Murray’s health cost plan

Edited version of Senate president’s speech to Greater Boston Chamber of Commerce.

Small businesses are the job producers in our state. So, we must find a way to help them. Health care costs are the biggest roadblock. Costs are squeezing small businesses to the point of layoffs and in many cases outright extinction. Stabilizing and controlling health care insurance costs for small businesses is essential to improving our economy and growing jobs.

The Department of Insurance recently imposed a cap on insurance premiums, which has resulted in a stand-off that threatens to leave businesses and individuals in limbo. It was a shot across the bow and a warning that something must be done, but we’ve come too far to be stymied by prolonged litigation.

Just as we did with Health Care Reform in 2006, we need to bring all stakeholders – lawmakers, insurers, providers, doctors, businesses and consumers – together to address the cost crisis. It’s an issue my staff and I work on every day. It’s challenging and complicated, but critically important for our short-term and long-term economic growth.

Between 2006 and 2008, health care costs in Massachusetts grew by 15.5 percent, or 7.5 percent each year. But many small businesses have seen increases far in excess of 7.5 percent and continue to see increases, making it impossible to retain health care coverage for employees while also making new investments or hiring new employees.

This has to change.

But as we tackle this issue, we must also keep in mind that our health care industry accounts for a significant portion of our gross state product. In fact, hospitals make up nine of our state’s 25 largest employers, and 50 of our largest 250 employers. Our health care industry draws in hundreds-of-millions of dollars from out of state and the federal government; and it attracts the most skilled nurses, doctors, surgeons, specialists and researchers in the world. It’s an obvious strength that we must protect as we make necessary changes.

In the federal health care debate, Massachusetts health care reform has been used as a political symbol for out-of-control government spending. The facts, however, tell a different story. While health care costs have risen substantially throughout the Commonwealth and the nation, these costs are not attributable to health care reform.

Senator Panagiotakos and our Senate Ways and Means committee recently worked with the Massachusetts Taxpayers Foundation to update analysis of Massachusetts health care reform through the current fiscal year. They confirmed that costs attributable to health care reform have had only a marginal impact on state spending. The average yearly incremental increase in the state share of health care reform funding has been only $108 million. These increases are relatively modest and consistent with projections developed at the time Health Care Reform was passed.

Since we passed health care reform, we have been pursuing a number of initiatives to control the growth in health care costs. The comprehensive cost-containment bill I passed in 2008 has laid the foundation for this effort by encouraging statewide use of electronic medical records and uniform billing, creating greater transparency, reducing administrative overhead, and promoting primary care.

Two initiatives in that bill: a Special Commission on Payment Reform and the Hearings on Health Care Cost Drivers, which were conducted earlier this month, have provided the data and discussion necessary to move forward in a thoughtful way.

Informed by these efforts, and recognizing the need for immediate relief, I am recommending a two-phase approach. Before the Senate takes up the state budget next month, we will consider two pieces of legislation:

The first is a comprehensive plan to provide immediate relief to small business health insurance costs. The second is a long-term strategy to begin our transition from a fee-for-service payment system to a patient-centered, integrated health delivery system with sustainable cost growth.

For the first phase, I have been working with Senator Richard Moore on a proposal that establishes efficiency requirements, addresses the current instability in the market, reduces year-to-year premium fluctuations, and ensures that health insurance carriers offer affordable products to small businesses.

While some cost-drivers are beyond direct control of health insurance companies, carriers must be held to a higher standard and a more transparent regulatory structure if we want to provide premium relief to small businesses and eliminate cost-shifting among different-sized businesses.

This proposal introduces new requirements for health insurance companies that make sure premium dollars are being spent on actual care, not administrative costs such as marketing, salaries or profit margins.

By targeting costs that insurers can control – their own administrative costs – this proposal provides short-term relief to small businesses without jeopardizing the long-term solvency, competitiveness and fiscal stability of the insurance companies.

Under this proposal, insurance carriers must file premium rates with the Division of Insurance prior to their effective date for review and will have the option of filing rates under an efficiency guarantee. Under the efficiency guarantee option, carriers must agree that under the rates filed, not less than 90 percent of the premium dollars will be spent on medical services. This effectively restricts the amount of premium dollars the carriers allocate to their own operations.

We will hold them to this promise. If, at the end of the year, the carrier does not meet this standard, then it must submit rebates to small businesses to make up the difference. If, however, carriers choose not to file rates with an efficiency guarantee, then they would be subject to a rigorous review by the Division of Insurance, and premium increases that exceed medical inflation would be presumptively disapproved.

We also need to address underlying drivers of market instability by closing existing loopholes and making technical changes to the oversight of the merged market. For example, there is mounting evidence that people who game the system by purchasing coverage for only expensive treatments and then dropping coverage are driving up premiums for everyone, including small businesses.

This proposal ensures that individuals are purchasing insurance in appropriate, on-going arrangements through an annual open enrollment and accessing employer-sponsored coverage where available.

We must also address the excessive volatility in the market that leads to 30-to-40 percent increases in health care premiums for some small businesses.

On top of the base annual health care cost increases, current market provisions allow for annual rate adjustments for specific groups based on factors such as age, industry and geography. Year-to-year changes in group demographics can contribute to significant premium rate volatility. During economic downturns, as small businesses are more likely to lay-off younger workers, these adjustments can result in dramatic increases for small businesses.

This proposal will smooth out these sharp spikes in premium increases and hold down very large increases. This will allow small businesses to plan for the future with more certainty and make hiring and firing decisions without undue effects on premium costs.

Finally, we need to provide more affordable health care products to small business employers. Most health insurance carriers in Massachusetts offer products with comprehensive networks that include almost all providers. This contributes to the underlying cost of health insurance products because there is wide variation in provider costs.

This proposal requires carriers in the small group market to offer at least one reduced network plan with premiums that are at least 10 percent lower than the premiums for the full network product. By requiring carriers to offer and market more affordable products this year, small business employers can immediately reduce costs while maintaining a high-quality health insurance product for employees.  

By implementing each piece of this proposal, we estimate immediate premium relief of 10-to-15 percent with the possibility of more for small businesses to save and reinvest in themselves and their workforce.

However, these short-term solutions do not address some of the main drivers of health care cost growth over the long-term for all businesses, families and individual consumers. To do that, health care providers need to be part of the conversation and part of the shared sacrifice.

Recent reports by the Attorney General and Division of Health Care Finance and Policy identify rising provider prices as the main driver of health care costs.  That’s why the second phase of this effort will take on health care payment reform.

Together with the Governor and Senator Richard Moore, I am working on legislation that sets the path for Massachusetts to transform its health care system into an efficient, effective, integrated, patient-centered delivery system. To drive this change, this legislation will set the goal of ending the fee-for-service payment system for most providers within five years.

The current fee-for-service reimbursement system pays for care regardless of whether services are appropriate or of high quality, and it supports wide variations in health care use and spending. Instead of rewarding providers who try to reduce unnecessary services or shift patients into low-cost settings, the current system actually carries the disincentive of reduced revenues and profits, creating a sizable barrier to delivery reform.

Patient care also suffers in the fee-for-service environment. Under the fee-for-service model, patients can experience gaps in care that often result in avoidable complications, or they receive more services often without any benefit to health outcomes. It encourages overuse of many costly services while short-changing important but less lucrative areas such as primary care and telemedicine.

While some providers are anxious about any change that disrupts the status-quo, the truth is that a full range of payment approaches can be designed to support the varying profiles of providers currently operating in the Commonwealth. We should examine that range of payment approaches – not just global payments, but also bundled and episodic payments.

But, as the Attorney General’s recent report concluded, this effort may not be enough to completely control long-term cost growth and encourage market competition.

This payment reform effort must be matched by a new, independent review of provider/insurer contracts to make sure they meet our long-term goals and provide value to businesses and health care consumers statewide. There must be greater transparency and accountability of these contracts and the anti-competitive provisions they may contain.

This review must ensure reductions in current market disparities, promote standardization in payment methods and quality measures, and make sure overall cost-growth is reasonable as we transition away from fee-for-service. But, this review cannot be done in a “one-size-fits-all” approach. Rate caps, rate freezes or statewide benchmarks tied to Medicare cannot recognize the breadth and variety of unique provider institutions that exist in Massachusetts and their different fiscal situations.

To do it right will take time. It must include independent experts and individuals with real-life experience in the health care market. And it must be done with the constructive engagement of the entire provider community. Right now, however, we are in a crisis, and small businesses especially cannot wait any longer. Providers can be a part of the immediate solution for small businesses.

That is why I am calling on hospitals and provider networks today to step up and make a contribution to reduce small business health insurance costs. The bill I file will provide a mechanism to guarantee that any amount put back in the system will be used solely to reduce small business health insurance rates.

I recognize that some providers are not in a position to contribute at this time. But some can – and I asked them to step up in the name of shared sacrifice and help restore order to the health care market. If the provider community gave $100 million to this voluntary effort, it would result in additional premium relief of 2.5 percent for all small businesses and individuals for the next year.

Combined with the other measures I have announced today for small businesses, we can create the necessary relief to jumpstart economic growth and move us into the difficult challenge of long-term reform.

In closing, I want to recognize that health care is hard. There are no easy answers and no easy solutions. As I’ve said many times, “It is rocket science.”

I do not expect the proposals I introduced today to be the end of the conversation on health care cost control, but hopefully it will be the beginning of the end. It is time to get to work and time for real action. Our economic survival depends on it.

Meet the Author
To be successful, we must rebuild the coalition that made health care reform in Massachusetts possible. That coalition of consumers, businesses, providers, insurers, politicians, and Massachusetts citizens set our state – and now our country – on a historic path. When you look at the national health care reform law, it is clear that Massachusetts is the model. On controlling health care costs, Massachusetts will be the national model once again.

Therese Murray is the president of the Massachusetts Senate.