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Bay State health insurance premiums highest in country

Rein in health costs, Massachusetts urged

By Kay Lazar
Globe Staff / August 22, 2009

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Massachusetts has the most expensive family health insurance premiums in the country, according to a new analysis that highlights the state’s challenge in trying to rein in medical costs after passage of a landmark 2006 law that mandated coverage for nearly everyone.

The report by the Commonwealth Fund, a nonprofit health care foundation, showed that the average family premium for plans offered by employers in Massachusetts was $13,788 in 2008, 40 percent higher than in 2003. Over the same period, premiums nationwide rose an average of 33 percent.

The report did not break out how much premiums have increased in Massachusetts since the 2006 changes went into effect, so it does not show whether the law affected the rate of price increases. Still, with the state’s law often cited as a model for a national health care overhaul, advocates on various sides of the issue said the report underscores the urgency of including cost controls in any large-scale federal or state overhaul.

“While expanding coverage was the logical first step in Massachusetts, cost control is equally as important,’’ said Andrew Dreyfus, an executive vice president at Blue Cross Blue Shield of Massachusetts, the state’s largest private insurer with 3 million members. “And if you don’t face the cost issue directly, then you can jeopardize the progress you’ve made in expanding coverage.’’

President Obama has championed a national health care overhaul that includes cost controls, as well as coverage expansion to nearly every American. But critics have questioned some of his administration’s projected savings, and his proposal for a public insurance plan to compete with private insurers is faltering in Congress.

In Massachusetts, brokering the 2006 overhaul was such a delicate and years-long undertaking that the disparate interest groups - insurers, businesses, consumers, hospital and doctors organizations - all agreed to first tackle health coverage expansion and leave the cost question for a later date.

Now, the Commonwealth Fund report projects that without significant cost reforms, an annual family premium in Massachusetts will soar to $26,730 by 2020.

While Massachusetts residents face the highest premiums in the country, the costs do not eat as big a hole in the typical family budget as in most other states, the report said. That’s because household income in Massachusetts is much higher than the national average. For middle class families that make too much to qualify for state insurance subsidies, however, the premiums can be a significant burden.

One of the first steps to control costs was taken last year, when the Legislature passed a sweeping bill sponsored by Senate President Therese Murray, Democrat of Plymouth. Among other provisions, it restricted some payments and gifts to doctors from pharmaceutical and medical device companies and created a commission to recommend changes in how providers are paid.

Last month, the commission suggested that private and public insurers scrap their method of paying doctors and hospitals negotiated fees for individual visits or procedures, and instead put providers on a “global budget,’’ paying a set amount intended to cover a patient’s medical care for an entire year.

The idea is so controversial and the suggested fix so time-consuming to achieve that the commission recommended phasing it in over five years.

But other efforts to control health spending are already moving ahead.

Blue Cross, for instance, is already signing up providers to participate in an insurance plan similar to the commission’s recommended “global budget,’’ and it now covers nearly 20 percent of its patients in health maintenance organizations.

Health Care for All, a Boston-based consumer group, is pushing interim steps that include reducing payments to hospitals for patients who have to be readmitted because of preventable complications.

“This report heightens the urgency of doing these short-term steps now,’’ said Health Care for All’s research director, Brian Rosman.

Another panel, created by the 2006 law, is poised to release a report in September that will probably detail specific interim measures that can be taken to rein in costs.

Anya Rader Wallack, a council member, said one of the big cost drivers in the state’s health insurance system is that Massachusetts residents like their big, brand-name hospitals, perhaps too much.

“We tend to use more academic medical centers, which are expensive and are, in general, more expensive than community hospitals or nonhospital settings,’’ Wallack said.

In many other states, she said, patients tend to have more medical tests and procedures done in nonhospital settings. She would not disclose the remedies being considered by her group, but the panel has posted price-comparison data for Massachusetts hospitals on its website.

Bottom line, said Dr. Marylou Buyse, president of the insurers’ trade group, the Massachusetts Association of Health Plans, is that the high cost of health insurance is not necessarily the insurer’s fault.

“The increase [in Massachusetts premiums] is attributed to an increase in charges by physicians and hospitals,’’ Buyse said, referring to a 2008 state report that tracked the trend from 2002 to 2006.

The Commonwealth Fund report concluded that a number of changes, including limits on insurance companies’ administrative costs and profits, as well as changes in the way doctors and hospitals are paid, could bring better-quality patient care and could reduce national costs by an average of 1 to 1.5 percentage points per year over the next decade. That translates to a savings of $2 trillion to $3 trillion nationally, the report said.

Kay Lazar can be reached at klazar@globe.com.