Delivered June 28, 2007
Thank you for
inviting me to the Cato Institute's forum to comment on Professor
David Hyman's paper and on the broader issue of the
significance of the Massachusetts health reforms.
In the interest
of dispelling any possible misimpression that I am owed more
credit-or blame-than I am actually due, I must note that Cato's
announcement for this event overstates in calling me "one of
the chief architects of the Massachusetts health plan." In truth,
my contribution was mainly to introduce the folks in Massachusetts
to the concept and design of the Connector as the tool for
organizing and administering their broader, consumer-choice
starting from a consumer-centered approach goes principally to
former Governor Mitt Romney and his administration. Credit for the
details of the end product goes principally to the
Massachusetts legislature. In between, there were numerous
stakeholders who also shaped the results.
uses a tripartite convention in his analysis, and I shall do the
same. His formulation, inspired by the late Italian film director
Sergio Leone, is a horizontal assessment of "the good, the bad and
the ugly." In contrast, I shall offer a vertical assessment
and, more prosaically, label my categories "the significant, the
noteworthy, and the tangential."
- What I consider "significant" are the basic policy concepts
embodied in the reforms, the rationales for those concepts, and
their applicability in other states.
- What I consider "noteworthy" are those provisions that are
effectively prototypes of design features that could be improved
upon by other states.
- What I consider "tangential" are those provisions that are
largely Massachusetts-specific and thus of less relevance for other
The Basic Concepts
At its core, the
Massachusetts legislation is a two-part approach to making consumer
choice and ownership of health insurance the fundamental organizing
principle of a state's health system.
The first part is
a reorganization of the state's insurance market to provide small
business with a simple and practical way to defined-contribution
their workers into individual, portable coverage of the workers'
choice without, in the process, losing any of the benefits of
current federal standards and tax preferences for employer-group
The second part
is an accompanying shift of taxpayer funding for the uninsured
from a provider-centered, and largely opaque and unaccountable,
reimbursement approach to a more transparent, consumer-centered
system of premium support for the purchase of private health
However, it is
not only this significant departure from the health policy status
quo that has generated so much interest in the Massachusetts
approach. It is also the fact that Massachusetts implements this
fundamental policy shift using two new tools.
The first is the
creation of a health insurance exchange, or Connector as they call
it, to serve as the administrative mechanism for both the
employer shift from defined benefit to defined contribution
and the government shift of subsidies for the uninsured to
hospitals and other health care facilities to a new system of
premium support to individuals to get health insurance
The second is
that lawmakers, having first made insurance more accessible and
affordable, impose on residents a legal obligation to take
responsibility for funding their own medical care.
exploring further the contentious issue of Massachusetts'
individual mandate and the other reform details, it is important to
examine the fundamental logic behind the reform design more
closely. Why would Massachusetts or any other state want to
reorganize its health system around the principle of consumer
choice and ownership of health insurance? There are at least five
very good reasons.
for the Money. The first reason is to get the system to deliver
better value. Market-oriented health reformers have long
argued for improving the health care value proposition by making
consumers, as opposed to employers or government, the ultimate
decision-makers in the system. It is only when the users and the
payers are one and the same that the incentives in the health care
system will be properly aligned to produce better value-that
is, better results at better prices.
One method is
through reforms that empower consumers to purchase more of their
care directly. That is the rationale for expanding options like
health savings accounts (HSAs) and health reimbursement
arrangements (HRAs). But such reforms, while important, are not the
The key change
that will bring the rest of the system into a rational
alignment of economic incentives is to shift the basic
organizing principle to one of individual
decision-making-specifically, consumer choice and ownership of
health insurance coverage. Then, depending on personal
preferences, any given consumer's health insurance choice may
or may not entail more direct purchase of care.
If the insurance
carrier is made the agentof the consumer, as opposed to the agent
of the employer or the government, it becomes much less important
who writes the check to the doctor, the hospital, or any other
In other words,
in a consumer-choice market, whether any given consumer opts for an
HMO, or a high-deductible plan with an HSA, or a preferred provider
organization (PPO) plan, or an indemnity plan becomes simply a
matter of personal preference and risk tolerance. Regardless
of the plan choices of individual consumers, the whole market
functions better because it is the consumers, and not their
employers or government, making those choices. In a consumer-choice
system, all plans, regardless of their scope or design, must serve
the interests of consumers and must compete to provide
consumers with good value for their dollars.
The issue of
reforming public education offers a good analogy. Children
certainly get a better education if their parents are more
involved and engaged in their school and its curriculum. But to
transform the system substantially and produce better results on a
large scale, it is necessary that parents gain direct
control over the funding of their children's education and the
ability to choose which school they will fund. Truly transformative
change will occur only if the educational system is reorganized
around the principle of parental choice made possible through
In the same way
that education vouchers make schools the agents of parents,
consumer choice and ownership of health insurance makes health
insurers the agents of patients. It is that fundamental
change, above all others, that can truly transform the whole health
Employer-Sponsored Insurance. A second good reason a state
would want to shift to a consumer-choice model is that the old
employer-based model is steadily and irreversibly eroding. Today,
only 60 percent of workers are covered by employer-sponsored
insurance, and among those working in firms of 10 or fewer
employees, the share has declined to 48 percent.
advantage the arrangement may still hold for large employers, it
obviously isn't working for small business. Absent the federal
government requiring all employers to provide health
insurance-a move that is as unlikely as it is ill-advised-the
employment-based system will be replaced either by a continued
expansion of government health insurance programs or by a
reorganization of the private market to better meet the needs
of workers and their families, especially those employed by small
Non-Traditional Employment. A third, and closely related,
reason for shifting to a consumer-choice model is to better
accommodate non-traditional employment patterns. The
underlying premise of employer-sponsored health insurance
is that the worker has one full-time job with an employer big
enough to provide and administer job-based benefits. But that
premise doesn't hold true for many individuals and families-those
with part-time jobs, multiple jobs, seasonal employment, or
temporary or contract work.
Nor are these
non-traditional employment patterns prevalent in only a few
sectors. Rather, they occur among employers of all sizes, from the
very small to the very large. They also occur among
individuals and families with a wide range of incomes, and not
just low-wage workers, and they occur among all sectors of the
economy, including ones dominated by large employers such as
manufacturing or government, and not just sectors such as
retail, tourism, or agriculture.
A system of
individual and family ownership of health benefits does a better
job of accommodating these economic realities, just as IRAs and
401(k) plans already do for retirement benefits.
Coverage and Care. A fourth reason to shift to a
consumer-choice model is to reduce coverage disruptions. Far from
being a static population, there is high turnover among the
uninsured as individuals constantly lose and gain
coverage. Studies also show that the frequency and
duration of coverage gaps vary widely. Initiatives designed to
cover the uninsured will invariably be frustrated by the constantly
changing target population if they don't start by first
establishing a system of more stable and continuous coverage for
the general population.
If the state's
health care system is reformed so that health insurance attaches to
individuals and not to jobs, a significant portion of the uninsured
will be able to get and keep coverage without the need for
additional public subsidies. Policymakers can then better target
existing public spending through premium support to assist the
remaining lower-income uninsured.
continuity of coverage is also a precondition for greater
continuity of care. It encourages longer-term relationships between
consumers and insurers and doctors. Longer-term relationships
create new incentives for insurers to invest in more
preventive care and disease management and to engage in
collaborative, rather than adversarial, initiatives with
doctors and other medical professionals to redesign coverage
and payment systems to produce better health outcomes for patients
at reduced costs.
Competition. Finally, the fifth reason a state would want to
shift to a consumer-choice model is that it is a precondition to
removing obstacles to greater competition among medical
professionals delivering health care services-competition to
devise not only ways of reducing costs, but also ways of improving
quality and outcomes. This is particularly true when it comes to
the current system of financing uncompensated care
largely through hospital emergency rooms. The creation of
Medicaid and Medicare, combined with increases in the costs and
complexity of care resulting from advances in medical science, and
the imposition of a federal treatment mandate under EMTALA have
collectively produced the current situation wherein the vast
majority of residual "charity care" in the U.S. health system is
delivered in hospital emergency departments.
There are those
who at least seem to be quite comfortable with the current
situation. They argue, in one forum or another, that uncompensated
care costs are small and manageable-around 5 percent of total
health spending-and that given the availability of care,
regardless of a patient's ability to pay, it is unnecessary or even
undesirable to make covering all of the uninsured a legitimate
policy goal. Indeed, some might even argue that the relatively less
attractive circumstances associated with obtaining "free" care
through an emergency room serve as an inducement to buy health
Yet while those
points may have some validity, they overlook the negative
collateral effects of continuing the current policy. One
inescapable result of making hospital emergency rooms America's
de facto health care safety net is that many hospitals
are effectively deemed "too important to fail." For if society is
counting on those hospitals to provide this essential public
service, then they must be kept open-and since "free care" isn't
really "free," it must be funded either through explicit public
subsidies or cost-shifting to private payers, or a
combination of both.
hospitals need to be publicly subsidized and allowed to
overcharge private patients to keep their doors open, regardless of
their cost structures or the quality of care they provide.
Furthermore, anything at all that might threaten those
existing funding arrangements, and thus the survival of the
hospital, must be avoided.
gentlemen, as you wander down that logic path, you will find, one
after another, virtually all of the justifications for numerous
anti-competitive policies and arcane health care regulations
from state "certificate of need" laws (designed to restrict the
supply of medical services under the guise of cost control), to the
government prohibitions on the building of specialty hospitals
without ERs, to Medicare's hospital price-setting methodologies,
to, for example, the state of Maryland's all-payer hospital
rate-setting scheme that systematically overcharges every
purchaser of every hospital service by 8 percent to cover the cost
of uncompensated care.
It is also down
this path that we find the justification for the tens of
billions in federal and state tax money being shoveled out to
hospitals to offset their uncompensated care costs, with virtually
no transparency and no accountability. Today, that cost to
America's citizens is in excess of $40 billion annually.
But if our de
facto health policy is that numerous "essential" hospitals need
to be propped up with a complex web of direct subsidies,
institutionalized cross subsidies, and all manner of complex
regulation, why should we think that such arrangements will
ever produce a high-value health system that delivers better
quality at a better price? In short, how can we have robust
competition based on value if numerous hospitals can't be allowed
to fail in a competitive market?
because the EMTALA mandate applies only to hospital emergency
departments, it also has the distorting effect of shifting more
care to that venue and away from lower-cost, and often more
appropriate, alternatives such as clinics and physician offices. In
the case of individuals with chronic conditions, that shift often
produces less continuity of care, resulting in poorer outcomes and
higher system costs.
hospital uncompensated-care subsidies into a system of premium
support to aid the low-income in buying coverage is a
precondition for creating value-focused provider
competition. Once nearly all residents have insurance
coverage-and particularly if individuals choose and own their
coverage-policymakers can insist that hospitals start earning their
money the old-fashioned way, by competing to offer customers good
value, and begin dismantling the regulatory edifice propping up
some providers and shielding them from competition.
All of the
forgoing five rationales are applicable to Massachusetts as well as
any other state. What differs is the relative importance each state
will attach to each rationale. For example, the high cost of care
and lack of provider competition in Massachusetts, as noted by
Professor Hyman, led its policymakers to put greater emphasis
on provider competition and transparency in their reforms. Another
state with, say, a greater share of its economy organized in
very small businesses would likely place greater emphasis on
features that provide continuity and portability of coverage
for workers in small firms.
Learning from the
The next category
of considerations is those elements of the Massachusetts
reforms that constitute a prototype design on which other states
can improve. There are at least three such areas: the insurance
market rules, the functions of a health insurance exchange,
and the personal responsibility provisions.
Shifting to a
consumer-choice health insurance market in any state necessitates
some degree of insurance market reform. The fundamental
question, once again, is this: Who is to be the key
decision-maker in the system? If a state wants to create a
system in which the customers choose the health plan instead
of the health plans choosing their customers or employers or
government making decisions for people, it must first
transform the current supplier-driven health insurance market into
a buyer-driven market.
Indeed, a number
of current problems can be traced to two features of the existing
supplier-driven market. First, in a supplier-driven market, there
are some customers the suppliers don't want because they are not as
profitable, such as a person in poor health. Second, there are some
customers who are quite desirable, but they are difficult and
expensive for suppliers to reach, such as a young healthy
individual with two part-time jobs.
market makes it easier for desirable but marginal customers to
participate. But it also means that less desirable customers get to
have a personal choice of health coverage as well. This is
inevitable because one can't expect the healthy to buy coverage
today without assurances that they will still have choice of
coverage in the future should their health status decline.
Rules. Thus, in shifting to a consumer-choice health
insurance market, policymakers need to first establish a set of
coverage rules that are broadly considered "fair" to both consumers
and health insurers.
fairest way to rate the coverage should be on an age, geography and
family status basis. Family status simply reflects the number of
dependents of the primary policyholder, and geographic
differences in premiums reflect differences in the underlying local
cost of care. Broad age rating is also roughly "fair" inasmuch as
people generally both consume more health services and earn more
money as they age in the workforce.
Massachusetts' lawmakers were unwilling to move away from that
state's narrow community rating rules, it will be more
difficult for them to persuade younger, healthier individuals that
coverage is a good value. However, most other states don't
have Massachusetts' narrow community rating, so they will not
need to change as much in their insurance rating rules.
a buyer-driven market, it will be necessary for coverage to be
available on a limited guaranteed-issue basis. Again, it is a
question of establishing rules that are broadly viewed as "fair." A
reasonable set of rules is to specify that coverage is available on
a guaranteed-issue basis at standard rates, but only in
certain circumstances, such as during annual open season.
Furthermore, it should be stipulated that individuals need to first
"earn" their right to choose coverage at standard rates either by
showing evidence of 18 months or more of prior creditable coverage
or by being subject to rating surcharges and pre-existing condition
exclusions for an initial period of several years.
Massachusetts' lawmakers opted not to modify their state's existing
broader guaranteed-issue coverage rules in this way, they again
made it far more difficult on themselves to persuade residents
to buy coverage when they are healthy.
rating rules I suggest here raise understandable insurer
concerns over possible selection effects once consumers can choose
their preferred coverage during an annual open season. The
problem of adverse selection in any health insurance market
where diverse individuals of differing health status can choose
health plans is very real.
The best way to
address those concerns is for the state to work closely with
carriers to design a risk transfer pool. Such a pool would work
just like a state high-risk pool, but with the difference that the
claims, but not the individuals, would be transferred to the pool
and the excess costs redistributed proportionately among all
policyholders. That way, any given insurer would be
compensated if it got a disproportionate share of high-cost
claims or individuals, but individuals would still retain the same
choice of coverage, including those who later experience high
claims or deterioration in their health status.
continuation of narrow community rating and broad guaranteed issue
in Massachusetts makes it more difficult to persuade the young
healthy to buy coverage, it also means that the state did not need
to include such a risk transfer mechanism in its reform
design, since plan selection effects are likely to be less.
However, the better and safer option would be for other states
looking to reform their health insurance markets to include a risk
transfer pool in any similar reforms.
the Connector. The next area in which other states could
improve on the Massachusetts prototype is with respect to the
administrative mechanism-the "Connector" or health insurance
exchange-for facilitating the major shift to a consumer choice
To start with,
Massachusetts chartered its Connector as a quasi-public
entity. While some other states might have reasons for doing the
same, most state officials will likely prefer to charter it as an
independent, private entity. In any event, many, if not most, of
the functions of the Connector can be contracted out to
private-sector vendors as the Massachusetts Connector has done
in several instances.
regardless of corporate form, other states can avoid some of the
unnecessary tensions and technical difficulties encountered by the
Massachusetts Connector either by not delegating any
governmental functions to an exchange or by separating the
funding and supervision of any delegated governmental functions
from the exchange's basic administrative function.
governmental functions include asking the exchange to design a
payment scale for low-income subsidies or instructing the exchange
to conduct eligibility verification for Medicaid or SCHIP
applicants. To be sure, state lawmakers may sometimes have very
good reasons for wanting a health insurance exchange to take on a
governmental function. For example, they may want the exchange
to serve as a clearinghouse not only for private insurance plans,
but also for government programs as a way to ensure more
coordinated coverage for the population. Still, if lawmakers
choose to assign an exchange any governmental functions, they
should ensure that those functions are paid for separately out of
the state's budget and not included in the administrative fee paid
only by those purchasing private coverage through the
obvious flaw in the Massachusetts legislation is that the Connector
is required to pay the state Medicaid department for the costs of
determining premium support eligibility and administering
payments for individuals receiving subsidies to buy coverage
through the Connector. That is exactly the opposite of how a state
should structure and fund such an arrangement.
for other states from the Massachusetts prototype is to more
clearly delineate regulatory responsibilities. Specifically,
states should keep insurance regulation in their insurance
departments, where it belongs. Having an exchange
negotiate coverage with plans or otherwise set plan standards
only invites confusion, delay, and opportunities for mischief.
The better approach is for states to have the insurance department
administer all rules and regulations established by the state that
apply to coverage sold through an exchange. That way, it is clear
to all that the exchange only offers for sale those insurance
products approved by the state insurance department in accordance
with state law-nothing more and nothing less.
Responsibility. A final prototype issue is the contentious one
of the Massachusetts individual mandate or similar "personal
responsibility" provisions. Clearly, as long as there
is a federal mandate on hospitals to treat patients regardless of
ability to pay, there will be an incentive for some to forgo
purchasing health insurance and, if they need care, to try to stick
others with the bill. Insurance reforms and premium support can
never completely counter that incentive. Thus, state
governments will inevitably have to consider some mechanism for
enforcing personal responsibility if they are to escape would-be
"free-riders" imposing not only their direct costs, but also the
bigger, indirect costs-such as the cost of propping up
uncompetitive providers-on the rest of us.
Here, too, the
Massachusetts experience is instructive. Governor Romney did not
propose a health insurance mandate. What he proposed was that
those who still insisted on going without coverage in a
reformed system demonstrate proof of their willingness and ability
to pay their own bills by posting a bond or establishing an escrow
account. The Massachusetts legislature replaced those
provisions with a requirement that individuals buy health
insurance or be fined-essentially an individual "play or pay"
I contend that
the governor had the better idea, on both philosophical and
economic grounds. Other states will likely improve on the
Massachusetts prototype by developing still different approaches.
However, regardless of the specific mechanisms and their relative
merits, the larger issue is important. Put simply, one cannot
expect the system to work well if individuals are allowed to
privatize the benefits of their actions and
socialize the costs.
The same issue is
involved in Social Security reform, where reform advocates, such as
those at Heritage and Cato, have argued for replacing the current
tax-financed system with a system of mandatory private
savings. I am obliged to note that in recent years, Cato has
produced a number of papers advocating this concept of mandatory
private retirement savings in lieu of Social Security and has
deployed various sound arguments for such an approach, including
A system of
personal retirement accounts would minimize problems of perverse
incentives by virtue of the fact that a means-tested safety
net would serve only as an adjunct to the main retirement system
based on mandatory private savings. Absent a requirement to
set aside money in personal accounts, a means-tested benefits
program for retirees would create a "moral hazard" problem:
workers would have an incentive to "game" the system and
consume their incomes earlier rather than save sufficiently for
Of course, this
logic is even more applicable to the creation of a consumer-choice
system of private health insurance within the context of the moral
hazard created by a federal mandate on hospitals to treat patients
regardless of their ability or willingness to pay for their
own care-or even their legal status in the U.S.
Last, there are a
number of considerations that are Massachusetts-specific. They
either involve issues that may not be present in another state or
issues for which each state must customize its own solutions. I
include in this category most of the particulars of the
premium support program, such as coverage benefits, income
eligibility thresholds, and the rules and timetable for
transitioning the uninsured into subsidized coverage.
I would also
include in this category the "employer mandate" provisions, since
they are almost entirely symbolic politics, are easy for employers
to avoid, and would be thrown out as violating ERISA if
anyone ever went to the effort and expense of bringing a case
against them in federal court. The legislation also
includes several boards and commissions that, while they involve
health care, are completely incidental to its core reform
Record Thus Far
Barely one year
later, the Massachusetts reforms are still in their start-up phase.
Nonetheless, we do have some sense of how implementation is
- After receiving bids from 10 carriers, for the first plan year,
six different carriers are now offering 42 plan options through the
Connector for the unsubsidized population, and enrollment in those
plans began on May 1. That's approximately 41 more options
than most Americans have today. Nationally, 80 percent of companies
offering health benefits provide workers a choice of one plan-take
it or leave it. Outside of federal workers in the Federal Employees
Health Benefits Program, Massachusetts citizens getting health
insurance through the Connector are among the only group of
Americans who can shop in a competitive health insurance market
with such a broad range of health care choices.
Pre-reform, the lowest premium for a typical uninsured 37-year-old
in Boston was $335 per month with a $5,000 annual deductible. Now,
through the Connector, the same individual can get health coverage
for $184 per month ($118 pre-tax) with a $2,000 deductible-well
below the $250 a month target set back when the legislation
was being developed. Indeed, most can get a health plan worth
twice the value at half the price.
But had the state allowed health plans into the Connector on an
"any willing plan" basis and not required the board's "seal of
approval," certifying all plans already approved by the
state's insurance commissioner, Massachusetts residents might
have had even more choices and a more competitive marketplace.
Moreover, had the legislature done more to revisit the
inflexible regulatory regime in Massachusetts, including
43 benefits mandates, health insurers could have offered
residents still more variety and even more affordable
- In the past year, the number of uninsured in Massachusetts has
been reduced by 34 percent. As of June 1, enrollment
of the uninsured eligible for subsidized coverage through the
Commonwealth Care program was 78,900- ahead of the target set of
enrolling half the eligible population (70,000) by July 1,
2007-and as of July 1, enrollment was 92,046.
- For the year to date over the prior period (October
2006-May 2007), uncompensated care pool utilization has decreased
by 12.8 percent, and the associated hospital costs are already down
by 9.3 percent.
- After much debate, the Connector board established a
"minimum creditable coverage" standard for determining whether
individuals meet the individual mandate to obtain insurance. The
standard is unnecessary but reflects the peculiar political and
regulatory climate in Massachusetts. Because of its negative
impact on a number of existing health plans, the board thus delayed
imposition of these standards until 2009, which is a welcome
development. Nonetheless, the comprehensiveness of the final
regulations could, by 2009, lead the state to deem as many as
200,000 individuals currently covered by employer group insurance
as having insufficient coverage to be in compliance with the
mandate. This includes an estimated 90 percent of
employees in union-managed plans.
However, as the Massachusetts experience demonstrates, state
officials should expand, not constrain, choice of health plans and
at the very least allow individuals and employers to keep what they
already have today. My colleagues and I have suggested that
other states could avoid this conundrum by applying a more basic
existing standard for "creditable prior coverage" contained in the
federal Health Insurance Portability and Accountability Act of
1996 (HIPPA). Such a standard would apply broad parameters set in
current law defining what constitutes a "major medical" plan
without further restricting benefit design or increasing
insurance costs on individuals.
- Again, due to Massachusetts' peculiar political and regulatory
climate and the governmental authority the state legislature gave
the Connector, the Connector board, in addition to setting a
comprehensive standard for minimal creditable coverage, also
established an "affordability schedule" or threshold for what
constitutes an "affordable" level of personal expenditure on health
insurance and medical care.
According to Jon Kingsdale, executive director of the Connector,
defining an affordability scale was the "most difficult element" of
the reform. It was contentious but ultimately resulted in a
unanimous "compromise" by the board to increase subsidies for
52,000 low-income residents and then exempt approximately
60,000 unsubsidized residents from being penalized by the state if
they fail to comply with the mandate on the grounds that the board
deemed them unable to afford minimum coverage.
Even so, the mandate will continue to apply to 80 percent of the
currently uninsured and 99 percent of all Massachusetts
residents. Moreover, although the state will
exempt these residents from the penalties for failing to
obtain coverage, nothing precludes them from actually obtaining
insurance if they themselves consider it affordable.
In fact, Jonathan Gruber, a Massachusetts Institute of
Technology economist who sits on the board, was initially opposed
to the compromise because he thought "people could afford health
insurance at higher levels." Gruber, in his own
assessment of the earlier affordability definition before the
compromise, produced research that shows that the subsidized could
have afforded coverage and even spent more than they would have
been required to, and the unsubsidized should also have been able
to obtain minimum creditable coverage. Additionally, Len Nichols,
a health economist at the New America Foundation, considered
the "compromise" affordability standard generous, noting that a
sliding scale defining affordability as only having to spend 5 to
10 percent of income on health insurance premiums is well
below the 17 percent of income the median household currently
dedicates to total health care costs.
Much more remains
to be done as the reforms continue to be phased in over the next
two years, but the political will to work through the difficult job
of implementing the plan and to make the necessary revisions
and compromises along the way remains strong. It appears for now
that Massachusetts remains on track to put in place a reformed
system tailored to that particular state.
The lesson for
other states is that reform based on the principles of consumer
choice and ownership of health insurance is feasible, though
lawmakers and stakeholders will have to negotiate and compromise
the details to suit their own unique circumstances. In the end, the
ultimate test will be if, over the next several years, such a
consumer-choice model can begin to deliver the better-value health
system we all desire.
I generally agree
with Professor Hyman's analysis of the Massachusetts reforms as
containing a mixture of "the good, the bad and the ugly." My
main quibble is that such an analysis, while technically correct,
fails to provide the proper perspective.
As I have argued
here today, I think it is terribly important that a state-and one
of the most politically liberal in the nation at that-has now
committed to fundamentally restructuring its health system
around the principle that individual consumers, and not employers
or government, should be the key decision makers and owners of
insurance in the health care system.
To my thinking,
that is a very significant shift in the health policy debate, and
it is worth replicating elsewhere the core design elements that
effectuate such a profound change. As for the details, their
importance lies largely in what insights they may offer for making
further improvements in the next versions of the basic model.
As I was thinking
how to express this concept, an analogy occurred to me, which I
shall close by sharing with you.
On December 17,
1903, Wilbur and Orville Wright made the first sustained,
controlled flights in a powered aircraft. Their four flights that
day ranged from at first only 120 feet to finally 852 feet. It is
also true that their 1903 Flyer was underpowered and difficult to
control. Indeed, there was a bit of the ugly about it as well, such
as the elevators stuck out on spars in front of the wings.
But a century
later, it is not those things that are remembered. Nor do we attach
much significance today to the fact that the propellers were on the
back, pushing the aircraft, or that they were driven using bicycle
chains, or that the homemade, four-cylinder engine had no
No, what is
significant is that, having engineered over the previous two years
solutions to the last big obstacles, a propeller design capable of
generating enough thrust to keep their craft aloft and a system of
rudders and elevators that enabled the pilot to maneuver it in any
direction, one cold December day on a North Carolina beach, the
brothers from Dayton Ohio, by turns, climbed into their
Edmund F. Haislmaier
is Senior Research Fellow in Health Policy Studies in the Center
for Health Policy Studies at The Heritage Foundation. These remarks
were delivered at a forum sponsored by the Cato Institute in
Hyman, "The Massachusetts Health Plan: The Good, the Bad, and the
Ugly," Cato Institute Policy Analysis
No. 595, June 28,
2007, at www.cato.org/pub_display.php?pub_id=8431
 For a brief
discussion of the role of consumer-driven products in health
reform, see Nina Owcharenko, "Getting Health Savings Accounts
Right," Heritage Foundation WebMemo No. 1127, June 14, 2006,
and Greg D'Angelo and Robert E. Moffit, Ph.D., "Building on the
Successes of Health Savings Accounts," Heritage Foundation
WebMemo No. 1239, October 20, 2006, at www.heritage.org/Research/HealthCare/wm1239.cfm.
 Paul Fronstin,
"Sources of Health Insurance and Characteristics of the Uninsured:
Analysis of the March 2006 Current Population Survey," Employee
Benefit Research Institute Issue Brief No. 298, October
2006, Figure 11, at www.ebri.org/pdf/briefspdf/EBRI_IB_10a-20061.pdf.
 Pamela Farley Short
and Deborah. R. Graefe, "Battery-Powered Health Insurance?
Stability in Coverage of the Uninsured," Health Affairs,
Vol. 22, No.6 (2003), pp. 244-255.
 Emergency Medical
Treatment and Active Labor Act of 1986, 42 USC 1395dd et
 State Children's
Health Insurance Program.
 For a brief
discussion of mandates and the "personal responsibility" principle,
see Robert E. Moffit, Ph.D., "Individual Taxpayers Already Under a
Mandate," Des Moines Register, March 3, 2007.
 An Act to
Increase the Availability and Affordability of Private Health
Insurance to the Residents of the Commonwealth, HD 4673,
Massachusetts General Court, 2005.
 An Act Providing
Access to Affordable, Quality, Accountable Health Care, Acts of
2006, Chapter 58, Commonwealth of Massachusetts.
 Will Wilkinson,
"Noble Lies, Liberal Purposes, and Personal Retirement Accounts,"
Cato Institute Social Security Choice Paper No. 34, June 28,
2005. See also Michael Tanner, "The 6.2 Percent Solution: A Plan
for Reforming Social Security," Cato Institute Social Security
Choice Paper No. 32, February 17, 2004; David Altig and
Jagadeesh Gokhale, "Social Security Privatization: One Proposal,"
Cato Institute Social Security Choice Paper No. 9, May 29,
1997; and Martin Feldstein, "Privatizing Social Security: The $10
Trillion Opportunity," Cato Institute Social Security Choice
Paper No. 7, January 31, 1997.
Retirement Income Security Act of 1974, Pub.L. 93-406,
88 Stat. 829, September 2, 1974.
Schiffbauer, Esq., "Hiding in Plain View: ERISA Preempts Provisions
of Massachusetts 'Play or Pay' Health Care Reform Law," Bureau of
National Affairs Health Care Policy Report, Vol. 14, No. 37
(September 18, 2006).
 Commonwealth of
Massachusetts Executive Department, "New Health Plan Will Be
Available for Under $200," press release, March 3, 2007, at www.mass.gov/?pageID=hicmodulechunk&L=1&L0=Home&sid=Qhic&
b=terminalcontent&f=mcc_pr&csid=Qhic, and Jon
Kingsdale, "Massachusetts Health Reform," Commonwealth Connector,
June 11, 2007.
 This represents
an increase in covered individuals of about 125,000 relative to the
findings of the prior year's state insurance coverage survey, which
estimated 372,000 uninsured Massachusetts residents as of early
2006. See Commonwealth of Massachusetts, Executive Office of Health
and Human Services, Office of Medicaid, "Section 1115 Demonstration
Project Extension Request," June 29, 2007, at www.mass.gov/Eeohhs2/docs/eohhs/cms_
waiver_2007/ma-1115-extension.pdf, and Massachusetts
Division of Health Care Finance and Policy, "Health Insurance
Status of Massachusetts Residents, Fifth Edition," December 2006,
 "Section 1115
Demonstration Project Extension Request," June 29, 2007, and
personal communications with Caroline W. Minkin, Policy Manager,
Uncompensated Care Pool, Division of Health Care Finance and
Policy, Massachusetts Department of Health and Human Services,
August 22, 2007.
 Alice Dembner,
"State May Give Insured More Time to Upgrade; July Still Deadline
to Have Coverage," The Boston Globe, March 16, 2007.
 Alice Dembner,
"Health Plan May Exempt 20% of the Uninsured," The Boston
Globe, April 12, 2007.
 Jonathan Gruber,
"Evidence on Affordability from Consumer Expenditures and Employee
Enrollment in Employer-Sponsored Health Insurance," March 2007, at