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May 10, 2006

Massachusetts taxpayer advocate briefs Council on Bay State's health-insurance policy innovation

A new Massachusetts law designed to make health insurance coverage nearly universal in the Bay State has a chance to succeed in pioneering a broad new approach to health insurance policy if it is properly implemented, a leading taxpayer advocate from Massachusetts told Council members on May 10.

"When this law was enacted earlier this year, it had broad support from health insurance providers, businesses, advocacy groups that generally support higher health-care spending, taxpayer groups, and political leadership on all sides of the political spectrum," Michael Widmer, president of the Massachusetts Taxpayers Foundation and a key player in designing the bill, said at a meeting of the Council's Health Committee.

Widmer discussed the political and policy consideration that shaped the bill and described it in detail. He was joined in his presentation by Victoria Burgess, a health-policy analyst with the foundation.

For the Massachusetts plan to succeed, the state must find a good, experienced public-sector manager to administer the new "connector" that will manage the health insurance market, and it must also issue thorough, clear regulations promptly, he added.

The new law, which contrasts sharply with controversial health insurance policy steps being considered in New York State, requires individuals to buy health insurance coverage, imposes a new assessment on some businesses that offer no health insurance benefits, and creates a new entity called a health insurance "connector" to link individual and businesses with a range of health insurance products.

Widmer outlined several of factors that helped create a strong climate for this aggressive innovation, including:

-- Strong support for some kind of reform on the part of Massachusetts Governor Mitt Romney, a Republican, as well as the leaders of the state's House and Senate, both Democrats. The Governor appointed a respected Democratic professional with legislative staff experience in charge of shaping a policy recommendation; both the House and the Senate introduced their own aggressive proposals for health insurance policy changes.

-- The timely publication of a thorough study, by the Blue Cross and Blue Shield Foundation, on how access to health care might be broadened.

-- The need in Massachusetts to address federal government concerns about how the state was reimbursed for its Medicaid spending. The federal government had been warning that it would discontinue reimbursing the Bay State for some expenditures the state had been billing to Medicaid.

-- A decision by advocates of higher health care spending to make some health-care reform a priority in 2006, and their successful effort to complete the first step of a petition process that would have put onto the statewide ballot a referendum that could create broad health insurance policy changes, including a new payroll tax.

Several factors make Massachusetts ideally suited for an aggressive and creative approach to reform, Widmer said. These include employer-based coverage that is broader than the national average, a broader program of Medicaid spending, and the availability of an existing "uncompensated care pool" that covers hospital costs for the uninsured.

Taxpayer dollars that fund the pool have been reallocated under Massachusetts's new plan, Widmer said. "If we had been required to raise this level of funds from scratch, the whole idea would have been a non-starter," he noted.

The Massachusetts plan emphasizes covering about 95 percent of Massachusetts's 530,000 uninsured residents. The program's core elements are:

-- A requirement that individual residents obtain health insurance. Beginning in July 2007, all adults must get and keep health coverage if an affordable product is available or lose their personal income tax exemption.

The following July, those who fail to comply will be charged up to half of the cost of the minimum insurance premium for each uncovered month.

-- Steps to increase employers' responsibility to offer some health insurance benefits. Beginning in October 2006, employers with 11 or more FTEs who don't contribute to their employees' health insurance will pay an annual assessment of $295 per employee.

In addition, beginning the following January, employers with 11 or more FTEs will be required to offer (but not necessarily contribute to the costs of) a "Section 125" plan to their employers. This refers to Section 125 of the federal Internal Revenue Code, which allows employees to put pre-tax dollars into accounts from which they can pay health-care and/or child-care expenses.

By October 2007, these employers who do not offer such a plan will be liable for a "free-rider surcharge" of up to 100 percent of costs if their employees all told use more than $50,000 worth of free care in the fiscal year.

-- Creation of a new entity called a "connector" to help employers and individuals offer and buy health insurance. This quasi-public agency will facilitate the administration and purchase of insurance. Small businesses will be able to offer multiple, affordable health insurance products. Premiums will be paid with pre-tax dollars, and minimum participation and contribution thresholds will be eliminated.

Under this model, health insurance will be purchased by individuals, not employers, and employers that choose to contribute to this costs will do so on a definited-contribution model. Health insurance will be portable between small businesses.

-- Creation of subsidized and low-cost health insurance programs. Beginning in October of 2006, uninsured residents with household incomes below 300 percent of the federal poverty level will be eligible for a subsidized health insurance plan to be offered by the state's four Medicaid managed care organizations.

Beginning in July 2007, small-group and individual insurance markets will be merged, which is expected to reduce the cost of individual policies by some 25 percent.

New products will be offered to residents aged 19 to 26, with lower risks for that age ranged expected to produce lower premiums.

Insurers will be able to craft plans with high deductibles, defined networks, and/or higher co-pays to achieve greater savings.

-- Implementation of mechanisms designed to help control costs. For example, the plan eliminates the state's uncompensated care pool and replaces it with a fund that will compensate hospitals on a standard fee schedule as oppose to the current charge-based system.

The plan also will create a consumer Web site with cost and quality data, and it will encourage insurers to compete on price as individuals and employers gain access to a broader range of products.