Mitt Romney MA Healthcare Plan Bust Boom or Experiment

I was discussing with a nice person Rosemary about this health plan in MA. Here is my response to a question about the plan.

The health plan in MA is difficult to explain, but I will do my best as I work in health insurance.

I am a student and we recently studied Romney's healthcare idea in my managerial economics class (funny his idea is used to teach economics). Anyway, because the government made a law requiring emergency rooms to provide services to anyone coming through the door (an unfunded government mandate), hospitals raise their rates to earn money to cover this "bad debt/charity care" as they call it. The rise in hospital costs requires insurers to raise the insurance premiums to cover the expected risks. The main idea of insurance is to spread risk across the largest healthy population as possible, thereby decreasing the amount each person needs to contribute (that is why large employers get better insurance rates than individuals and small employers).

Contrary to popular thought that a majority of those without insurance were poor people that could not afford it, an MA study revealed the largest population without health insurance were healthy and wealthy single males who for one reason or another didn’t want insurance because of the common "invincibility complex". Well, in health insurance, the less healthy people in the pool, the higher the cost per person. Thus a small pool of sick persons (with high utilization) will have higher premiums than a large pool with a mix of sick and healthy persons (both high and low utilization). The MA health plan attempted to bring everyone in MA into the insurance pool in order to lower the insurance premiums for everyone. And this has been successful, in that people now pay a lower premium but receive a lot more benefits. MA residents also have increased choices – they can choose between 42 plans (I get to choose between three, how many for you?).

Romney spoke about his Healthcare plan in the last debate (he hasn’t hid from the questions on it). If I remember correctly he said that after he left, the current democratic governor added some things that made the plans more expensive. The new governor raised the minimum coverage benefits which naturally led to a higher price. Some good things have come, for instance, most MA residents can get a health plan worth twice the value at half the price. And MA has reversed the number of uninsured, over 300,000 more people are in the insurance pool.

A disadvantage claimed by some is that the insurance premiums jumped by 12% this last year. However, it should be noted that in 2006 nationaly insurance premiums moved up 7.7% and in 2007 national insurance rates moved up 6.1%. With utilization being the main driver in healthcare costs the 12% represents higher premium costs and a higher utilization of services. The bottomline is that MA is experiencing the baby boom effect - more people are using healthcare services than ever before. Covering more people's procedures requires more money leading to higher insurance premiums. 12% isn't too bad, just talk to those small and large employers that got hit with 18% increases!

On April 11, 2006 Mitt Romney said in the Wall Street Journal with regards to the healthcare plan, "Will it work? I'm optimistic, but time will tell. A great deal will depend on the people who implement the program. Legislative adjustments will surely be needed along the way. One great thing about federalism is that states can innovate, demonstrate and incorporate ideas from one another. Other states will learn from our experience and improve on what we've done. That's the way we'll make health care work for everyone."

Mitt Romney worked with MA to start the experiment on Healthcare - NOBODY else has even come so close to trying. It is an impressive thing, unlike some Senators that have passed no meaningful legislation, Mitt Romney worked with the people of MA and got a plan passed that they liked. On abortions, one of the requirements from the MA legislature was that an oversight group be in charge of the approved benefits (not the governor, not the legislature). Romney signed the law and the committee chose the benefits including the abortion money (what do you expect from a blue state?). Having been a participant in the Healthcare for All Americans forum, I can tell you one major debate is what constitutes "a basic level of care". I personally would not have added abortion to that list and neither would President Mitt Romney (his Presidential Platform is pro-life).

In conclusion, even if this healthcare experiment fails, Mitt Romney has more knowledge and skills to work on the next experiment. With 60% of our entire budget spent on entitlement programs like Medicare/Medicaid/Social Security our biggest savings can be realized by tackling these tough questions. I think Mitt Romney can do the job in a smart efficient way – the guy owes no favors to anybody in Washington and is smart about data.

Anyway, I know it was more than you wanted and I am tired so I’ll have to work on the other one later. Good night.