansion will allow an additional 4 million.

The House version of the bill removes a 5-year waiting period for children and pregnant women who are legal immigrants, a provision that children's advocates and health care providers agree is important for public health and child development.  While the current Senate version of the bill lacks coverage for immigrant children, House Speaker Pelosi expects Obama to sign the House version of the bill. Congress had passed SCHIP expansion twice under President Bush, who had vetoed it both times, despite broad public support for providing children's health care. A poll taken at the end of 2008 found that 67% of respondents favored expanding SCHIP to ensure that all children in America, including legal immigrant children, have health care coverage, with only 15% opposed.  

Up to this point states have been taking up the slack in establishing coverage for immigrant children.  As of late 2006, 21 states and the District of Columbia provided some form of health coverage for legal immigrant children and pregnant women excluded by the 5 year federal SCHIP bar or from Medicaid.

Even with the proposed change, the SCHIP program will still leave out undocumented children, driving up health care costs for states and local governments that leads to delayed care and expensive emergency room visits.  Iowa legislators plan to introduce a bill to cover undocument children under a plan to cover all kids in the state by 2011.  As Iowa state Senators Jack Hatch and Joe Bolkcom write in a recent Des Moines Register editorial:

We are already providing health services to undocumented children in the emergency rooms of our community hospitals. This is the single most expensive venue to provide health-care services. It is far more cost-effective to provide care in an organized fashion. When our emergency-room doctors and nurses render primary care to undocumented children, it diverts these doctors from rendering emergency care to others in our community.

Moreover, emergency-room pediatricians often find themselves in an untenable situation when caring for an undocumented child who needs expensive, life-saving care. Their role as a physician and patient advocate leads to conflict between the need to provide care and the need of the health-care institution they work with to remain financially solvent. Significant ethical and public-health consequences result when we deny needed care to these children.

Iowa would be joining other states including District of Columbia, New York, Illinois, Massachsuetts, and Washington States in providing health care to all children, regardless of status. Some cities such as New York and San Francisco have gone to even greater lengths to ensure that all their residents, including undocumented adult immigrants, can have access to health care. 

The idea of making the most effective use of state health care dollars by insuring coverage and preventative care for undocumented immigrants versus paying for ER visits, which are more expensive, has also received support from Republican Governor Arnold Schwartzenegger of California. Medical studies have also substantiated the point that we are already paying for health care costs for undocumented children. A report published in the American Journal of Public Health shows that uninsured immigrant children have per capita cost expenditures that were 86% lower than that of uninsured American-born children, but that expenditures for emergency room visits were three times greater.

It's also worth noting that the parents of most of these children are having social security and federal income taxes withheld from their paychecks yet little or none of that money is being sent back to the states to help with these health care costs.  This SCHIP reform is a great step forward but still does not fully address the needs of all children in America. Hopefully Congress will step up and fully fund SCHIP, returning the surplus federal taxes paid by undocumented immigrants to  help states and localities and consider truly covering all children, including undocumented kids.