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Do the PPACA math

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I was born and raised in the southwestern Massachusetts city of Springfield.

It was a great place to grow up. Rich in Victorian architecture, the city boasts a 745-acre park designed by Frederick Law Olmsted (best known for designing New York’s Central Park). George Washington chose Springfield as the site for the National Armory. It is the home of Smith & Wesson, Milton Bradley and Merriam-Webster.

Sports fans know Springfield as the place where Dr. James Naismith invented basketball and the home of the American Hockey League. Insurance professionals — especially those of a certain vintage who practiced in the individual disability market — will remember Monarch Life. Today, the city is the home of Massachusetts Mutual, founded in 1851 and a Forbes 500 company.

Yet it may be Springfield’s sons and daughters who best exemplify the diversity and forward thinking that is a Massachusetts hallmark. The list is long, but some of the most recognizable names include General Creighton Abrams; Johnny Appleseed; Nick Buoniconti; Milton Bradley; Larry O’Brien; James MacNeil Whistler; Robert Parker and a couple of other — and perhaps more instructive — notables.

Sons of Springfield also include Theodor Geisel (a.k.a., Dr. Seuss); Dr. “Tune in, Turn On, Drop Out” Timothy Leary, researcher and partaker of all things hallucinogenic; as well as historian William Manchester. Maybe those three men tell you a lot about Springfield and about Massachusetts. Sometimes, the state seems mired in its own history. Other times, it is so far out on the cutting edge that the air gets a little … rare.

Such is the case with the state’s recent history regarding health care and employee benefits. In 2006, Massachusetts enacted Chapter 58 of the Acts of 2006, also known by its longer title, “An Act Providing Access to Affordable, Quality, Accountable Health Care.” It’s now more common eponymous moniker is “RomneyCare.” The act mandates health insurance for all of the Bay State’s citizens and provides subsidies for lower income individuals. Employers must take a pay-or-play role.

The Massachusetts plan is replete with a “connector” — essentially a marketplace (some say it is a kind of broker) to facilitate the purchase of private insurance. The act has been amended several times, as costs have (inevitably) increased, most recently in August 2012 when price controls were established. In the June 2012 edition of this magazine, we reported on the long and tortured — and ultimately ineffective — history of price controls in this country. Enacting price controls is like putting a Band-Aid on a wound that really needs sutures.

Some considered RomneyCare to be the blueprint for PPACA. Former Massachusetts Gov. Mitt Romney was excoriated for this initiative during his sojourn through the valley of the shadow of death — also known as the Republican primary contest. Yet both Romney’s and the president’s plans are the law of their respective lands. Unsurprisingly — completely unsurprisingly for practitioners and students of insurance — the federal plan is now beginning to traverse the same slippery financial slope, albeit on a much larger scale.

Insolvency or bust?
One of the largest challenges — perhaps the fatal flaw — in PPACA is that it tries to re-create insurance while tossing out all of the pricing mechanisms that make it possible. The law requires every American to be insured. This is a laudable goal. But even if PPACA, with its wimpy penalties, can make that occur, the lethal cocktail of (virtually) precluding any rating mechanisms and increasing benefits through mandates means one of two certainties. Either the entire system will death spiral into oblivion, or subsequent reforms (such as those in Massachusetts) will attempt to forestall a single-payer system where the risk will be directly transferred to the U.S Treasury. (That’s us, folks.)

The health care delivery equation is pretty straight forward, even for those possessed of the imaginations of Geisel and Leary: available resources (x) divided by the number insured (y) equals deliverable care (n). You can work the equation any way you want, but you can’t successfully solve for all three variables simultaneously.

If we accept the premise that Massachusetts is a harbinger of federal events, the future isn’t looking too comforting. On Jan. 11, the Associated Press ran the mush headline, “Massachusetts to revamp retiree health care.” Gov. Deval Patrick is proposing a plan to rein in the cost of health care for state and municipal retirees. The Patrick administration projects that the proposed changes will save as much as $20 billion over the next 30 years.

Patrick suggests increasing the number of years an employee needs to be vested, cutting the state’s contributions to premiums and raising the eligibility age from 55 to 60. The proposed changes won’t affect any of those currently retired (75,000 people), and they won’t ding spouses or survivors who currently receive benefits. While similar in tone and direction to Medicare changes proposed by Rep. Paul “Throw Granny Off The Cliff” Ryan, no one expects to see Patrick in a similar ad.

To be sure, the state has a real problem. According to the AP article, the state and local cities and towns in Massachusetts are facing a $46 billion unfunded liability for retiree health and other non-pension benefits. The changes suggested are the result of a 12-member commission that included lawmakers, various state and local officials, the Massachusetts AFL-CIO and a group representing retired public employees. What’s missing here? The same thing that was missing from PPACA: Anyone with a deep working knowledge of the market being reformed.

Early indications are that PPACA is going to go down the same tortured path toward these solvency issues. Whether or not you ascribe this to a sinister long-term plan to achieve universal health care or just the usual ineptitude of government is, in the end, immaterial. To paraphrase James Carville, “It’s the equation, stupid.” Solve for whichever variable you want. You cannot mathematically solve for them all simultaneously.

As goes Massachusetts, so goes the nation. Americans are going to be faced with what happens when an irresistible force meets an immovable object. Or, as my algebra teacher at Classical High used to say, “Do the math!” 

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