You know that health-care cost reform has begun in Massachusetts when an insurance company asks state regulators to reduce its previously approved premium request.

That’s exactly what happened on Monday when the Massachusetts Division of Insurance approved a request by Harvard Pilgrim Health Care to cut its premium increase for small employers in half from 3.8 percent to 1.9 percent for the period starting April 1. Harvard Pilgrim said it resubmitted its request after concluding new contracts with two major health care providers – Beth Israel Deaconess Medical Center and Steward Health Care System.

The rate revision capped months of breathtaking change in the world of health care that left Massachusetts employers looking at average insurance premium increases of 1.8 percent for 2012, down from 16.3 percent just two years ago. More than 1.2 million Bay State residents are now covered by cost-reducing health plans that pay doctors for outcomes instead of procedures and reward consumers for seeking care in high-quality community facilities.

The transformation underscores AIM’s long-held view that a reduction in premiums is possible in a business where experts such as Professor David Cutler at Harvard University believe that one-third of all spending is wasteful. It also confirms that appropriate role for a government seeking to ease runaway health premiums is to establish enforceable cost-reduction goals and then let the market do the rest.

“This is great progress,’’ said Governor Deval Patrick.  “It’s great for small businesses and the Massachusetts economy. But we need to make sure it’s sustainable.’’
Consider some recent headlines from the health care market:

• Steward Health Care System received approval in December to market a limited-network health plan that the company says will cost 15-30 percent less than a typical health maintenance organization.
• Children’s Hospital Boston agreed to a three-year contract with Blue Cross Blue Shield of Massachusetts that will not pay Children’s any more money this year. In the second and third years of the pact, the hospital will be reimbursed by Blue Cross Blue Shield at a rate below the current 3 percent rate of medical inflation.
• Partners Health Care, the largest health care organization in the commonwealth and the parent of Massachusetts General and Brigham & Women’s Hospitals in Boston, reached agreements with Blue Cross Blue Shield and Tufts Health Plan that will reduce anticipated reimbursements to Partners doctors and hospitals by some $350 million during the next several years.
• Overall, contracts negotiated by health insurers with providers in 2011 gave hospitals and doctors groups average fee increases of 2 to 3 percent, roughly half those given in 2010 and less than in any year since 2005.
• Five hospital and phyisician groups in Massachusetts are among 32 nationwide that will implement an Accountable Care Organization structure for Medicare patients in an effort to reduce costs and ensure that patients receive “the right care in the right place at the right time.”

AIM and its 6,000 member employers view these changes as first steps in a long effort to reduce relentless health-care cost increases that have depressed economic expansion and job growth in the commonwealth for more than a decade.

The employers who pay most of the health bills in Massachusetts harbor no illusions that the problem has been solved. After all, these employers still pay some of the highest premiums in the country as they seek to provide decent health insurance to their workers.

But the changes make two key points as the Massachusetts Legislature prepares to debate health care cost-control legislation this year:

• It should be possible to reduce health insurance premiums and not simply slow the rate of growth. Health care spending has been rising faster than the overall Massachusetts economy for two decades, so any cost reductions now are coming on top of an enormous base.
• The appropriate role of government in controlling health insurance costs should be to establish cost-reduction targets for doctors, hospitals and insurers instead of proscribing regulatory solutions.

AIM and Massachusetts employers, as always, stand ready to work with policymakers and others to find a long-term solution.