Multiple studies have shown that health insurance premium costs in Massachusetts and the Northeast region are among the highest in the nation, placing a substantial burden on consumers and employers seeking good value for their spending on medical services. In 2010, Massachusetts had the ninth highest premium level for family coverage among all 50 states and the District of Columbia In 2011, the Northeast region had the highest premiums of any region across all plan types. Understanding the factors that influence premiums in Massachusetts and how those premiums are changing over time will help policymakers address rising costs with effective solutions.

There are two main components of this report: (1) an analysis of premium trends (annual growth rates) in Massachusetts, and (2) an analysis of total medical expenses (TME).

The premium trends section of the report discusses trends in premiums paid by employers and consumers for health insurance, and the medical expenses and retention charges included in premiums. The analysis shows that the growth of premiums has slowed in recent years, although small groups continued to experience the highest adjusted premium rates and increases, and overall premium increases continue to outpace inflation. The slowing growth of premiums in Massachusetts is consistent with a national trend, suggesting that macroeconomic factors beyond the Commonwealth may be partially responsible. In addition, there is evidence that group purchasers are selecting insurance packages with fewer benefits or higher cost sharing requirements, a phenomenon known as “benefit buy-down.” Buy-down can result in lower observed premiums, but may reduce access to care or increase out-of-pocket expenditures.

The TME sections of the report discuss statewide TME and differences in TME by payer and parent physician group. Roughly 90 percent of all premium dollars are used to pay clinicians for claims and non-claim services provided; measuring TME captures those payments for many Massachusetts residents.TME is reported for the commercial market, including fully-insured and self-insured enrollees. The analysis compares baseline results from 2009 to interim results from 2010, and shows that the three largest payers experienced the largest growth and the highest unadjusted TME in 2010. Additionally, there was wide variation in health status-adjusted physician group TME by payer. Although the data are limited, they are consistent with a correlation between provider price variation and overall cost growth.

The cost of insurance-covered medical care (excluding cost sharing like coinsurance and deductibles) can be influenced by a number of factors, including but not limited to the age of the enrollees, the health status of the population, the level of payments to providers, the breadth of covered services, and the portion of covered services that are the liability of the payer as opposed to the member (i.e., cost sharing).