Massachusetts Outlaws Inflation

It is pretty well known by now that if Obamacare survives the Supreme Court, health care rationing is coming to America. What is not as well known is that health care rationing – for everyone, not just those under government health care – is quickly making landfall here. A new law in Massachusetts is paving the road for universal health care rationing, regardless of whether you are on a private insurance plan or a plan provided by taxpayers. From the Wall Street Journal, print edition, May 5:

Massachusetts, already seen as a health-policy bellwether, is laying the groundwork for an ambitious new effort to rein in health-care spending that would be closely watched nationally. State legislative leaders unveiled a bill Friday that proposes setting a target for the rate at which overall health spending should rise – a step that woudl again put the state in the forefront of efforts to remake the American healt-care system. … No state, nor any federal initiative, has implemented a cost-containment effort as broad as Massachusetts’s, said Paul Ginsburg, president for the Center for Studying Health System Change, and “there will be a lot of attention to what Massachusetts is doing.”

Essentially, this bill outlaws inflation, limited of course to health care inflation, but that is what this bill is aimed to do. That should be enough to make it impossible for the bill to become the law of the Commonwealth, but that is not the case. On the contrary, this bill already has the general endorsement of Governor Deval Patrick, and according to the Wall Street Journal the Massachusetts state Senate is working on a similar bill. It is therefore a safe bet that the Commonwealth will become the first state to put strict price regulations in place on all health services.

So what, exactly, is it that this bill proposes? Well, let’s take a look. The bill is dubbed H.4070 and is 178 pages long. In Section 30 the bill states, bluntly:

The secretary, in consultation with the division, shall establish rates of payment for health care services.

Section 32 provides more details:

The division shall work with other state agencies including, but not limited to, the department of public health and the department of mental health, the division of medical assistance and the division of insurance to collect and publish data concerning the cost of health insurance in the commonwealth and the health status of individuals; hold annual hearings concerning health care provider and payer costs and cost trends, and to provide an analysis of health care spending trends with recommendations for strategies to promote an efficient health delivery system. The division shall make available actual costs of health care services, as supplied by each provider, to the general public in the manner specified in section 59 of this chapter.

So far it only sounds like this is another information-producing, tax-paid and unnecessary but ultimately harmless government bureaucracy. But let’s not be fooled by appearance.

The division shall have the power to design and to revise, consistent with this chapter, a basic schedule of health care services that enrollees in any health insurance program implemented by the division shall be eligible to receive. Such covered services shall include those which typically are included in employer-sponsored health benefit plans in the commonwealth. The division may promulgate schedules of covered health care services which differ from the basic schedule and which apply to specific classes of enrollees. The division may promulgate a schedule of premium contributions, co-payments, co-insurance, and deductibles for said programs, including reduced premiums based on a sliding fee, and other fees and revise them from time to time, subject to the approval of the division of insurance; and provided, however, that such schedule shall provide for such enrollees to pay one hundred per cent of such premium contributions if their income substantially exceeds the non-farm poverty guidelines of the United States office of management and budget.

In other words: with this law the state government in Massachusetts gives itself the right to set the price of every health care service delivered within its jurisdiction.

The division shall implement the reform of the health care delivery and payment system in the commonwealth in accordance with this chapter. The board shall (i) oversee and regulate the establishment of ACOs;(ii) oversee the development of patient-centered medical homes; (iii) require the adoption of alternative payment methods and health care delivery systems by providers; and (iv) ensure the consistent and effective use by providers of quality measures to promote patient-centered, timely, high-quality and safe care for individuals in the commonwealth.

This is nothing short of universal price control of an entire industry. The lawmakers in Boston have in other words decided that they can outlaw inflation, and they also think they can do it by micro-managing “health care delivery systems” and “quality measures to promote … care”. Or, as they explain in Section 42:

The division shall: (a) Take actions necessary to ensure the reform of the health care delivery and payment system by state and private entities in the commonwealth. (b) Take actions necessary to promote the establishment of ACOs in accordance with the requirements of chapter 118J and to ensure consistency and efficacy in the establishment and use of quality measures throughout the commonwealth to promote patient-centered, timely, safe high quality care for individuals in the commonwealth. The division shall take all necessary actions to (i) promote ACOs throughout the commonwealth, (ii) support the transition to alternative payment methods by all payers, and (iii) protect quality, access and patient choice of primary care provider and accountable care organization for the residents of the commonwealth.

Did someone whisper Gosplan? But just to top it off, the bill also stipulates, in Section 46, that the cost of health care in Massachusetts must not increase faster than state GDP:

The following cost growth targets for per capita total medical expense in the commonwealth are hereby established: (i) For calendar year 2015, the target for the per capita total medical expense shall be an amount equal to the state base amount established in accordance with the provisions of subsection (a) plus an amount equal to the projected percentage increase in per capita potential gross state product between calendar year 2011 and calendar year 2015 multiplied by the state base amount. The percentage increase in per capita potential gross state product between calendar year 2011 and 2015 shall be calculated based on the formula provided in (b) (ii). (ii) As part of the governor’s annual budget submission, the secretary for administration and finance shall publish the projected percentage increase in per capita potential gross state product for the calendar year beginning on January 1 following the budget submission. For the purposes of clause (i), the projected percentage increase in per capita potential gross state product for calendar years 2012 and 2013 is 3.6%, and the projected percentage increase in per capita potential gross state product for 2014 and 2015 shall be included in the governor’s budget submissions for fiscal years 2014 and 2015, respectively.

This means, in plain English, that if a health care provider raises the costs of his services by more than 3.6 percent in 2012 or 2013, he is in violation of the cost cap that his state government has imposed on his business. Other numbers will of course apply for subsequent years, but the same principle is in place: government dictates what prices private businesses can charge for their services.

In Section 47 the state allows itself to punish those who increase their prices by more than the permitted growth rate (pardon the long quote, but like the devil, socialism is in the details):

If the per capita total medical expense of all providers in the commonwealth, as determined under section 46, exceeds the target established for a calendar year, the division may undertake actions, including but not limited to the following: (i) The division may make changes to alternative payment methodologies as authorized in this chapter in order to further enhance the ability of the state to meet spending targets; (ii) The division may require payers and providers to implement a corrective action plan. The correction action plan shall be described in a document outlining the steps that the payer or provider intends to take to reach compliance with spending targets within the next 18 months. If the division requires a corrective action plan, the plan shall be submitted to the division within 3 months of notice to the payer or provider. The division shall review and approve or disapprove the plan within 3 months of submission. The division may require the payer or provider to submit revisions to the corrective action plan. The payer or provider shall commence implementation of the corrective action plan promptly upon receiving notice of approval of the plan. (iii) The division may require payers and providers to reopen contracts that, in the division’s opinion, are contributing to excessive spending growth; (iv) The division may submit a recommendation for proposed legislation to the joint committee on health care financing if the division believes that further legislative authority is needed to achieve the health care quality and spending sustainability objectives of this act.

Not only does the state of Massachusetts grant itself the right to dictate the quality, delivery and methodology of health care services produced in the state, but it also gives itself the authority to dictate the prices of those products.

It is important to note that GDP data for the past half-century shows that health care costs always grow faster than GDP. (It’s all available at the Bureau of Economic Analysis website.) This is not because of evil capitalism, but because health care is an increasingly complex product that requires increasingly expensive investments in the research and development of pharmaceutical product, in medical technology, as well as the skills of medical professionals.

How is the state of Massachusetts expecting to simply outlaw the natural forces of economics? How does Massachusetts intend to make high-quality health care cost as much as low-quality health care – which is in effect what they are suggesting?

If it is this simple to outlaw inflation, then why doesn’t the state of Massachusetts outlaw clothes price increases? Why not put together the same detailed regulatory system for the production, delivery and payment of clothes? After all, clothes are at least as important as health care. And what about food? How come the legislators in the Bay State have not gotten around to regulating away evil capitalism from the provision of food? After all, government control over food prices and quality works really well in Cuba, doesn’t it…?

The rest of the country better pay attention to the health care rationing measures in Massachusetts. This is in all likelihood the model that health care statists will propose as the only option if Obamacare dies in the Supreme Court. It is, of course, not the only option – the only option is in fact health care freedom.

The fight to save and restore the American health care system is far from over. We still have a system that is far better than almost any other country, and we can keep it that way. But first we need to defeat the health care statists – again.