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Study: Slower Health Premium Increases Would Add Billions to Economy

Posted on April 26, 2012

Lowering the annual growth of health insurance premiums to 2 percent in Massachusetts would increase the take-home pay of every Bay State worker by $9,200 over the next eight years, according to a study released today by MIT economist Jonathan Gruber.

Health cost controlThe study also finds that employers could save up to $34 billion on insurance premiums during the same period while preserving an additional $4.1 billion to be spent on jobs and expansion.

Gruber’s analysis, conducted for the Blue Cross Blue Shield of Massachusetts Foundation, identifies for the first time the staggering opportunity Massachusetts faces to redirect excessive health care spending into other sectors of economic growth.

AIM has called for the health care industry reduce the growth of medical spending to two percentage points below the growth in the overall economy, an amount that would limit increases to slightly below the 2 percent benchmark used by Gruber.

“This important study shows just how much is at stake for individuals, families, businesses, and the entire Commonwealth. We hope it will be a further catalyst for meaningful action to control the growth in health care costs,” said Sarah Iselin, president of the Blue Cross Blue Shield of Massachusetts Foundation.

The study finds that employers tend to reduce or limit the increase of employee wages, and to offer less generous insurance coverage, as health premiums rise. But those soaring premiums also affect the companies themselves, forcing them to cut jobs or accept lower business profits.

Gruber finds that if insurance premiums in Massachusetts continue to grow at the projected rate of 6 percent from 2011–2019, employer spending on premiums will nearly double.

“The Gruber report shows just how severely accelerating health costs inhibit economic growth and the prosperity of Massachusetts residents,” said Kristen Lepore, Vice President of Government Affairs at AIM.

“It also underscores the need for employers, doctors, insurers, lawmakers and hospitals to work together  to create a world class health-care system that people can still afford. There has been encouraging news in the past several months, but we still have a long way to go.”

Gruber, in an interview with radio station WBUR in Boston this morning, said it is far from certain that reducing health care costs will generate significant layoffs in the Massachusetts health care system. His study also modeled the financial savings of reducing health cost increases to 5 percent and 4 percent.

John Stowe, president of Lutco, a ball bearing manufacturer in Worcester, and an AIM director, told WBUR that he wonders why the state can’t actually cut health care costs, instead of settling for lower increases. He pointed to the 30 percent of care that many doctors acknowledge is wasteful.

“It disturbs me that we’re talking about just limiting the increases a little bit and not going to the core, and there’s plenty of room for reduction,” Stowe said.