Are We Lowering Health Costs Or Just Shifting Them To Consumers?

“You guys on Beacon Hill back off, the market is working.” That’s the message, more or less, from most hospitals and some business leaders to the House and Senate — particularly to the House, which takes up its health care cost bill tomorrow.

The evidence of market success? Hospitals are agreeing to contracts with lower rates of increase and insurance premiums are rising at their lowest rate in five years. A few employers are actually reporting a cut in premiums.

Why are premiums down and why are hospitals able to take a lower increase than in recent years? I haven’t seen much firm evidence that answers this question. But the latest report from the state’s Division of Health Care Finance and Policy has some important analysis on the premiums question.

"Massachusetts Health Care Cost Trends: Premiums and Expenditures" Division of Health Care Finance and Policy

Take a look at the far right column on this chart and note the premium increase in 2010 when “adjusted for benefits.” If you put back all the costs that have shifted to members (higher co-pays, deductibles, co-insurance, etc.), premiums in 2010 would be rising at almost the same rate they have for the last decade or so. In healthcare-speak, this is called “benefit buydown.” The market is producing lower premiums, but it is because patients are paying more health care costs on their own.

When I contacted the Division to see if I was reading the chart correctly, they sent a statement with a more nuanced view:

The data that the Division has collected indicates that benefit buydown is a likely contributor to the recent decrease in premiums. Other contributors include a decreasing trend in medical claims expenditures, reflecting lower utilization (likely related to the recent recession).

I called a few people to get their reaction.

“Changes in the marketplace in Massachusetts are far more fundamental and far-reaching than the report suggests,” says Michael Widmer, president of the Massachusetts Taxpayers Foundation.

“As costs continue to go up, employers are looking for ways to moderate the premium,” says Eric Linzer, senior vice president at the Massachusetts Association of Health Plans. “One of the few levers they have is to look at products that increase cost sharing. This will encourage members to think about the cost of care. If you want real meaningful long term relief you have to do something about underlying health care costs.”

The DHCFP report is meant to help frame the health care costs hearings that begin this morning at Bunker Hill Community College. I expect we’ll hear a lot more about whether the market is actually working to control health care spending, or whether we are just pushing more payments to consumers.

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  • Virginia in Boston

    Thank you for this article.   I have been waiting for it since the 1990′s. Since 1985 I have been a behavioral health provider in MA.  I have watched mental health services to our citizens erode, and my income decrease by 55%.  I am a doctoral-level psychologist with 30+ years of experience working in both inpatient and outpatient settings.  Currently, about 30% of my annual receivables pay for billing and office expenses. My plumber makes more money working in her profession than I do. Massachusetts is one of the most medically progressive of the New England states, but the record of our State Insurance Commission to deal assertively with the big insurance entities from whom we BUY health “insurance”is not something I am proud of.  Many of my patients with employee-based insurance pay at least $2000 annual deductible; some $5-6000.  A family with a single-income working parent has few options.  They either avoid care, or are in debt to people like me: I don’t get paid, and they get no care.  It is a NATIONAL shame.  Only high mid-income level earners (I.E, in a healthy family of four with an income over $200,000) can really afford treatment.  I have dropped all insurance but for BCBSMA idemnity plans and Medicare, because the aggravation and frustration evoked in attempts to manage the games of other insurance corporations were unhealthy for me.  Moreover, our group insurance commission in MA, for many years, has awarded United Health Care a contract to serve state employees. UHC is a for-profit health care company reaping huge profits for shareholders.  I ask you all:  is this what we want for our country?  It is breaking the middle class down more into poverty every year we allow it to continue.  I am old enough, and very grateful, to have Medicare. With whatever energy I have, on a daily basis, I will lobby for the Affordable Care Act, and ultimately, a single payer system in MA.

  • M. Vonnegut

    In the debate over we’re
    going to control the cost of medical care by rationing or waste reduction there
    is a mathematical glitch that prevents either one from working.    

    If $10 billion is saved by eliminating unnecessary admissions for
    congestive heart failure, the overall cost of healthcare will not go
    down by $10 billion.  The $10
    billion will still belong to the payers who are under no obligation and will
    actively resist sharing any of it with the rest of us.  Additionally the hospitals formerly
    paid that $10 billion will either go out of business, which means the
    discontinuation (at a significant cost) of the useful care they were providing.  Alternatively, providers will have to
    increase the volume or price of untargeted services which might not be as
    useful as the targeted services eliminated.  None of this allows for the costs of setting up and running
    and evaluation of cost cutting programs. 

  • JM

    Well, I can tell you from my personal experience with United Health Care that premiums rose every year, and deductibles and co-pays were increased.   I am a health care provider and not that clever with health care policy, but I suspected this shift of cost burden.  Thanks for the article. (By the way, I dumped UHC).

  • Roger


    Thank you for this story that until now has been all but ignored amid powerful stakeholders’ rhetoric.  Yes, costs are shifting to consumers, and largely to those least able to afford it.  As the Attorney General’s data showed last year (another neglected but important story), the lowest healthcare spending in MA is in the lowest income communities, and the highest spending is in higher income communities.   Since lower-income groups have more health challenges this finding should have surprised a lot of people.  But the reason is simple; people in lower income communities have already been hit with higher cost-sharing and that has reduced their demand for services (whether they need it or not).  

    This lower demand, combined with the fact that the hospitals and doctors that serve lower income communities also have far lower prices (because they have much less bargaining clout), results in the huge spending gap between populations of “haves” and “have nots.”  Blue Cross Blue Shield remains unapologetic that over the past decade plus, they granted huge rate increases to doctors and hospitals that serve the wealthiest communities and doled out the leftovers to the rest.  And now after the “reverse Robin Hood” era, Blue Cross is asking those providers with the least funding and resources to fix the most difficult chronic health challenges in the state, setting them up for failure.  

    I agree, Paul, the magical thinking that pervades cost containment policy, is stunning.

    • JM

       Great analysis, Roger.

    • Single Mattress

       Single Mattress likes Roger’s analysis. it is a good comment

  • Paul Levy

    This is an excellent summary by Martha.  There really have not been fundamental changes in the MA “marketplace.”  In fact, there remains not much of a marketplace at all when it comes to negotiations between insurers and providers.  The same patterns remain.  Sure, rate increases granted to providers were lower than before, but the dominant provider group continues to receive above-average rate increases, increasing the disparity between the haves and have-nots.  It is stunning that policy-makers in the state continue to ignore that and its impact on the overall level of costs in the state.