Statement of AIM President Richard Lord on Controlling Health Insurance Costs
03/10/2010
STATEMENT OF ASSOCIATED INDUSTRIES OF MASSACHUSETTS BEFORE SENATE CHAIR RICHARD T. MOORE, HOUSE CHAIR HARRIET L. STANLEY AND MEMBERS OF THE JOINT COMMITTEE ON HEALTH CARE FINANCING; AND SENATE CHAIR MICHAEL O. MOORE, HOUSE CHAIR LINDA DORCENA FORRY AND MEMBERS OF THE JOINT COMMITTEE ON COMMUNITY DEVELOPMENT AND SMALL BUSINESS ON CERTAIN ASPECTS OF HB.4490: AN ACT PROVIDING FOR JOB CREATION FOR SMALL BUSINESSES.
Good afternoon, I am Richard C. Lord, President and Chief Executive Officer of Associated Industries of Massachusetts, (AIM), the state’s largest nonprofit, nonpartisan association of Massachusetts’ employers. With thousands of members who employ nearly one out of every five workers in Massachusetts, AIM’s mission is to promote the well-being of its members and the prosperity of the Commonwealth of Massachusetts by improving the economic climate, proactively advocating fair and equitable public policy, and providing relevant, reliable information and excellent services.
Today I focus my comments on Sections 24-31, the provisions in HB.4490 pertaining to health care costs for small businesses. AIM commends the Governor for adding a sense of urgency to the issue of health care costs and for recognizing that any solution must involve both insurers and providers. AIM surveys its membership regularly and the rising cost of health care tops the list of other concerns by a wide margin. The time is now for offering some relief and we cannot let the fact that the solutions are hard to implement or disruptive of the status quo be an excuse for not forging ahead to resolve the health care cost conundrum. Because medical inflation has exceeded general inflation by a wide margin in recent years and given that Massachusetts health care costs exceed the national average by 15-30%, depending on the study, the cost of health insurance has become an impediment to job growth and economic development in the Commonwealth. Health care costs account for over half of the state’s budget this year and threatens to crowd out more and more essential state services. Both employers and the government must demand a more transparent, efficient system for delivering health care services and a more rational and outcome-driven compensation methodology for our payment system.
AIM was a strong supporter of Chapter 58; the landmark health care reform law that enabled Massachusetts to attain the highest rate of insurance in the nation, even though we cautioned that without tackling health care costs our success would not be sustainable. Employers’ financial contribution to health care reform – through fair share contribution, safety net trust fund surcharges, increased premium rates, increased take up of employer sponsored insurance and increased taxes going to fund public health program expansions - has been a fundamental component of health care reform’s success, as has been our unwavering commitment. We ask other stakeholders to provide the same commitment in this next, equally critical phase of health care reform.
Shared responsibility is the keynote. Employers and government will continue to do their parts, but it is time for insurers and providers to shoulder more of the responsibility going forward and to offer viable solutions. The Governor has initiated this conversation with his proposed solutions before you today and we thank him for this effort. AIM offers the following comments on specific aspects of his plan:
* AIM supports the Governor’s proposal to make health insurance more affordable by requiring carriers to offer plans with a reduced network of providers. To be successful at getting people to migrate from very broad networks to smaller, more efficient ones, there must be a public educational component. If it is perceived as insurers restricting choice or employers slashing benefits, it will not gain the necessary traction it needs to make a difference in cost trend.
* AIM also agrees that there must be a moratorium on new mandated benefits. Such benefits disproportionately hurt small businesses and the fully insured. Given the state’s mandate on individuals to purchase insurance, we cannot then require that everyone buy more coverage than they may want or need.
* Amending the current practice of allowing continuous open enrollment would prevent people from gaming the system by buying coverage prior to receiving medical treatment and dropping it thereafter. AIM supports one annual open enrollment period with exceptions for change in circumstances outlined in HIPAA.
* Insurers should justify why administrative costs are not coming down as a percentage of medical loss ratio when the insurance costs are rising at a rate that exceeds general inflation.
* While AIM does not generally support rate setting, preferring to let the market set prices, the reality is that health care is not like other markets. Prices of health services are not transparent, causing huge variation in reimbursement rates; and patients are shielded from a large part of the cost, making them uninformed consumers. The cornerstone of the Governor’s plan is to strengthen the Commonwealth’s authority to review insurer and provider rates. This notion cannot be dismissed out of hand despite its many imperfections. We agree with the Governor that any solution must involve both insurers and providers. His plan, however, gives the Division of Insurance immediate authority to review insurance premium rates for reasonableness while rate review for provider reimbursement requires legislation. We do not support capping insurance premiums without looking at the underlying cost drivers, particularly when 90 cents of every dollar of premium is devoted to medical costs and insures are experiencing significant operating losses. This approach locks in current provider rate reimbursement disparities.
* However, as AIM indicated to the Health Care Financing Committee at a previous hearing, our preference is to tie provider reimbursement rates to some percentage above Medicare for some portion or all of the merged market and to cap the amount of profit insurers can make on this product. Since it was originally proposed by the Massachusetts Association of Health Plans, variations of this concept have emerged, and AIM would support extending this cap to the entire merged market. AIM also supports tying the reimbursement rate to the median rate in effect between carrier and providers in 2009 rather than the 110% that was originally contemplated by MAHP. Most providers on the low end of the reimbursement spectrum will be unaffected or marginally affected by this rate cap. The most effected providers will be those that have benefited most from recent rate hikes. Capping the highest provider reimbursement ratio will enable insurers to offer more affordable premium rates to small employers.
* The findings in the Attorney General’s preliminary report entitled “Investigation of Health Care Cost Trends and Cost Drivers” certainly support our position:
“Price Variations are not correlated to (1) quality of care, (2) the sickness or complexity of the populations being served, (3) the extent to which a provider is responsible for a large portion of patients on Medicare or Medicaid, or (4) whether a provider is an academic teaching or medical facility. Moreover, (5) price variations are not adequately explained by differences in hospital costs of delivering similar services at similar facilities . . . Price variations are correlated to market leverage as measured by the relative market position of the hospital or provider group compared with other hospitals or provider groups within a geographic region or within a group of academic medical centers.”
AIM certainly acknowledges that the aforementioned proposals are not perfect nor they will solve all that ails our healthcare system. But they do offer some short-term rate relief to the small businesses of this Commonwealth and that is sorely needed at this time. Longer term, AIM supports payment reform, as the way to lower premiums for purchasers, and we will do our part to make sure that it can succeed. Employers will play a critical role in transforming our payment system by redesigning benefit plans to incent employees to consume health care differently. AIM commits to you that we are working with our member companies to educate them on payment reform, what is expected of them in the transformation of our payment system and how they can get better value for their money spent.
Several other strategies for reducing cost outlined in the Roadmap to Cost Containment are worthy of consideration, including: development of health resource planning capabilities; enactment of malpractice reform and peer review statutes; implementation of administrative simplification measures; consumer engagement efforts; emphasis on the prevention of illness and the promotion of good health and increased transparency. AIM is committed to working with public policy makers to progress on all of these strategies moving forward.
I thank you for the opportunity to testify today and for the opportunity to convey how important solving the issue of health care cost is to AIM and our member companies. I would be happy to address any of your questions or concerns.
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