#70 “Romneycare”

On July 25, 2012

Hello Everyone,

 In my last Obamagram, I promised to summarize the 2006 Massachusetts law that served as the model for the new federal health insurance law. I’ll attempt to do that here.

While some choose to call the new federal law “Obamacare,” others call the Massachusetts law “Romneycare.”  When running against Gov. Romney for the presidential nomination, Gov. Tim Pawlenty went a step further, cleverly coining the term “Obamneycare” to highlight the close connection between the two.  As you read more, you will see that the law that Gov. Romney signed was the precise precedent for the federal law no matter how much he wants to disavow it now.  

In seeking to further understand both Romneycare and Obamacare, I have found an accessible, albeit secondary, source:  Health Care Reform.  This is a paperback book which uses an illustrated, comic-book-like format to explain the basic provisions of both laws.  Importantly, it was written by Jonathan Gruber.  On the cover, he is described as “a professor of economics at the Massachusetts Institute of Technology and director of the health care program at the National Bureau of Economic Research.  He was both a key architect of Massachusetts’ ambitious health reform effort and consulted extensively with the Obama Administration and Congress during the development of the Affordable Care Act.”  Nathan Schreiber illustrated the book, which is available on Amazon.   

It seems to me that Prof. Gruber is a particularly valuable source because he is not only an M.I.T. economist, but he advised both parties in designing both laws. 

You will see, as I try to distill the essence of Prof. Gruber’s book, that the two laws are remarkably similar.  So similar, in fact, that it must be uncomfortable for Gov. Romney to go through his continuous contortions to deny that. 

As you read in my last Obamagram on the history of health insurance, our system in the United States is a hybrid of private market insurance, which is tied overwhelmingly to employment, and government-provided insurance.  The prevalence of private-market, employer-sponsored insurance is the principle reason that we have for decades gone through our own contortions trying to provide insurance coverage to all citizens, whether or not they are employed or can afford it. 

Our uninsured citizens are mostly a) not employed, b) employed by an entity which doesn’t offer insurance, c) already sick, or d) unable or unwilling to buy insurance as an individual because it’s too expensive.    

The advantages of buying insurance as part of a group (such as an employee group) are numerous, including: a) an insurer can “average its risks” by covering a range of people, from very sick to very healthy, and b) a group of insureds has purchasing power and can acquire expertise in dealing with both health insurance companies and health care providers such as physicians and hospitals.  Therefore, purchasing health care products and services in a group is much more efficient and less expensive.  

Buying an individual health insurance policy poses a major problem for most people for reasons that mirror these.  Insurance companies logically do everything in their power to avoid what they call “adverse selection.” Simply put, that means healthy individuals would, in their self interest, wait to buy insurance until they get sick or have an accident, if they could.  Obviously, this would bankrupt insurance companies.  And, not only do most individuals lack expertise, they lack purchasing power. 

Massachusetts has apparently addressed these problems with the law it passed just six years ago under the leadership of Gov. Romney. 

Here is how Prof. Gruber summarizes that law in his book (emphasis added): 

          The goal was to create a three-pronged plan. 

The first step was to fix the problems that have broken the nongroup insurance market and left the uninsured with nowhere to turn for fairly priced insurance coverage. 

We [in Massachusetts] moved to a system where insurance companies couldn’t charge folks more because they were sick or exclude them from coverage for preexisting conditions.  [This is why the federal law is called the Patient Protection and Affordable Care Act.] 

If we could guarantee that folks wouldn’t just buy insurance when sick [adverse selection], then insurers could price fairly – knowing that they were getting the average risk. 

This meant that, as step two, there had to be an individual mandate…a requirement that [all] people obtain health [insurance] coverage [the healthy as well as the sick], just as [all] drivers are required to insure their cars. [The mandate means that everybody is required to join a “group,” whether or not they are able to join an employer-sponsored one.] 

Otherwise, people will “free ride” on the system and buy insurance only when they are sick, and the system will fall apart.   

If you don’t buy insurance, the state imposes a tax penalty on you.  [Remember the Supreme Court decision.] Currently, that penalty varies from $240 a year to $1,100 a year, depending on income.  

The intent is to cover everyone, so we’re going to make insurance available at a reasonable price.  People can pick the coverage they can afford, just like car insurance. [Of course, people can keep the coverage they already have.] 

And if it’s not affordable, they’re subsidized.  That’s step three.   

What we ended up with in Massachusetts was a simple plan that addresses the three primary issues and is a comprehensive way to deal with health care.   

1)      We forced insurance companies to price fairly to healthy and sick alike.
2)      To make this possible we imposed the requirement that all buy insurance. 
3)      And to make that requirement humane we made insurance affordable for lower-income families.

Children were covered for free by the state’s Medicaid program.  Adults whose income was below 300% of the federal poverty line had their insurance heavily subsidized. 

The other major innovation in Massachusetts was the health connector [like the insurance “exchanges” in the federal law]. This is the notion of giving consumers easy-to-understand, one-stop shopping for insurance options.  Comparison shopping also encourages greater competition among insurers. 

You can see this for yourself at https://www.mahealthconnector.org/portal/site/connector/menuitem.a6bd9ea72595da2ea87b5f57c6398041/?fiShown=default

[I recommend visiting this site and exploring it.  Use zip code 02052, a Boston suburb, if you need one.  This will give you a feel for the much-discussed exchanges required by the federal law.  Not scary at all.  But, you will also see how expensive insurance is, a fact largely hidden from view for those who receive it as a “benefit” of employment.] 

So what effects did the Massachusetts reform have on health care?  

1)      The number of uninsured people dropped by two-thirds.
2)      Private insurance grew as employers started offering insurance morefrequently to help employees comply with the law.
3)      There was a dramatic reduction in nongroup insurance prices.  For the typical person buying insurance in the nonemployer market, the
          price fell by more than 50% relative to national trends.
4)      The cost of the program is not over budget.
5)      The implementation of the requirement to buy insurance went smoothly, with more than 98% of taxpayers filing the required forms in the
          very first year.
6)      The program is popular with state residents.  Almost three-quarters of them supported the reform.   

Here is another link that I recommend: “The Top Ten Facts about Massachusetts Health Care Reform.”  https://www.mahealthconnector.org/portal/binary/com.epicentric.contentmanagement.servlet.ContentDeliveryServlet/About%2520Us/News%2520and%2520Updates/2011/Week%20Beginning%20March%2006/10%2520FACTS%2520POSTER.pdf 

The fact that as many as three-quarters of Massachusetts residents support their new law now that it is operational reminds me again of Machiavelli’s observation, offered in 1532, “…there is nothing more difficult to execute…than to introduce a new order of things…This…partly stems from…the skepticism of men, who do not truly believe in new things unless they actually had personal experience of them.”

 As you can see, Romneycare is the precise precedent for Obamacare, protestations to the contrary notwithstanding. They are indeed Obamneycare.

In Obamagram #69, I inadvertently left the impression that the AMA is a regressive organization when I quoted an economic historian observing that “the medical profession has staved off government intervention and nationalized health insurance…since the 1910’s.”  My friend, Dr. James Madara, CEO of the AMA, correctly pointed out to me that the AMA has frequently been a proactive reform leader, including supporting universal coverage since 2006.  Thank you, Jim.

 Please, as always, pass it on.  And, remember that previous Obamagrams are stored on www.obamagrams.com




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