By Josh Goodman, CQ Staff

Three years into Massachusetts' grand experiment in overhauling its health system, it's hard to argue that the law has failed to meet its objectives. Today, according to estimates, more than 97 percent of the state's residents have health insurance, easily the highest rate in the country.

No one is calling it a perfect setup. Massachusetts is just starting to confront the fact that the high cost of health care, combined with the state's own fiscal problems, could swamp the program. State officials are scrambling to find ways to cut costs.

The Massachusetts model, as it is known, nonetheless remains central to the debate in Washington because the state successfully incorporated two ideas that have been proposed on a federal level: health insurance exchanges that make it easier for customers to shop for plans, and a requirement—known as the individual mandate—that everyone have health insurance.

Perhaps the biggest reason health care overhaul optimists point to Massachusetts is to demonstrate that it can be done at all. The state created a political consensus in favor of its new law that included everyone from business leaders to universal health care activists.

"There was no anti-campaign," says Robert Blendon, a Harvard professor who studies public opinion on health care. "There was no 'Harry and Louise.' There was nobody." The lesson, Blendon says, is that the political acceptance of a health care overhaul requires different stakeholders to share whatever pain the law creates. In Massachusetts, businesses had to provide insurance or pay a fee, everyone had to abide by the individual mandate and all of the state's taxpayers had to contribute to the cost of subsidized care.

The big question now is whether Washington's entrenched health care interests can do the same.

Something for Everyone

Massachusetts' landmark health care bill made a series of changes to its health care system that included the unusual and the unique. The state established the individual mandate, and it created the health insurance exchange, known as the Commonwealth Connector. It also expanded Medicaid, assessed a fee to employers that did not provide health insurance and created a new regulatory body with broad powers.

Under the individual mandate, people who don't have health insurance face large penalties when they file their taxes, with very limited exceptions. Requiring that everyone have health insurance helped smooth out some demographic variations in the system. Many healthy young men—who tend more often than any other demographic subset to think they don't need insurance—have decided insurance is worth the price. That's good news for health insurance plans, which benefit from having more low-risk customers.

Such a mandate would, of course, have created a rebellion if the state didn't help low-income people afford insurance. So the state, with federal help, expanded Medicaid and created a new subsidized program called Commonwealth Care. Plus, Massachusetts set up the Connector.

The Connector allows people who don't receive health insurance through work and who aren't enrolled in Medicaid to shop among health insurance plans. Backers of the concept say there are several advantages to this managed marketplace.

For example, the state takes advantage of economies of scale to negotiate for lower prices. The differences between the plans are far more transparent than is typical in the health care world, making it easier for consumers to compare them. Plus, individuals in the Connector get to pay with before-tax money, which helps level the playing field with employer-based health insurance. The plans move with the individual, even if they change jobs or lose a job.

It is in these features of the Massachusetts plan where the political compromises are apparent. Conservative ideas are present in the strategy in that the individual mandate emphasizes personal responsibility and the Connector makes use of market forces. Yet the result, more help for people to obtain health insurance, is something liberals say they can cheer.

Massachusetts officials aren't just happy with the increase in the number of people with insurance. They're also happy with how they became insured. Nearly 200,000 of the state's newly insured are in unsubsidized private plans, a sign that more generous public programs haven't crowded out the private sector. One reason is the individual mandate—people who were eligible for employer-based insurance but never bothered to accept it are now doing so. In addition, the Connector has strengthened, rather than supplanted, existing health insurance providers.

That's important in the context of the national debate because drivers of the overhaul, including President Obama, have said they want to build on the system we have. "The main lesson," says Jonathan Gruber, an economist at the Massachusetts Institute of Technology, "is that you can do health reform within the existing economy."

Gruber, who worked on the Massachusetts overhaul, is now advising the Obama administration and has made himself available to informally advise senators as they design an overhaul. While insurance on a national level will be more costly, Gruber says, the needed policy prescriptions are similar in many ways.

"It's just like Massachusetts," he says "with three more zeros."

The Cost Question

The question is whether the same strategies would really work on a national level. Creating a national health insurance marketplace is challenging, in part because health care prices vary significantly between states. It's possible that Congress would opt to create a series of regional or state-specific exchanges, instead. It's also worth noting that Massachusetts created an exemption to the individual mandate for anyone who the state determined wasn't eligible for any affordable health insurance plan. For a federal (or state) individual mandate to provide truly universal coverage, the government would have to take on the costly task of subsidizing everyone who couldn't afford insurance.

That gets at a bigger point: Implementing a Massachusetts-like plan on the national level isn't the primary challenge. Affording it is.

Massachusetts had financial advantages that other states lack. Even before the new law was enacted, Massachusetts had an unusually high rate of people with health insurance. The state is also unusually wealthy, with a median household income $10,000 above the national average. Plus, in a state with liberal inclinations, controversial ideas such as the individual mandate met broad acceptance.

Meanwhile, the business community was willing to make concessions that their counterparts elsewhere might be unwilling to consider. "Massachusetts is an outlier," says Robert Moffit, director of the Heritage Foundation's Center for Health Policy Studies, who was involved in crafting Massachusetts' Connector. "There is no other state in the union that is like Massachusetts."

Even with those advantages, Massachusetts is, in some sense, a cautionary tale as to the financial challenges associated with expanding health insurance. One lesson is that reducing the ranks of the uninsured doesn't automatically save money. The state has seen a gratifying drop in the number of uninsured people showing up at emergency rooms to receive basic health care. But emergency room visits overall haven't declined. While some hope that reducing the number of uninsured will increase the use of preventive care and forestall costly acute illnesses, that hasn't happened yet in Massachusetts.

That's just part of the bigger picture. Supporters of the plan stress that they're not over budget. The question, though, is whether their budget is sustainable. Virtually everyone agrees that if health insurance costs keep increasing in Massachusetts the way they have in the state (and the nation) both before and after the changes, the state's insurance expansions will be unsustainable. That's true despite the state's wealth and despite the fact that it receives billions of dollars from the federal government in the form of Medicaid waivers.

"The reforms in Massachusetts are a success, but they're not complete yet," says Linda J. Blumberg, principal research associate at the Urban Institute. "They're just turning to questions of cost containment. Cost containment is enormous. That's why Massachusetts put it off. It's really hard to do."

This strategy of doing coverage first and cost containment second isn't likely to be replicated in Washington. Budget pressures are pushing Congress and the White House to come up with cost reductions, even as they try to expand coverage.

As part of cost-saving efforts in Massachusetts, Gov. Deval Patrick signed legislation last year to encourage the use of electronic health records and to require insurance companies to publicly justify rate increases. The state is now studying ending the fee-for-service payment system for doctors, which many experts say leads to expensive, unnecessary medical procedures.

Cost isn't the only problem Massachusetts' plan has encountered. Physician groups have complained that with more people having health insurance, their practices have become overcrowded. To reduce the strain on doctors, the state is now moving to attract more primary care physicians and to allow retail clinics in pharmacies.

This reinforces the lesson to would-be reformers on the national level that expanded health insurance doesn't guarantee expanded access to health care, unless the health system is prepared for the change.

Creating Buy-In

What all of this suggests is that the Massachusetts model may be as much about getting stakeholder support up front as it is about policies themselves.

The support of business groups, for example, reflects the broad buy-in that Massachusetts' politicians were able to achieve. Employers, who stymied Michael Dukakis' push for universal health care in Massachusetts 20 years ago, this time flipped sides.

"The role of the business community was absolutely central to the reform," says Michael Widmer, president of the Massachusetts Taxpayers Foundation, a group funded by businesses. "Without our role, it probably wouldn't have happened."

It wasn't just the business community that got on board. The legislation represented a compromise between a Republican governor, Mitt Romney, and an overwhelmingly Democratic legislature. Virtually every major health care player in the state backed the deal. Left-leaning activists did not insist on a single-payer plan or a mandate that employers provide health insurance to all of their workers.

Today, polling shows that the support for the plan remains strong. The key groups that supported the law still do so, in large part because they've continued to compromise. The board of the Connector includes state officials, experts and representatives of the business and activist communities. When the board has decided nettlesome questions, such as just how robust health insurance must be to satisfy the individual mandate, these diverse representatives have found common ground.

On a federal level, strong opposition is much more likely—and much more likely to be highly organized. With many Republicans fundamentally opposed to the ideas under discussion, their opposition is inevitable, and they're already starting to mount their attacks.

One question is the degree to which business groups will engage in the discussions. Employers will likely be asked to shoulder a larger part of the burden—perhaps through a mandate that they provide health insurance to their workers—which may push businesses into active opposition. On the left, activists may drop their support if the bill doesn't include the option of a public plan.

Whatever mechanisms are designed to pay for expanded coverage are bound to be controversial. Even if a law passes, keeping a coalition united will be a challenge when difficult implementation decisions are made. "This was a huge achievement for the state," Widmer says, "but that pales next to what's required at the federal level."