As detailed in this diary (and this one too), Elizabeth Edwards' comments about "trusting" Hillary Clinton's plan for mandated health insurance more than Obama's plan has reopened the debate here and elsewhere about requiring the purchase of health insurance. Since I'm a Massachusetts resident with some familiarity with this topic, I thought that now would be a good time to jump in and share some of my own conclusions (backed by a good deal of research) about what we can learn from the Massachusetts model. In taking us down this road, I want to make it clear that I DO NOT necessarily think that Obama's plan is really all that superior to Clinton's; I'm writing here to make it clear that this debate over mandates is probably not all that meaningful until our lawmakers finally reach the conclusion that a more wholesale kind of change is needed. Because there's a good bit of territory to cover, I'm going to break this up into a couple of parts, but if you're ready, follow me into Part 1, which lays out the design (in Part 2 tomorrow, I'll dissect how I think this model falls short)...
Chapter 58 of the Acts of 2006: Where it Came From and What it Accomplishes
While it may be possible to ascribe any number of different motivations to the legislators, health care advocates, and executive branch officials who were the primary actors behind the Massachusetts move towards a more comprehensive kind of health care reform, without question two of the most prominent were: 1) the growing concern over the number of uninsured in the state, and 2) the risk of losing federal matching funds for the state’s Medicaid program. At the time they enacted the reforms, Massachusetts’ lawmakers estimated that there were 550,000 people who did not have any insurance in the state. This figure, produced by the Massachusetts Division of Public Health Care Finance and Policy, represented around nine percent of the non-elderly Massachusetts population. This estimate of the uninsured, however, probably did not fully account for the number of state residents without insurance. According to the Census Bureau, at the time of the legislation’s passage, there were 748,000 uninsured in the state, a difference probably explained by the fact that the state relied on a telephone survey only conducted in English and Spanish, which would undercount the uninsured without phones as well as those who did not speak the languages in which the survey was conducted.
Regardless of the exact number or the precise extent of the population that did not have insurance, most everyone was willing to concede that the portion of the state’s population without insurance was growing and extended far beyond the jobless or most economically disadvantaged residents. The state’s survey revealed that about 70 percent of the uninsured were employed and about two-thirds worked for employers with fewer than 50 employees, leading to a conclusion that many state residents were either not being offered insurance through their employer or were choosing to decline such coverage for any number of reasons. Under growing pressure to address this rapidly expanding population of citizens who could not or did enroll in insurance plans through their employer, the state crafted a plan meant to spread the burden of the costs of more readily available health insurance between both state residents and the businesses that employ them. One of the primary objectives of the Act, then, became an expansion in access to insurance, with a goal of extending coverage to 95 percent of the state’s estimate of the uninsured.
After considerable negotiation between many different agencies and levels of Governor Romney’s administration and both houses of the state legislature – with input provided by the health insurance industry, health care advocates, and other stakeholders along the way – regarding different versions of proposed versions of a bill meant to expand access to health insurance, the Act was finally signed into law in April 2006. There were at least three provisions in the final version of the bill meant to address the accessibility of health insurance for Massachusetts citizens.
First, the much-discussed individual mandate contained in the Act requires that all state residents enroll in an "affordable" health insurance plan by July 1, 2007. In order to enforce this mandate, the bill requires that state residents confirm that they have "minimum creditable" insurance coverage on state income tax returns, with coverage to be confirmed by a database kept by the state. If a resident doesn’t have coverage for a period of more than sixty-three days in a year and it is found that there was an affordable plan available to them, they lose their personal tax exemption for 2007. In 2008 and beyond, those residents who do not meet the individual mandate requirements will have to pay a fine of up to 50 percent of the premium cost for the least expensive creditable coverage insurance for each month they do not have coverage (although the sixty-three day gap period in coverage is still permitted). In April 2007, the new state authority responsible for implementing much of the new legislation approved an affordability schedule that will be used to determine if coverage is affordable for residents in various income brackets, while also establishing a waiver and appeals process used to determine if an individual has special circumstances that should exempt them from the individual mandate.
The other important mandate contained in the Act – the second prong of the so-called "shared responsibility" component of the legislation – contains two parts meant to ensure that those who are employed have some minimum level of insurance coverage offered to them by their employer. The first part is the so-called "Fair Share Contribution" that must be paid by employers who don’t make a reasonable contribution to the cost of their employees’ health insurance. Employers are deemed to have provided a reasonable contribution if at least 25 percent of their full-time employees ("FTE") enroll in their sponsored plan or if they pay at least 33 percent of their employees’ premium costs. This contribution is initially set at $295 per FTE per year and is supposed to represent a portion of the cost the state pays when an employer’s workers use the free care provided by the state. Realistically, however, this charge represents less than five percent of the costs of the new legislation, and is an assessment of only about fifteen cents per hour of labor for most employers.
The second portion of the employer responsibility component of the bill is the Free Rider surcharge levied against employers if they do not provide minimum creditable coverage health insurance and if they also have a single employee use the free care still provided by the state on more than three occasions or if any of their employees receive free care five times or more. Again, however, it is not clear that this is really much of an enforcement mechanism because employers with more than eleven employees can avoid this surcharge by setting up so-called "cafeteria plans" that, pursuant to Section 125 of the IRS Code, allow their employees to pay for insurance on a pre-tax basis, a relatively easy requirement to meet that imposes minimal costs on an employer. In the seemingly unlikely event the surcharge is triggered, an employer will be responsible for paying for anywhere between ten percent and 100 percent of the cost of the services provided to its workers.
Beyond the individual and business mandates created by the legislation, there are other significant provisions meant to expand access to insurance. Pursuant to the Act, the state’s non-group and small group insurance markets were merged, meaning that those individual residents who are not enrolled in employer-sponsored plans and who generally pay much higher insurance rates will be allowed to choose insurance plans previously only offered through small group plans. Allowing individuals to join the larger rating pool of small group plans will decrease the rates paid by individuals and should only raise the rates on group plans by a very small percentage. In other words, the small group market is supposed to subsidize the cost of coverage for those who were formerly in the non-group market, with the hope that this change will increase access for those individuals who previously could not identify an affordable individual health insurance plan.
While the seemingly noble goal of increasing the number of people who had access to insurance was certainly a major concern, the second factor mentioned above – the possibility of losing federal Medicaid matching funds – probably provided a more immediate impetus for designing a plan that would make some fundamental changes to the state’s health insurance infrastructure. Beginning in 1997, the federal government had been providing the state with a steadily increasing amount of matching funds under the Medicaid Section 1115 waiver program that were supposed to fund experimental health care programs in the state. Until the Bush administration began tightening the reins on how federal matching funds could be applied, Massachusetts had largely used these funds – which by 2005 amounted to $385 million a year – to bankroll the two largest safety net providers in the state.
Once it became clear that the flow of federal funds was in danger if it was not put to a use that was more in keeping with mandates from the Bush administration, state policymakers, especially those in Governor Romney’s administration, began considering the possibility of using this federal money in such a way that would shift the emphasis away from directly subsidizing emergency room care of low income residents with what was called the Uncompensated Care Pool and towards helping those same citizens pay for private health insurance. Under an early 2006 deadline to come up with such a plan, state lawmakers included provisions in the legislation that were designed to both respond to the federal requirements, while also using the estimated $600 million in the Uncompensated Care Pool towards creating a system that would assist a large number of residents with the purchase of private health insurance. The final piece of legislation contained a number of very important components designed to meet these objectives. The Act replaced the Uncompensated Care Pool with the Health Safety Net Fund (and changes the fee structure employed in order to cover care for those without insurance from a charge-based payment system to a standard fee schedule similar to the payment principles used by Medicare). This Fund is paid for in the same way the Uncompensated Care Pool was: through an assessment on hospitals and payers and with a combination of state and federal funding. By and large, however, state lawmakers hoped that the need for this Fund would largely disappear as all of the pieces of the legislation were put into place. These remaining pieces were, in turn, directed towards both creating a statewide infrastructure that would help the state’s citizens purchase and keep the kind of health insurance plans required by the individual mandate described above and subsidizing the cost of insurance for those who are deemed by the state as being unable to afford it.
A significant research study conducted in Massachusetts tracking the uninsured demonstrated that, over a four year period, only twelve percent of state residents were constantly uninsured, while a third "cycled repeatedly in and out of coverage, and another 29 percent were covered for most of the four years but also experienced coverage gaps," while 26 percent, although they were uninsured for most of the period studied, did have insurance from time to time. Because this coverage instability obviously created situations in which the temporarily uninsured would be forced to rely on the Uncompensated Care Pool (or the newly created Health Safety Net Fund), part of the reform’s goal had to be to provide for continuity of coverage, eliminating gaps in coverage when residents changed jobs or otherwise lost their coverage. To this end, policymakers decided that a new state agency was needed to coordinate coverage for small businesses and those individuals who the existing research showed were likely to become uninsured for any substantial period of time. The Act created the Commonwealth Health Insurance Connector ("the Connector"), designed as a centralized source for small businesses and individuals to identify and purchase coverage.
The Connector is housed within the Department of Administration and Finance but has its own dedicated staff, as well as an appointed Board to oversee its operations. To prevent the possibility that the new agency in charge of stabilizing the accessibility of health insurance coverage would itself be subject to the exigencies and instabilities of the state budget, the Connector was designed to be largely self-financing, with its revenue coming from administrative fees charged to health care providers who offer plans through Commonwealth Care or Commonwealth Choice. Individuals who are either out-of-work or self-employed, who work at an employer that does not offer insurance or who are not eligible for their employer’s plan because they work part-time or seasonally, and businesses with 50 or fewer employees are eligible to sign up for an insurance plan offered through the Connector. State policymakers hope that making a standard set of insurance plans available through one state agency designed to facilitate the purchase of insurance will increase portability because more small employers will be offering the same kinds of plans, while also decreasing the number of individuals who cycle in and out of coverage depending on the availability of a desirable plan.
In order to implement this part of the legislature’s goals, the Connector oversaw the creation of what it refers to as the Commonwealth Choice Plans, which are unsubsidized insurance plans available for all qualified residents who have income above 300 percent of the FPL. These plans are offered through the Connector, through insurance brokers, and directly through insurance carriers that offer approved plans. The Connector Board approved plans offered by seven of the state’s insurers in March of 2007 but only ended up coming to contract terms with six of the insurers. Generally speaking, each insurer offers three kinds of plans through Commonwealth Choice: a high-premium, low-deductible and copayment plan, a lower-premium, higher out-of-pocket expenses plan, and a low-premium, high out-of-pocket expenses plan. Any individual whose income is above 300 percent of the FPL is deemed to be able to purchase insurance – and is therefore subject to the individual mandate – if they can purchase insurance through the Connector, through an employer, or directly through an insurance company if the premium amount they would have to pay does not exceed the amount set out as "affordable" for their income bracket. The Act provides that young adults can remain on their parents’ insurance for two years after they lose their dependent status or until they turn 25, depending on which happens first. It also mandates the creation of insurance plans specifically designed for young adults between the ages of 19 and 26.
Implementation of the most significant measure aimed at increasing access to care amongst those residents with lower income levels also falls to the Connector. Pursuant to one of the central provisions of the Act, the state now uses a substantial portion of the money previously used to fund the Uncompensated Care Pool to subsidize health insurance plans purchased through the Connector for those people who earn less than 300 percent of the FPL but are not eligible for the MassHealth Medicaid program. Individuals above 150 percent of the FPL can purchase insurance through a program called Commonwealth Care. Enrollees in this program with incomes between 150 to 200 percent of the FPL pay a portion of their premiums, depending on their relative income level, and the rest of the premium is publicly subsidized. They are also required to pay co-payments for almost every type of medical service they receive. Those people with income levels between 200 and 300 percent of the FPL have to choose between plans with low monthly premiums and higher out-of-pocket expenses and plans with higher premiums and lower out-of-pocket expenses. If a state resident meets the income guidelines outlined above but is also enrolled in an employer-sponsored insurance, they can still choose to sign up for a Commonwealth Care plan, but their employer has to pay a portion of the cost of the premium. Additionally, all adults who earn up to 150 percent of the FPL are eligible for fully subsidized care through an expanded MassHealth program. These residents do not pay any premium but do have to offset the costs of their usage by contributing small co-payments for prescription drugs and emergency care. According to the terms of the Act, all Commonwealth Care plans must be approved by the Connector, and only those managed care organizations who had previously existing relationships with the state’s MassHealth program were initially eligible to provide subsidized care.
Because it has the overall responsibility for determining what is considered affordable insurance (based on its determination of what a typical resident at a given level of income can afford to pay for health insurance), the Connector also plays a significant part in the implementation of the individual mandate described in detail above. The Connector is, by statute, supposed to consider the costs of both premiums and deductibles when determining what qualifies as "affordable" coverage, but, as discussed in greater detail below, it is not clear that the Connector has realistically projected what a significant portion of the population can actually spend on a monthly basis for health insurance coverage. However, based on its calculations of affordability, the Connector has determined that all residents who are eligible to enroll in a Commonwealth Care plan have an opportunity to purchase "affordable" coverage and are therefore subject to the individual mandate, unless they can demonstrate an individual hardship that would exempt them from this requirement. For those who are not eligible for subsidized coverage, the Connector also has discretion to waive the individual mandate if the resident can prove that, because of some set of extenuating circumstances, they are not able to pay for insurance coverage that would otherwise be considered affordable at their income level.
In addition to defining what is considered affordable insurance, the Connector was also responsible for establishing the guidelines for the "minimum creditable coverage" that all residents, both those enrolled in Commonwealth Choice or Commonwealth Care and those enrolled in plans through their employer, must secure in order to be considered in compliance with the individual mandate. Minimum creditable coverage is defined as "comprehensive health plans that include preventive and primary care, emergency services, hospitalization benefits, ambulatory patient services, mental health services, and prescription drug coverage." To meet the standards, a health insurance plan must: Contain no annual or per-sickness benefit maximum; Cap annual deductibles at $2000 for an individual and $4000 for family coverage; Cap total out of pocket expenses (including any co-insurance or copayments plus deductibles) at $5000 for individuals and $10,000 for families; cover a small number of preventive care visits prior to applying the deductible; Cap any separate prescription drug deductible at $250 for an individual and $500 for family coverage. Only those plans that meet these minimum creditable coverage requirements and that are deemed to offer "good value" are offered through the Connector. After the business community and insurers complained that many of the plans already offered to state residents before the Act was passed would not meet these standards, the Connector delayed the requirement that residents be enrolled in a minimum creditable coverage plan until January 1, 2009.
The state took a number of additional steps beyond those needed to ensure that the federal funds would continue to be available under the Medicaid Section 1115 waiver. First of all, the Act expands the state’s SCHIP program so that children in families earning up to 300% of the Federal Poverty Level ("FPL") are eligible for MassHealth benefits, which do not require the payment of any premiums and include few out of pocket expenses. It also restored MassHealth benefits like vision and dental services that were cut in the recession of 2002 and 2003. Additionally, under the Act, Medicaid payments to physicians and to hospitals will increase by a total of $270 million, a $90 million increase in each of the next three years. Before qualifying for the increased Medicaid payments, however, doctors and hospitals must meet a set of quality standards and demonstrate that they have met certain performance benchmarks. This includes proof that the providers are taking positive steps towards reducing disparities in the provision of care for racial and ethnic minorities.
On July 26, 2006, Medicaid officials signed off on the coverage expansions created by the Act and the $385 million needed to fund those expansions. According to the initial assessments of its implementation, the Act has undoubtedly had some success in enrolling more state residents is some kind of health insurance plan. By the end of March 2007, the Connector estimated that the number of residents covered by MassHealth increased by about 53,000. During this same time period, the state was also able to enroll over 15,000 citizens in the Commonwealth Care program. It is not yet clear, however, what kind of impact the Act will have on stabilizing enrollment in health insurance plans or how those residents outside the portion of the population that qualifies for subsidized coverage will respond to the individual mandate or enroll in plans offered through the Connector.