Many of our members are following the progress and setbacks of the Massachusetts Health Care Reform legislation that was signed into law in April 2006. The aim of the reform was to bring the state very close to universal coverage within a few years. 

Key points:
» Of the Massachusetts residents filing 2007 income taxes, 168,000 are uninsured.
» About 340,000 people are enrolled in expanded government programs or have purchased health insurance.
» Private health insurance sales through the Connector have been minimal.
» The state underestimated the number of uninsured.
» Cost containment and sustainability are problems that will have to be addressed.
» Insurance producers maintain their critical roles in the marketplace.

The essential elements of the Massachusetts reform included expanded Medicaid eligibility, an individual mandate, subsidized private insurance (Commonwealth Care) and a quasi-public health insurance vendor, the Commonwealth Connector, that sells private health insurance (Commonwealth Choice).
 
The health insurance reform passed in April 2006 was extremely complicated and is still being implemented by several state agencies. The state has claimed that the number of insured Massachusetts residents has increased by about 340,000, with Medicaid, Commonwealth Care and group insurance enrolling most of those newly insured.

The state has encountered a few challenges along the way. There are far more uninsured residents than first estimated. This, in turn, has led to funding problems. To address this, the legislature has raised cigarette taxes by $1 a pack to raise an expected $150 million annually. Other new revenue streams include one-time $30 million insurer assessments, $20 million hospitals assessments and a $35 million transfer from the Medical Security Trust Fund, which is used to pay health insurance for the unemployed. In total, this is about $230 million.

The Individual Mandate
Massachusetts was the first state to mandate that individuals possess health insurance coverage. As of January 1, 2008, nearly all Massachusetts residents were required to possess health insurance. 

Of those Massachusetts residents filing income taxes for 2007, 168,000 self-identified as uninsured.
» 97,000 will be subject to penalties.
» 62,000 low-income individuals were exempted.
» 9,000 claimed a “religious exemption.”

Last year, “health insurance” was broadly defined; any health insurance plan satisfied the individual mandate. On January 1, 2009, this will change. Massachusetts residents’ health insurance must meet “minimum creditable coverage” standards established by the Connector Board. 

Insurance producers will work with their clients to be sure their employees are in compliance with the law. One can combine a health insurance plan and a “gap” plan to meet this standard. If a person works for large national company, his benefits could, in theory, lack benefits the Connector board deems to be essential. In addition, there will be an appeals process for plans that are actuarially “close enough” to regulatory standards.

Why would employers not offer health insurance plans that satisfy the minimum coverage standards? The answer is that the federal Employee Retirement and Income Security Act generally forbids states from regulating a self-insured benefit plan. On the other hand, a state can pass a law requiring individuals to have specific insurance coverage. This is a very nuanced but important distinction.

The Commonwealth Insurance Connector
The “Connector” is a new authority created by the legislature that administers a subsidized insurance program for the low-income, Commonwealth Care, and unsubsidized private insurance, Commonwealth Choice. It is governed by a board of appointees.

Among other responsibilities, the Connector:
• Contracts and negotiates with health insurance carriers
• Designs three standardized private health insurance plans
• Sets producer commissions for Commonwealth Choice
• Determines what insurance coverage benefits will satisfy the state’s individual mandate.

Where Have the Uninsured Found Coverage?
Medicaid (+110,000): In Massachusetts, the Medicaid program is called MassHealth. MassHealth is an umbrella of public programs that provide coverage for various sectors of the population like “low-income children and families, certain low-income adults, disabled individuals and low-income elders.”

Total enrollment in all MassHealth programs grew by 60,000 adults and 50,000 children from June 2006 to April 2008.

Commonwealth Care (+174,000): This new subsidized health insurance plan has exceeded enrollment expectations. It is not clear at this time whether to attribute this to good outreach or underestimating the number of eligible enrollees, or perhaps even enrolling ineligible people in the program. 

Commonwealth Care plans are fully subsidized for everyone earning below 150% the Federal Poverty Level and cover 126,000 enrollees. These fully subsidized plans require small co-payments but no monthly premiums.

Commonwealth Choice (+18,000): The Connector’s unsubsidized health insurance products have so far been limited to the individual (non-group) market. The Connector soon hopes to begin test-marketing new small-group products, barring any glitches. 

About one-quarter of Commonwealth Choice enrollees have purchased the Young Adult Plan, a limited-benefit policy for those between 18 and 26, available exclusively through the Connector. Of the three benefits packages available, the high-deductible, lowest-premium plan is the most popular.

Employment-Based Coverage (+85,000 to 160,000): The Massachusetts Association of Health Plans claims that employer-based coverage increased 85,000 from January 2007 to January 2008. This likely includes some Commonwealth Care and/or Commonwealth Choice enrollment. In August, the Massachusetts Division of Health Care Finance and Policy estimated that nearly 160,000 joined employer-sponsored plans due to the reform. Whatever the true number, employee take-up of employer-sponsored coverage has increased, and employers are spending hundreds of millions of dollars to help their employees purchase coverage.

The Role of Producers
The role of the broker/producer with the ongoing implementation of the health care reform law is critical to its success. Broker/producers continue to be the key in educating and advising small employers and consumers on their specific health care needs. They continue to be the distribution system of health care products in the voluntary market or through the Connector. In addition, the Connector establishes producer commissions. In 1996, Massachusetts eliminated individual product commissions, thus the Connector does not pay for individual business either. For small-group business, producers are compensated $10 per subscriber per month.

This month the Connector will offer expanded small-group insurance product choices through a pilot program. Recently, the executive vice president of Blue Cross and Blue Shield in Massachusetts discussed the pilot program in Senate Finance Committee testimony: “Measuring the success of this (pilot) program in the small-employer market will therefore take some time and there are currently no plans to expand the program to all small employers in the state. This necessary first step must be taken to determine whether an expansion makes economic sense or serves a public policy interest.”

How Much Does the Reform Cost?
Unfortunately, this is the biggest hurdle for the Massachusetts reform. Costs are predictably higher than expected. The Massachusetts health care reform is not just a Connector or an individual mandate to purchase insurance, but dozens of new programs intended to improve health care access and coverage. These are just a few of the larger and more expensive ones.

Massachusetts residents have been enrolled in MassHealth. According to an April 16, 2008, budget disclosure document, the average MassHealth expenditure in fiscal year 2009 will be $7,470. Since enrollment has increased by 110,000, the MassHealth budget should have increased by $820 million. Additionally, increased MassHealth provider reimbursements and hospital supplemental payments will cost $225 million and $160 million, respectively.

From the same budget disclosure document: “Enrollment trends suggest that enrollment in Commonwealth Care will most likely rise to 255,000 residents by the end of fiscal 2009, costing $1.082 billion.”

Putting this all together, rough FY 2009 costs approach $2.25 billion. The federal government will provide about half of this total, as most of the expanded public programs are funded by Medicaid. It’s important to note that the massive coverage expansion will reduce bad debt and charity care.

Summary
State and national policymakers are closely monitoring the Massachusetts reform. At this point, its greatest success is reducing the state’s uninsured rate by half. Thousands of previously uninsured people have greater access to health insurance and medical care, which is a good thing. But there is no free lunch. Health care remains expensive, and so does health insurance. And managing costs is essential for the health care reform to succeed. If the Commonwealth cannot devise a plan to combat health care inflation, the reform will collapse under its own weight.

Maintaining the fragile coalition of health care advocates, businesses and insurers that supported the Massachusetts health care reform will be important as well. This coalition is being severely tested with Governor Patrick’s administration issuance of proposed changes to the “fair share contribution” regulations that, if adopted, would raise about $45 million. The proposed changes would require an employer with 10 or more employees to pay 33% of full-time employees’ premiums and ensure that at least 25% of FTEs are covered by an employer plan. The business community and trade groups are up in arms over the proposal.

Finally, the role of the agent and broker is as important as ever. Employer-sponsored insurance has actually increased since the reform passed and few employers have dropped coverage or switched to Connector products. The reform added a new role for producers: ensuring that their clients are meeting the new state requirements.