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Romney's Massachusetts mandate deception

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Politics,Beltway Confidential,Philip Klein

Mitt Romney, in last Thursday’s debate, made the familiar argument that the reason why he supported the individual mandate in Massachusetts was to combat freeloaders who choose not to get health insurance and instead showed up at hospitals, where taxpayers ultimately paid for their care. But this claim is contradicted by analyzing state data in Massachusetts.

In fact, Massachusetts collects a small amount in penalties from the individual mandate, and what little money is raised pales in comparison to how much free care (typically called “uncompensated care”) is still being provided by hospitals and how much money the state is spending on health care subsidies under Romneycare. 

“Everyone has a requirement to either buy (health insurance) or pay the state for the cost of providing them free care,” Romney said, defending the mandate under attack from Rick Santorum. “Because the idea of people getting something for free when they could afford to care for themselves is something that we decided in our state was not a good idea.”

The main problem with Romney’s claim is that the primary purpose of the mandate is not actually to raise revenue and to the extent that it does raise a small amount of revenue, the money generally doesn’t actually go to pay for segment of the population he’s talking about (i.e. free riders who can afford health insurance but are choosing to go without it so they can milk the system).

In reality, the purpose of the mandate is to ameliorate the distortion in the market caused when government forces insurers to take on those with pre-existing conditions. The requirement aims to contain the growth in premiums by corralling healthy people with lower medical costs to join the insurance pool to help subsidize insurance companies for covering sicker enrollees with higher costs. The penalty is merely an enforcement mechanism to get more people to comply with the mandate.

In fiscal year 2010, according to the Massachusetts Division of Finance, the state government collected just $17.8 million in fines from people not complying with the mandate. But uncompensated care was a stubborn $475 million, according to the state’s Division of Health Care Finance and Policy. (The state could only pay $405 million, with shortfall cost falling on hospitals.)

But it isn’t even that simple. The money raised by the mandate doesn’t even directly go toward helping pay for uncompensated care. Under the terms of the law that Romney signed in April 2006, money collected from the fines goes into something called the Commonwealth Care Trust Fund, which is a separate pool of money that mostly pays for health insurance subsidies. Generally, the uncompensated care pool, or Health Safety Net Fund, is funded by surcharges and assessments on hospitals and other providers. (Though the law does provide for some money to be transferred among the funds, it's relatively small. See UPDATE.)

Romney, in his debate answer, lumped together all the people who were going without insurance as free riders who were driving up the costs of emergency rooms. He said that after his law was enacted, people were simply being required to “pay the state for the cost of providing them free care.” But that makes it seem as if everybody who wasn’t purchasing insurance was a burden to the state. In reality, many people had chosen to go without health insurance before Romneycare because they simply had very low medical costs, not because they intended to bilk taxpayers. Under Romneycare, those people are now either being forced to purchase insurance (which helps subsidize sicker patients) or pay a fine (which goes into the Commonwealth Care Trust Fund).

Over at the Washington Post, Sarah Kliff has written that there are now few “free riders” in Massachusetts, and that’s true when the term is used narrowly to define people who choose to go without insurance. But As Cato’s Michael Cannon writes, there are different ways to apply the term.

If the purpose of the Massachusetts law was to get people to pay for their own health care and thereby reduce costs to taxpayers, as Romney’s answer made it seem, it was a miserable failure. Lower-income residents who are exempted from the mandate can still show up at emergency rooms and get free care. Alternatively, they can now qualify for some other form of government-subsidized insurance. One way of looking at it is that somebody who was called a “free rider” in 2005 when they showed up in an emergency room without insurance is no longer considered one merely because they now qualify for a new government program. But either way, taxpayers are picking up the tab for their health care. And Romneycare made the tab bigger.

The myth is that because emergency care is more expensive, getting more people “in the system” will save money. The reality is that though the cost of uncompensated care in Massachusetts was about $190 million lower in 2010 than in 2006, according data from the Division of Health Care Finance and Policy, the state spent $753 million in 2010 on Romneycare’s subsidies for people to purchase insurance on its exchange that year, according to a spokesman for the exchange, called the Connector. Total health care spending in Massachusetts went up from $10 billion in 2006 to $13.3 billion in 2010, according to the Massachusetts Budget and Policy Center. It reached $14.7 billion in 2011. Other factors, such as the weakening of the economy, contributed to this spike, but the aggregate number still puts the uncompensated care issue in its proper context.

No doubt, liberals could argue that it’s fair for healthier people and those with more means to be forced to purchase insurance or help subsidize those who are sicker or poorer. But that’s not the argument that Romney is employing in his deceptive attempt to justify his policy to a conservative audience under the guise of "personal responsibility."

UPDATE: I just received updated data from Massachusetts state officials for 2011. During that fiscal year, the government collected $21.1 million in fees from the mandate, total uncompensated care spending was $496 million (of which $414 million was paid and the rest was absorbed by hospitals). And spending on subsidizing health care through the exchanges was $835 million. In 2011, the state transferred $30 million through the Commonwealth Care Trust Fund to pay for uncompensated care.

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Philip Klein

Commentary Editor
The Washington Examiner