Legislative Issues

Massachusetts Individual Mandate

Hot Issues:Massachusetts Health Reform
Newspapers and politicians are discussing the recent Massachusetts health reforms and why your state should adopt them. But what are the “Massachusetts reforms” and how are agents involved? This NAHU analysis briefly evaluates the reforms, including the latest on the reform’s implementation — which isn’t complete. If you have any questions, please contact Adam Brackemyre at [email protected] or 703-276-3808.

Background

Governor Mitt Romney and the Massachusetts legislature combined to pass major health insurance reform this spring. The legislature and governor were under pressure to develop a plan that would reduce the number of uninsured in the state to preserve $385 million in annual federal Medicaid funding. This legislation will preserve the funding, but politics has left many insurance-reform details to be determined through the regulatory process.

As a result, one cannot accurately predict how well this insurance reform will work. Massachusetts reformed its insurance markets in 1988, 1991, 1992, 1995 and 1996, attempting to expand coverage. Will the 2006 market reforms finally create access to affordable policies? We certainly hope that it does, but we don’t know yet.

The Massachusetts legislation has restarted a nationwide discussion on state-based health insurance reform. Many NAHU members have questions about it, so the following should provide a broad perspective on a complicated piece of legislation. As regulators craft the final details over the next several months, this information will need to be updated.

Business and Individual Insurance Mandates

Everyone in the state will be required to purchase health insurance by July 1, 2007, or lose their state income tax deduction. Everyone must certify their insurance status, under penalty of perjury, on their income tax form. For the second and all subsequent years, the penalty for not being insured will be a fine equal to 50 percent of an “affordable policy.”

Caveat: The individual mandate will only apply if policies are “affordable.” A state-appointed panel is currently defining “affordable,” looking at factors such as income, out-of-pocket expenses and co-pays.

All employers with 11 or more employees will be required to establish a Section 125 cafeteria plan or be assessed a $295 annual penalty per employee. But there may be additional employer fines. If the employer’s uninsured employees, including their spouses and children, use over $50,000 in “free care” annually, then the employer can be assessed between 10 percent and the full cost of that care above $50,000. (The legislation says that businesses will be charged between “10 to 100 percent.”)

For example, a hypothetical employer does not offer insurance to its 20 uninsured employees who, along with their spouses and children, use $200,000 in “free care.” The legislation clearly reads that the employer will be fined between $15,000 and $150,000.

The initial regulations propose to exclude the employer from assessments if 25 percent of employees sign up for insurance or the employer offers to pay 33 percent of premiums.Employers will report to the state which employees have accepted and declined insurance coverage.

The Commonwealth Health Insurance Connector (“The Connector”)The Connector is a much-discussed
component of the reform. Individuals and small businesses can purchase health insurance through the Connector, which will function roughly like the Federal Employee Health Benefits Plan (FEHBP).Insurance companies will design products to be sold in the Connector, just as they design FEHBP policies today.Proponents assert that individual premiums could fall between 20 and 50 percent.

However, one must keep this in context. Massachusetts’ individual market is among the nation’s most expensive, plagued by adverse selection due to guaranteed issue and community rating. An America’s Health Insurance Plans study released in August 2005 found the average individual Massachusetts policy premium to be 130 percent more expensive than the average national individual premium.

The Connector will feature Health Savings Accounts, reduced-benefit products for those 19-26, and the HMO and PPO products currently available. Employers of 11 and more will be required to establish Section 125 cafeteria plans so that employees can purchase insurance with pretax dollars.Employers will be required to contribute a minimal amount (again, to be defined through regulation) to insurance premiums. If a person has multiple jobs, each employer can contribute toward the individual’s health insurance premium. Employers can make prorated contributions on behalf of part-time employees.

The Connector attempts to change the employment-based insurance system that we currently have. Insurance is purchased from the Connector, not provided by the employer. Therefore, employees always have access to a range of plans regardless of employer size.

Commonwealth Care Health Insurance Program
This program will establish premium subsidies for those earning less than 300 percent of the Federal Poverty Level (FPL).

Income up to 100 percent FPL = No premium
Income of 100-300 percent FPL = Sliding-scale subsidies for premiums
Income above 300 percent FPL = No subsidy

No subsidized plan may have a deductible. All Commonwealth Care policies will be offered through HMOs that participate in the Medicaid program.

MassHealth (Medicaid) Expansion
All children whose guardians earn up to 300 percent of the FPL will now be eligible for Medicaid.

Free Care Pool
Massachusetts has an uncompensated care pool (“Free Care Pool”) that will be renamed the “Safety Net Care Fund.” As the number of uninsured decreases, so should the amount of unpaid hospital bills. These funds will be redirected to subsidize insurance.

The Cost
Finally, these reforms are estimated to cost $400 million annually through 2009. New funding will come from general revenues and business assessments.