Saturday, August 28, 2010

Massachusetts and Indiana as Experimental Laboratories for Obamacare

“It is one of the happy incidents of the federal system that a single courageous state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country."

Justice Louis D, Brandeis, 1932

To witness first-hand the likely consequences of Obamacare, it is useful to visit Massachusetts and Indiana – two very different states.

Massachusetts is unabashedly liberal. Indiana is deeply conservative.

President Obama has repeatedly said he would like the U.S. to follow the Massachusetts example and enact a system of universal coverage. This may be because he was educated at Harvard Law School, and many of his principle advisers hail from Massachusetts.


Massachusetts has had “universal coverage” for four years. It now has the nation’s lowest percentage of uninsured at 5.5 percent. This idyllic state of affairs has come at a heavy cost: the nation’s highest health care premiums, the longest waiting times to see a doctor, emergency rooms more crowded than ever, some of the highest overall health costs in the U.S., restive physicians, many of whom are fleeing to other states, and a state legislature that is considering making acceptance of patients in government programs a condition of licensure.

Massachusetts has learned the only way to control costs within its universal coverage system is to cut doctors' pay, transfer patients into managed care, impose government global budgets, and consider price controls. And that’s what’s happening. A state commission has recommended Massachusetts stop paying doctors for each procedure and instead pay a flat fee per patient. A system of global payments, or "capitation," encourages provider groups to skimp on care, as they get to keep as profit any money not spent treating patients.


According to an August 2009 Gallup survey, Indiana has an uninsured rate of 16.1%, slightly below the national average of 17%. But its governor, Mitch Daniels, says Indiana has made solid progress in controlling costs and satisfying constituents by a widespread adoption of health savings accounts for the uninsured and for state employees. Daniels claims widespread adoption of Obamacare would have devastating consequences for the states.

Mitch Daniels Comments

Here are some of Daniels comments about his state’s approach to health care and his views on the new health reform law.

“We’ve been through a global recession. Now we’re fighting through a stalled recovery. Revenues are the lowest they’ve been in half a century. Their finances a wreck, many states have effectively sunk into bankruptcy.

Indiana is still afloat. In fact, we’ve fared better than most. We continue to meet our obligations without raising taxes, and the reserves we carefully built and protected will get us through the downturn.

But as if we did not already have enough on our plates, the passage and implementation of Obamacare presents us with a whole new set of challenges and a costly to-do list.

I note with special sadness that first and foremost amongst the bill’s consequences will be the probable demise of the Healthy Indiana Plan (HIP). This program is currently providing health insurance to 50,000 low-income Hoosiers. With its Health Savings Account-style personal accounts and numerous incentives for healthy lifestyle choices, it has been enormously popular and successful.

Cost of “Reform” to Indiana

Obamacare’s expansion of Medicaid, soon to cover one in every four citizens, will not only scoop up most of HIP’s participants, but will also cost the state between $3.1 and $3.9 billion over the next decade.

Of course, it’s a misnomer to even refer to this as “reform.” It doesn’t reform anything. Instead, it perpetuates and magnifies all the worst aspects of our current system: fee for service reimbursement, “free” to the purchaser consumption, and an irrationally expensive medical liability tort system. It’s a sure recipe for yet more over-consumption and overspending.

Since my election, my state coworkers have had the choice of Health Savings Accounts in lieu of traditional health care plans. The first year this option was made available, some 4 percent of us signed up for it. Six years later, more than 70 percent of our 30,000 state workers have opted for the personal account.

This trend has had a startlingly positive effect on costs for both employees and the state. State employees enrolled in the consumer-driven plan saved more than $8 million in 2010 compared to their coworkers in the old-fashioned preferred provider organization (PPO) alternative. Indiana will save at least $20 million in 2010 because of our high HSA enrollment.

It has also been the source of significant changes in behavior, as state workers with the HSA visit emergency rooms less frequently and are more likely to use generic drugs than co-workers with traditional health care. Hoosiers enrolled in HIP have experienced similar changes in behavior with generic drugs now accounting for 84 percent of all prescriptions used by enrollees.

This is a sharp contrast to the prevalent model of health plans in this country that encourage individuals to buy health care on someone else’s credit card. What seems free will always be over-consumed, compared to the choices a normal consumer would make. Hence our plan’s immense savings.

The condescension of the “reformers” is misplaced. It turns out that typical Americans are neither too dense nor too intimidated to make sound decisions about their own health. This is, of course, a fact that national policy makers sadly ignored during their overhaul of our health are system. Now the rest of us are left to pick up the pieces.”


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