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 Massachusetts Miracle or Massachusetts Miserable
What the Failure of the “Massachusetts Model” Tells Us about Health Care Reform
by Michael Tanner
 Michael Tanner is a senior fellow with the Cato Institute and coauthor of 
Healthy Competition: What’s HoldingBack Health Care and How to Free It
(2007).
No. 112
When Massachusetts passed its pioneering healthcare reforms in 2006, critics warned that they wouldresult in a slow but steady spiral downward toward a government-run health care system. Three years later,those predictions appear to be coming true:
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 Although the state has reduced the number of residents without health insurance, 200,000people remain uninsured. Moreover, the in-crease in the number of insured is primarily due to the state’s generous subsidies, not thecelebrated individual mandate.
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Health care costs continue to rise much fasterthan the national average. Since 2006, totalstate health care spending has increased by 28 percent. Insurance premiums have in-creased by 8–10 percent per year, nearly dou-ble the national average.
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New regulations and bureaucracy are limit-ing consumer choice and adding to healthcare costs.
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Program costs have skyrocketed. Despite tax in-creases, the program faces huge deficits. The stateis considering caps on insurance premiums, cutsin reimbursements to providers, and even thepossibility of a “global budget” on health carespending—with its attendant rationing.
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 A shortage of providers, combined with in-creased demand, is increasing waiting times tosee a physician.With the “Massachusetts model” frequently cited as a blueprint for health care reform, it isimportant to recognize that giving the govern-ment greater control over our health care systemwill have grave consequences for taxpayers, pro- viders, and health care consumers. That is the les-son of the Massachusetts model.
 June 9, 2009
Executive Summary
Cato Institute•1000 Massachusetts Avenue, N.W.• Washington, D.C. 20001•(202) 842-0200
 
Introduction
On April 12, 2006, Massachusetts gover-nor Mitt Romney signed into law one of themost far-reaching experiments in health carereform since President Bill Clinton’s ill-fatedattempt at national health care. The legisla-tion took full effect on July 1, 2007, meaningthat we now have had sufficient time to eval-uate its successes and failures.The Massachusetts reforms were pioneer-ing in many respects. Among the key compo-nents of the bill were
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An Individual Mandate.
Perhaps themost widely discussed aspect of theMassachusetts reform was its unprece-dented “individual mandate,” a require-ment that every Massachusetts residenthave a minimum amount of healthinsurance coverage, as defined by thestate. Those who do not receive insur-ance through their employer or a gov-ernment plan such as Medicare arerequired to purchase it on their own.
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Initially, a failure to comply with thismandate resulted in the loss of the indi- vidual’s personal exemption from thestate income tax. That penalty increasedto 50 percent of the cost of a standardinsurance policy, or up to $912 as of July 1, 2008.
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An Employer Mandate.
In addition tothe individual mandate, the Massachu-setts reform also imposed a mandate onemployers with 10 or more workers. Em-ployers who fail to provide health insur-ance to their workers are assessed a $295fee per employee,
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with additional penal-ties for employers whose workers repeat-edly receive uncompensated care.
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 Andfinally, all employers are required to offertheir employees a Section 125 plan.
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Middle-Class Subsidies.
The reformsestablished a new program called Com-monwealth Care to help families withincomes up to 300 percent of the poverty level ($66,150 for a family of four) to pur-chase insurance.
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The bill also expandedeligibility for Medicaid.
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The Connector.
The Massachusetts re-forms also established a new entity, calledthe Commonwealth Connector, to re-structure the individual and small busi-ness insurance markets.
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Intended as a way to enable individuals to purchase per-sonal and portable health insurance on a pre-tax basis, the Connector authority has evolved into a regulatory body withwide-ranging power over insurance in thestate.Health reform advocates on both the leftand right have hailed Massachusetts as a mod-el for reform. Numerous states have consid-ered similar plans (although to date none havepassed).
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More importantly, the key components of the Massachusetts plan form the core of pro-posals for national health care reform. In par-ticular, both the Obama administration andcongressional Democrats are leaning towarda plan that includes both an individual andemployer mandate combined with middle-class subsidies.
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In addition, while he was stilla presidential candidate, Obama called forthe creation of a Connector-like national “ex-change.”
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But experience so far suggests that the“Massachusetts model” actually provides anobject lesson in how not to reform healthcare. The program has failed even by its owngoal criteria of achieving universal coverage.It has failed to restrain the growth in healthcare costs. And it has greatly exceeded its ini-tial budget, placing new burdens on thestate’s taxpayers. At the same time, the Massachusetts Planhas increased bureaucratic control over thestate’s health care system, limiting consumerchoice. And it has set the stage for still morestate intervention in the future, includingprice controls and explicit rationing.Health care reformers in other states and atthe federal level should look carefully at thefailures of the Massachusetts model, and learnfrom them.
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The key components of the Massachusettsplan form thecore of proposalsfor nationalhealth carereform.
 
Expanding Coverage
There is no doubt that the Massachusettsreforms have reduced the number of peoplewithout health insurance in the state, but by how much is a matter of considerable dis-pute. According to official state statistics, thestate’s uninsurance rate declined from 10.4percent in 2006 to just 2.6 percent today,leaving just 167,300 state residents withoutinsurance.
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However, there are several rea-sons for doubting this number.The data show that roughly 80,000 morepeople have been added to the Medicaid rolls.In addition, approximately 176,000 peoplewere receiving subsidized insurance coveragethrough the state’s Commonwealth Care pro-gram.
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That means 256,000 previously unin-sured people were being covered through gov-ernment programs. The more difficultquestion is how many uninsured residentsobtained unsubsidized coverage. Here thestate relied on a telephone survey conductedby the Urban Institute in mid 2008, which esti-mated an increase in coverage of 187,000 peo-ple.
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 About 40,000 of these purchased indi- vidual insurance, either through the state’sConnector or through the residual individualinsurance market outside the Connector. Theother 147,000 received coverage through theiremployer.Such telephone surveys, however, are noto-riously unreliable, particularly in the case of measuring health insurance coverage. Forexample, two groups that are much more like-ly to go without insurance are non-English-speaking immigrants (both legal and illegal)and young people. Yet, these groups are farless likely to be included on telephone sur- veys: immigrants because of the language bar-riers and young people because they lack tra-ditional landline telephones.More rigorous surveys have suggestedthat the number of uninsured remains farhigher. For example, a door-to-door survey by the Census Bureau, conducted at roughly thesame time as the Urban Institute’s phone sur- vey, estimated that 5.4 percent of state resi-dents were uninsured.
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 And an examinationof state income tax returns (filers arerequired to certify their health insurance sta-tus on their returns) showed that roughly 5percent of residents were uninsured as of  January 1, 2008.
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 And, since low-income res-idents, who are more likely to lack insurance,are not required to file state taxes, the actualpercentage of uninsured is most likely a per-centage point or two higher. Those estimatessuggest that more than 200,000 Massa-chusetts residents remain uninsured.
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Furthermore, if the number of uninsuredin the state had indeed been reduced by 74 per-cent, as suggested by the state, one mightexpect a comparable reduction in the amountof uncompensated care provided by the state’shospitals. In reality, the number of peoplereceiving uncompensated care has declined by  just 36 percent.
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In fact, one of the originalselling points behind the Massachusettsreform was that it would shift subsidies foruncompensated care from hospitals to indi- viduals. Uncompensated care subsidies weresupposed to fade away, with the state usingthe savings to help low- and middle-incomeresidents buy insurance instead. But hospitalsnow say that the rate of uncompensated carecontinues to be so high that they cannot dis-pense with their subsidies. The taxpayers endup paying twice.There are also questions about the degreeto which the reduction in the number of uninsured is sustainable going forward. Forexample, the increase in the number of peo-ple receiving employer-provided health insur-ance appears anomalous at a time when,nationwide, businesses are less likely to pro- vide insurance for their employees. Also, thefaltering economy and increase in unemploy-ment will almost certainly cut into that num-ber in the future. In addition, in the face of skyrocketing subsidy costs, the state is facingpotential cutbacks to its CommonwealthCare program. It has already instituted eligi-bility reviews that have removed nearly 25,000 people from the program.
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When Massachusetts passed its reformplan, its supporters hailed it as a means to pro-
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Estimatessuggest that morethan 200,000Massachusettsresidents remainuninsured.
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