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Mass. Bill Requires Health Coverage: State Set to Use Auto Insurance As a Model (David A. Fahrenthold, Washington Post, 4/5/06)

The Massachusetts legislature approved a bill Tuesday that would require all residents to purchase health insurance or face legal penalties, which would make this the first state to tackle the problem of incomplete medical coverage by treating patients the same way it does cars.

Gov. Mitt Romney (R) supports the proposal, which would require all uninsured adults in the state to purchase some kind of insurance policy by July 1, 2007, or face a fine. Their choices would be expanded to include a range of new and inexpensive policies -- ranging from about $250 per month to nearly free -- from private insurers subsidized by the state.

Romney said the bill, modeled on the state's policy of requiring auto insurance, is intended to end an era in which 550,000 people go without insurance and their hospital and doctor visits are paid for in part with public funds.

"We insist that everybody who drives a car has insurance," Romney said in an interview. "And cars are a lot less expensive than people."...

[N]o state, experts say, has taken the step of making health insurance coverage a legal requirement. The idea was applauded by Uwe E. Reinhardt, a professor of economics and public affairs at Princeton University, who said that he has long believed that the American system of allowing uninsured patients to receive care at the government's expense was nothing more than "freedom to mooch."

"Massachusetts is the first state in America to reach full adulthood," said Reinhardt, noting that the new measure is a move toward personal responsibility. "The rest of America is still in adolescence."

In theory, it's not a bad plan. In practice, it's going to be a complete and total failure.

There are two things the Post story doesn't mention -- micromanagement by the state has ruined both auto and health insurance policy in the Commonwealth. Massachusetts does not have anything approaching a competitive auto insurance market. Both the terms of the policy and the rates that can be charged are set by the Commissioner of Insurance. No competition is allowed. As a result, aggressive competitors such as Geico or Progressive avoid the state and Massachusetts has the fourth highest auto insurance rates in the nation. Although auto insurance is required, compliance is nowhere near 100%.

Health insurance is even worse. Although the state doesn't regulate the terms of the policies or the premiums charged to anything like the extent it does auto insurance (thanks largely to ERISA preemption, which the courts are unfortunately weakening), the state does mandate certain coverages. These mandates range from the commonplace -- a mandatory hospital stay after giving birth -- to the unbelievable -- every health insurance policy issued in Massachusetts that covers pregnancy costs must cover infertility treatment. Infertility is defined as the inability to conceive in 1 year and the covered treatments include: artificial insemination; In vitro fertilization; gamete Intrafallopian Transfer; sperm, egg and/or inseminated egg retrieval, to the extent that those costs are not covered by the donor's insurer; Intracytoplasmic Sperm Injection (ICSI) for the treatment of male infertility; and Zygote Intrafallopian Transfer (ZIFT). See MGL c. 175,§ 47H; 176A,§8K;176B,§4J; and l76G,§4, 211 CMR 37.00. A 2002 study published in the New England Journal of Medicine concluded "State-mandated insurance coverage for in vitro fertilization services is associated with increased utilization of these services but with decreases in the number of embryos transferred per cycle, the percentage of cycles resulting in pregnancy, and the percentage of pregnancies with three or more fetuses."

The result of this meddling is what one would expect. Massachusetts, an overserved market in physicians with the most doctors per capita of any state, has high health insurance premiums and only a small range of plans. For example, a couple living in Boston can choose between four Blue Cross plans with monthly premiums ranging from $521 to $1,095 per month. The least expensive plan does not include any prescription drug benefit and includes relatively high co-pays up to $2000 per person per year, or $4000 per family. For families with children, the premiums range from $684 to $1437. In Connecticut, a similar couple living in Hartford is quoted three plans ranging from $270 to $472 per month and has more options to design a health insurance policy that best suits them. A Connecticut couple with two children, 10 and 7, has premium options ranging from $512 to $841 per month. A similar couple in Phoenix can choose between six plans, most of which allow them to choose different deductibles for 19 separate combinations. The cheapest plan, an HSA plan with a $10,000 deductible, is $94 per month. The most expensive plan is $746 per month. Our hypothetical family can get coverage ranging from $154 to $1030. (All quotes were generated by the relevant Blue Cross web site on April 5, 2006.)

In other words, the problem that the state is now "solving" is of its own making. But for regulation, the health insurance companies would offer a wide range of choices, including plans designed for the working poor. Because of over-regulation, HSA plans -- which allow a monthly premium of $94 in Arizona -- are effectively unavailable in Massachusetts. Even worse, the history of Commonwealth meddling in the insurance market did not just create the conditions that led to this reform; it also dooms it.

The health care "crisis" in this country is two-fold: paying for emergent care, which everyone receives regardless of their ability to pay, and providing routine and preventative care to the working poor. The Massachusetts solution is a regressive tax on small business and the working poor to pay for this care. However, the Commonwealth's history of knee-jerk populism, interference in the insurance market, and heaping "benefit" upon expensive benefit, will make this plan unworkable in the long-term. Not only can the legislature be counted upon, in the future, to skew the plan more and more towards expensive benefits, but the insurance companies, knowing this, will be uncooperative from the start.

Posted by David Cohen at April 5, 2006 8:36 AM