Where Does the Money Go?

Health care costs are a major concern for Massachusetts residents, businesses and elected officials. The continued increase in the cost of health care puts enormous strain on local and state budgets and inhibits the ability of employers to create and grow jobs.

Massachusetts health care spending is 15% higher than the rest of the nation. Getting Massachusetts’ health costs in line with the rest of the nation would go a long way towards making health care affordable. Several recent reports have shown that increases in the rates providers charge is the major reason for premium increases in the Commonwealth over the past several years.

A March 2010 report by Attorney General Martha Coakley, Examination of Health Care Cost Trends and Cost Drivers, shows that the current system of health care payment is not value-based, and that prices paid for health care services reflect market leverage as opposed to quality of care.

What’s Driving Health Care Costs?

The growth in the cost of premiums is caused almost entirely by growth in medical expenses – not increases in utilization – and market clout of certain providers is the main factor driving the price of services.

The Attorney General’s report found that there are wide disparities in payment levels to providers that are not explained by differences in quality or complexity of health care services, but are a reflection of market leverage. Variables such as size, geographic location, “brand name,” and/or niche or specialty service lines offered can affect a provider’s market position. Providers with the most market power are able to negotiate higher payment rates. This means that the cost for a procedure could be considerably higher if a patient receives care from a provider with more market power, which ultimately leads to increased overall health care costs.

Where Does the Premium Dollar Go?

Health insurance premiums are driven by health care costs. In Massachusetts, nearly 90 cents of every health care dollar goes toward medical services, such as doctor visits, prescription drugs and hospital stays. Health insurance premiums and health care costs are inextricably linked. As the cost of health care rises, so do premiums. Making health care more affordable requires addressing the underlying factors driving health care costs.

What Can Be Done?

MAHP is working to develop sustainable solutions for controlling health care costs that will bring real and lasting rate relief to employers and consumers while maintaining high-quality health care in the Commonwealth.

The Attorney General’s report concludes that distortions of the current marketplace must be addressed as the Commonwealth develops health care cost containment solutions. MAHP supports the AG’s conclusion and believes that the issue of provider market power must be resolved in order to control rising health care costs.

Payment reform (moving from a fee-for-service system to a global payment system) is a proposal that is being considered in legislative and regulatory arenas at this time. We believe that in order for payment reform to be successful in addressing health care costs, it is essential that we concurrently pursue proposals that address the issues related to market power and the variations in provider reimbursement rates.

Measures MAHP supports to promote safe and affordable health care in Massachusetts include:

  • Making cost and quality data available and easy to understand
  • Addressing the market leverage issue
  • Decreasing waste, fraud and complexity within the health care system
  • Promoting care in the right setting
  • Making payment reform voluntary and market-based

MAHP's 2015-2016 Legislative Agenda places a high priority on making health care more affordable for Massachusetts consumers and employers. MAHP's newest Legislative Agenda will address the factors driving health costs and ensure shared accountability in containing those costs.