Massachusetts Health Insurers Sue the State

The health reform pot is boiling over in Massachusetts!

In a post three days ago I described how the Governor rejected 235 of the 274 insurance rate proposals for individuals and small businesses that were to have gone into effect on April 1. Yesterday Blue Cross and Blue Shield of Massachusetts, Harvard Pilgrim Health Care (where I direct the ethics program), Tufts Health Plan, Fallon Community Health Plan, Health New England, and Neighborhood Health Plan filed a suit against the state to reverse the decision. Here's the statement made by the Health Plan Association:

Last week’s decision by the Division of Insurance to set an artificial cap will do nothing to fix the real problem of rising health care costs. The Division’s effort to artificially cap rates is a reckless decision that is based in politics and will wreak havoc on the entire health care system. It ignores recent reports from the Attorney General and the Patrick Administration, including the Division, that have pointed to a number of factors for rising premiums, most notably the market clout of providers and provider rate increases.

This unprecedented move by the Division is likely to cause greater costs and confusion in the marketplace and will have the effect of splintering the coalition of groups that worked in 2006 to pass the state's landmark Health Care Reform Law.

Four of the five major health plans experienced operating losses last year. The rates that the health plans filed for April 2010 are actuarially sound, which is the basis upon which the Division’s decision should have been made. The Division’s decision has capped rates at levels it knows are insufficient to cover the cost of medical services and will result in collective losses to the state’s not-for-profit health plans that will exceed well over $100 million in 2010.

Massachusetts is home to the country’s best health plans, which are consistently rated tops in terms of quality and member satisfaction according to independent national accrediting organizations, including the National Committee for Quality Assurance. We will continue to work with the Legislature on meaningful reforms to help address the underlying factors driving health care costs to provide real, long-term and substantial relief to small businesses this year.

The insurers suing the state are all non-profit organizations. 90% of the premiums they receive are used to pay for medical services. One observer compared trying to control health costs by capping insurance premiums to trying to stop the incoming tide with a line in the sand! I speculated that the Governor understands this, and that in addition to playing politics by attacking insurers, he might by trying to shake the system by applying a two by four to a vulnerable (and politically advantageous) point - the insurance industry.

Trying to control health care costs by (a) capping insurance premiums while (b) ignoring increases in the 90% that comes from provider charges in (c) a political context that vilifies insurers as "villains" is (d) not a promising approach!

Ten years ago Tufts Health Plan tried to reject the price increases Massachusetts General Hospital and the other Partners HealthCare members were demanding. Partners withdrew from the Tufts system. Tufts subscribers raised a ruckus. After nine days, Tufts backed down. The Boston Business Journal summed up the situation this way (see here):

Until about a year ago, insurers were in the driver’s seat. Now, the big hospital networks, especially Partners, have been calling the shots. The likely outcome, say experts: significantly higher premiums for Bay State employers.

Blaming one cog in the health system wheel may be good short term politics. Having applied a two by four to the state health system, the Governor should now convene insurers, providers, employers, and public leaders to work together with the state to bring down health costs. That would be real leadership.