Danger ahead? Massachusetts health costs are rising – fast.

February 9, 2013

Massachusetts has been at the forefront of experimenting with new ways to keep health-care spending down after decades of sharp increases. Last year, it passed a law that put health costs under a global budget: They cannot grow faster than the rest of the Bay State economy.

That's the target, at least. As Robert Weisman at the Boston Globe reports, health insurance companies are sounding some early warnings that the state could go over budget:

Representatives from the state’s nonprofit health plans as well as national for-profit insurers doing business in Massachusetts estimated the “medical cost trend,” a key industry measure, will climb between 6 and 12 percent this year — higher than last year’s cost bump and more than double the 3.6 percent increase set as a target in a state law passed last year.

The new projections of accelerating costs are a sobering sign those moderating trends may be fading.

Why did medical costs speed up? Massachusetts's health insurance carriers pointed to a few factors. The economic recovery meant that Bay State residents had more income to spend on health-care services. An especially severe winter flu season may have also bumped up demand.

Massachusetts experts have, for awhile now, maintained some skepticism about whether the legislation would actually keep costs down. While the state has achieved near-universal coverage with its 2006 reform law, handing out health insurance cards is a less challenging task than bringing down the price of health-care services.

What happens if costs do grow as quickly as these health plans predict? It's not quite clear: There is a new agency, the Health Policy Commission Board, that has the authority to review the rates that insurance companies and doctors charge patients.

If that board does find a rate increase inappropriate, it can contact the doctor or hospital, and draw a plan for reducing cost. They cannot do much more than that, such as set their own rates, which would give them significantly more sway over health-cost growth.

Stuart Altman, a health economist at Brandeis University who chairs the board, argues that it's an appropriate amount of power for the time being: The panel is meant to be a watchdog, rather than a regulator.

“The commission was set up to [be] a watchdog and see to what extent the work the private sector is doing is working,” he told me in a recent interview. “If after two or three years from now, it’s working, that’s great. If not, the commission can come back to the legislature and say, ‘This isn’t working, we need more power.’ I think that was the right way to structure this.”

If costs growth go as health insurance plans think they will, Altman may soon find himself making that request.

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