One of the main arguments for both RomneyCare (the health care law Massachusetts enacted in 2006) and ObamaCare (the federal law enacted in March of this year) is that once the government mandates that everyone purchase health insurance, premiums will fall due to broader pooling. A new study published by the Forum for Health Economics & Policy suggests the opposite.
Supporters of those laws, like MIT health economist Jonathan Gruber, point to data showing that premiums for individually purchased health insurance policies in Massachusetts fell after 2006. Yet that was expected, and is not evidence that RomneyCare reduced health insurance costs. RomneyCare merged Massachusetts' "individual" health insurance market with the market for small employers. The individual market accounts for just 4 percent of the private market, and premiums in that market were higher than for employment-based coverage. When the two markets merged, the price controls that Massachusetts imposes on health insurance led to an averaging of premiums: premiums for individual purchasers fell, and premiums for small-business employees increased to pick up the slack. That is, RomneyCare shifted costs from people who purchase their own coverage to workers who obtain coverage on the job.
Economists John Cogan, Glenn Hubbard, and Daniel Kessler compared premiums for job-based coverage in Massachusetts, before and after RomneyCare, to job-based premiums nationwide. They found evidence that RomneyCare increased employer-sponsored insurance premiums, particularly at small firms:
We find that health reform in Massachusetts increased single-coverage employer-sponsored insurance premiums by about 6 percent in aggregate, and by about 7 percent for firms with fewer than 50 employees. The effect of reform on family premiums is less uniform. If Massachusetts is compared to the nation as a whole, reform had a modest 1.5 percent effect on family premiums. However, in the Boston MSA, and among employees of small firms, the effect of reform on family premiums was much greater. Family premiums grew by about 8 percent more in Boston than in the 19 largest other MSAs from 2006-08, as compared to 2004-06. For small employers, the differential Massachusetts/US growth in small-group premiums from 2006-08, over and above the growth from 2004-06, was 14.4 percent.
Their study is subject to important limitations. But it is getting harder and harder to claim that RomneyCare -- and ObamaCare, which is just RomneyCare 2.0 -- are going to reduce costs.