01 Mar 2009
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Model Patient

Massachusetts’s landmark health-care reform law is drawing the attention of many observers, including the Obama administration. Could it work on a national scale?
by Garry Emmons

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A community organizer during the 1960s, Madelyn Rhenisch was a pioneering advocate for better medical care for the people of rural upstate New York. More recently, Rhenisch, now a Boston resident, has broken new ground again: As the very first person to enroll in an innovative new health-care program in Massachusetts, she may be leading the way to medical coverage and care for the 47 million Americans who are currently uninsured. Rhenisch’s experience suggests that the millions of Americans who live in fear of serious illness and its attendant financial insecurity could one day focus instead on a brighter, healthier future.

A Cornell graduate who holds an MBA from Boston College, Rhenisch was for years well employed and enjoyed excellent health-care insurance through her work. Then she fell ill with chronic fatigue syndrome (CFS), which for a long time went undiagnosed; battling CFS for some ten years, she could no longer work and therefore lost her health insurance. Her prescription bills alone were $600 a month, and she sometimes had to choose between buying food and paying for her medicine. It wasn’t long before she had exhausted her retirement savings. “I never thought I’d be on the needing end,” says Rhenisch. “I was living a good, solid, confident middle-class life until I got sick. Then the foundation of everything I had built started crumbling away. Now thanks to health-care reform, I am rebuilding.”

Since becoming law in 2006, reform in Massachusetts has meant coverage not only for Madelyn Rhenisch but also for all except a tiny percentage of the state’s residents. Rhenisch’s story, and thousands of others like it in Massachusetts, have policymakers eyeing the Bay State’s experiment as a national blueprint. Near-universal coverage, a pipe dream anywhere in the United States a few short years ago, is the chief reason that the state’s model has generated so much excitement. And the Bay State’s example has arguably put pressure on other states and the nation to implement reform. But questions remain: How much of this is a Massachusetts miracle, and how much is mirage?

The outlines of the plan are simple: According to what’s known as the “individual mandate,” nearly all residents over 18 are required to obtain health-insurance coverage, either through their employer or on their own. The state subsidizes residents who have incomes that meet or somewhat exceed federal poverty guidelines. An independent public authority, known informally as the Health Connector, helps individuals and small businesses choose among several portable, brand-name, private health plans. Individuals who fail to purchase coverage are penalized up to $912 on their taxes; companies with more than eleven employees must pay the state $295 per year per employee if they don’t offer their workers a company-based plan.

The plan’s impact has been remarkable. In less than three years, of the state’s 6.4 million residents, 440,000 who were previously uninsured have become covered, with 191,000 of those securing private, nongovernment insurance. At 2.6 percent, Massachusetts now has the lowest rate of uninsured residents in the nation.

There can be no doubt that America is a nation whose health-care system is in critical condition: The cost of U.S. health care not only hampers its citizens’ well-being and the country’s ability to compete globally, but it also draws funding away from other sectors, such as education, where increased investment could strengthen society and enhance competitiveness. Total health-care spending as a percentage of GDP is 16 percent, compared with Canada’s 10 percent and Japan’s 7.9 percent. U.S. per capita health-care expenditures, at $7,026, are the highest in the world, versus Canada’s $3,912 or Japan’s $2,690. Meanwhile the United States ranks 34th in the world in life expectancy, at 77.9 years. Half the U.S. population does not receive standard preventive care such as cancer screening, blood pressure checks, or vaccinations. A 2007 McKinsey study found that compared with the average for the thirty countries of the Organisation for Economic Co-operation and Development (OECD), Americans pay significantly more per unit of health-care service consumed, even though they see doctors less, take fewer pills, and have shorter hospital stays. Americans are “paying more, despite using less and doing worse,” concludes Health Connector executive director Jon Kingsdale.

For years, argument has raged about how to fix these problems. Proposals range from tinkering with the current employer-based system; to moving to a more deregulated system with high-tech, consumer-driven, and focused-treatment approaches to cut costs; to introducing a single-payer (government-run) system; or various elements borrowed from all of these. President Obama has said he wants to move gradually, beginning by insuring all children, and has expressed reservations about aspects of the Massachusetts model, such as the individual mandate. Meanwhile, his original choice for Health and Human Services Secretary, Tom Daschle, was an advocate of universal coverage. While few would deny that some kind of fundamental health-care reform is needed, many others contend that it will have to wait, given the nation’s current financial crisis. President Obama thinks otherwise. “It’s not something we can put off because we are in an emergency,” Obama said in December. “This is part of the emergency.”

The seed for the Massachusetts reforms was planted in early 2003, in the first weeks of the administration of Massachusetts governor Mitt Romney (MBA ’74). Romney has said that Tom Stemberg (MBA ’73), founder and former CEO of Staples, which had received start-up backing from Romney’s Bain Capital, urged him to make universal health-care coverage a priority. Certainly the stars already seemed to be aligning: As a relatively wealthy state with a lower-than-average pool of uninsured residents, and a heavily Democratic state legislature favoring reform and universal coverage, Massachusetts was well-disposed to make dramatic changes. When Romney couched reform and universal coverage in terms of individual responsibility, it gained appeal among larger companies in the business community and among conservative Republicans. But that was just the beginning.

Seated in his Morgan Hall office, Romney’s first secretary of economic affairs, HBS senior lecturer Robert Pozen, recalls, “The politics of this were brutal. It is really amazing that the state legislature could pass any type of innovative plan.” Pozen, chairman of MFS Investment Management and the host of an HBS conference last summer that examined Massachusetts’s health-care reforms, says hordes of curious officials from across the country have come to see for themselves — “We’re besieged!” he exclaims — and that the plan can be a model. But he thinks it should be looked at on a state-by-state basis — rather than as a one-size-fits-all, federally funded, mandated national plan — to accommodate the particular circumstances of each state. And he warns that even though Massachusetts enjoyed a powerful consensus for change, numerous devils emerged in the legislative details before passage was ultimately achieved in 2006.

Looking back, Pozen observes, “It’s important to consider a few things we did well — and one we did not — in determining whether the Massachusetts model can be replicated. One key was getting the Feds to grant us a waiver to restructure Medicaid so that we could expand its coverage, increase help for children, and, most innovatively, subsidize premiums for folks who needed help. That waiver was crucial; Governor Romney had to step in and get that done himself. Another key was the idea of the Health Connector, which acts not as an insurance company but as a purchasing agent for small employers or individuals.” A final piece of the puzzle, Pozen says, was redirecting the funds in an existing “free-care pool” to subsidize premiums for residents who could not afford to buy their own insurance (for such individuals, another function of the Connector is deciding “affordability,” that is, how much those individuals should be subsidized and how much they should pay out-of-pocket). This uninsured-care fund previously had been bankrolled by the state and the federal government and was combined with annual assessments on insurance providers, hospitals, and, indirectly, employers. Observes Pozen: “Any state thinking of following the Massachusetts model needs to have, as we did, a clear accounting system — remarkably, many states do not — that itemizes the amount and sources of existing free-care funding. That makes it possible to say politically to the principals, ‘You’re already paying for this free care; let’s use that funding in a better way.’ ”

Pozen regrets that a basic, no-frills plan — limited to high-deductible catastrophic coverage with some primary and preventive care, plus some drug coverage — was rejected. It smacked of a “two-tiered” system, he says, and was unacceptable for political reasons. Costs have thus been significantly higher than expected because the standard plan — with a relatively low-deductible and offering multiple services (including mandatory coverages such as in vitro fertilization) — is more expensive than originally anticipated. Another drawback is that an important cost-cutting feature — comparative-pricing information for services and procedures across cities and facilities — is not yet readily available.

To date, the cost factor and the difficulty of gaining access to treatment appear to be the two chief failings of the reform. Says HBS professor Regina Herzlinger, “The rise in costs is partially caused by greater than expected enrollments; the number of enrollees subsidized by the state has also greatly exceeded the state’s estimates. But the major driver is the state’s inability to control costs.” Herzlinger further notes that “universal coverage has not meant universal access. That’s because if you increase demand by so much and you don’t bring along new hospitals, new doctors, or new ways of delivering medical care, access will become more difficult, and existing suppliers will raise their prices.”

With her years of work on consumer-driven health care, Herzlinger argues that no reform can succeed unless it centers on the consumer’s needs and concerns. She has been influential in promoting the notion of a more activist, informed patient, particularly around choice when buying health insurance, and in asserting that the health-care industry must be more innovative. She has long advocated for “focused factories,” health-care providers that would integrate their healing capabilities into teams. These teams would provide the specialists and the full range of necessary care for patients suffering from chronic diseases or disabilities such as diabetes or bad backs. Rather than leaving it to the patient to search for a specialist in one area, and then for another in a second area, and so on, the patient would receive comprehensive treatment from a team designed to deliver it. Insurers would require that hospitals set fixed and transparent prices covering various ailments and their treatment. This approach, Herzlinger says, would produce better health outcomes for consumers, and successful, high-performing facilities would attract more patients, boosting revenues. Costs would stabilize because hospitals would compete among themselves on the basis of prices, services, and results for the consumer.

On another issue, for Massachusetts, Herzlinger suggests that the shortage of doctors could be alleviated (but not solved) by walk-in retail health-care organizations such as the MinuteClinic, staffed by nurse practitioners, inside CVS/pharmacy stores. “The clinics and nurse practitioners have specific protocols to follow for common, nonemergency matters such as earaches, flu shots, strep throat, cuts, sprains, and the like,” Herzlinger explains. “The charge is around $69, so uninsured people can go there instead of to the emergency room, which has long waits and charges much more. And with CVS’s chain ownership involving hundreds of these clinics, you have tremendous IT advantages built in.”

Herzlinger worries that the Obama administration may borrow heavily from the Massachusetts model, which she says, as currently constituted, cannot sustain itself due to runaway costs. She cautions, “If you set up a national market, that’s like having one distributor for an automobile designed by Congress; a lot of things will be added that you don’t want to pay for — imagine a mandatory heated seat for your car. Unless the consumer is involved and able to say, this or that ‘is value for my money and that’s what I want,’ we’re not going to control our health-care costs.”

“Practical people would say we haven’t squeezed out cost yet,” agrees Celia Wcislo, a 1987 graduate of the Harvard Trade Union Program and the assistant division director of the 1199 Service Employees International Union (SEIU) United Healthcare Workers East, a local union of over 300,000 health-care workers. “But,” she explains, “the political folks made a decision to get people in the system first and then fight about cost later.” Wcislo serves on the Commonwealth Health Insurance Connector Authority (“the Connector”), an eleven-person body with representatives from across the political and economic spectrum. The Massachusetts legislature deliberately left certain “hot potato” issues for the Connector to define (such as “affordability” for the purposes of the individual mandate), and despite differing viewpoints, Wcislo believes, consensus-building around details has a better chance in this small group than, for example, in a large political body such as a state legislature.

Wcislo thinks the Massachusetts plan is a possible model for a national program. She notes, “It expanded Medicaid and provided subsidized insurance for people who couldn’t get it at work, and because of the individual mandate, we’ve gone from 69 percent of employers covering people up to 72 percent. We’ve got the lowest percentage of uninsured in the country. That’s something to be proud of and something for the rest of the country to shoot for.”

Dr. Peter Slavin (MBA ’90), president of Massachusetts General Hospital, sees the reform’s biggest downside to date as the negative financial impact on the traditional “safety-net providers” — hospitals whose business models depended on subsidies they received for handling a high volume of uninsured, low-income emergency department walk-ins. “Those facilities,” he explains, “have seen their previous state subsidies reduced and replaced by more modest payments from the insurance plans now covering their patients.” But overall, Slavin says that the Massachusetts model could work nationally, though he notes the state started out with a couple of advantages. First, its rate of uninsured was a low 10 percent (compared with 15 percent nationally), and it already had in place a free-care pool for financing the uninsured, which most states do not. “Nevertheless,” Slavin concludes, “the Massachusetts health-reform framework of individual mandates and subsidized insurance products for low-income individuals and families may be workable and politically acceptable at the national level.”

Policy experts seem guardedly optimistic as well. Valerie Fleishman (MBA ’97) is the executive director of the New England Healthcare Institute, known as NEHI, a nonprofit health policy group based in Cambridge, Massachusetts, that brings all sectors of health care together to work on some of the industry’s systemic challenges. “What we’ve done in Massachusetts is incredibly innovative in terms of testing health reform,” Fleishman says. “By the end of last year we had 440,000 newly insured in the state, leaving fewer than 3 percent still uninsured. That’s a tremendous success, as is the fact that employer-sponsored health insurance offerings continue to grow.

“The early political decision to tackle coverage and defer the cost issue is instructive,” Fleishman continues. “Controlling health-care costs remains unresolved. From the standpoint of lessons learned, the Massachusetts experience underscores the reality that providing access to health care is necessary but not sufficient. Health care must also be made affordable, and to do that we need to reform the way health care is delivered. By that we mean redesigning primary care to better prevent costly chronic diseases and to remove the waste and inefficiencies currently plaguing the system.”

Despite these shortcomings, the cold, hard facts of health care’s costs are forcing major concessions from employers and insurance companies on the one hand and labor on the other that were not the case even ten or fifteen years ago. A breakthrough appears possible, and Massachusetts may show the way. Recalls Fleishman, “Not so long ago, the idea of a state-subsidized plan was a complete nonstarter politically. Then, about two years ago, the state-by-state approach seemed the most viable in large part because there wasn’t the political or social will to do it nationally. All that’s suddenly changed; now the Massachusetts plan is part of the national dialogue.”

In April 2006, Mitt Romney wrote in the Wall Street Journal, “How much of our health-care plan applies to other states? A lot. Instead of thinking that the best way to cover the uninsured is by expanding Medicaid, they can instead reform insurance. Will it work? I’m optimistic, but time will tell. A great deal will depend on the people who implement the program. Legislative adjustments will surely be needed along the way. One great thing about federalism is that states can innovate, demonstrate, and incorporate ideas from one another. Other states will learn from our experience and improve on what we’ve done. That’s the way we’ll make health care work for everyone.”

Perhaps Madelyn Rhenisch, the first to benefit from the Massachusetts plan, has the best, last word. “I am proud to live in the first state to take on the responsibility of ensuring health care for all its citizens,” Rhenisch says. “Whatever costs are incurred are more than repaid by the ability of people like myself to regain their health and step back into the role of contributing citizens.”

View sources of statistics cited in this article.

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