The Massachusetts
Experiment:
Insured Healthcare for everyone
By Stephen C. Fitzer
The State of Massachusetts has embarked on a quest to get all of
its residents insured for healthcare. While Texas and
Massachusetts are very different in a lot of ways including
Texas having four times the population of Massachusetts, Texas having
twice the percentage of uninsured residents and Texas having
fewer of its residents insured by their employers, it is interesting to see
what Massachusetts is doing. Hopefully, it will give Texas some
insight on how to deal with similar problems. This article will briefly
outline the current Massachusetts program.
The Massachusetts plan became law in April of 2006 and targets to
cover 95 percent of the state’s residents with healthcare coverage within
the first three years of the plan. The plan became effective on July
1, 2007. Massachusetts had a head start on most other states in
achieving this goal, as it is had generous eligibility levels for public
programs and a higher overall insured base of citizens compared to
Texas. Also, compared to Texas, if Massachusetts’ Medicaid funds were
apportioned on a per capita basis for the uninsured, non-elderly population,
it would have $821 per person while Texas would have only
$274 per person.
To accomplish its goal of coverage for everyone,
Massachusetts has implemented insurance market reforms
and penalties against employers and taxpayers for not having
healthcare insurance, but the bulk of the increased
funding will come from federal matching dollars.
For individual taxpayers 18 years of age and older, they
are required to have health insurance coverage by July 1,
2007, and must so declare to the state on their December
31, 2007 state income tax return. Those residents not
required to comply are individuals who have a religious
exemption or claim they could not find affordable insurance
coverage. Failing to acquire health insurance coverage
by July 1, 2007 results in filers losing the state’s personal tax
exemptions. The penalties escalate from year two forward,
requiring filers to pay to the state one-half of the cost of the
least expensive insurance policy available to them. Funds
received by the state are slated to be used to subsidize premiums
for low-income individuals.
For businesses, the new plan requires that if they have 11
or more employees, they must provide health insurance to
their employees. Businesses that do not provide coverage
and do not pay a “fair share” of the premium if they do provide
it (defined as 1/3 or more of the premium) will be
assessed a penalty up to $295 per employee. Obviously, this
cost is far less than providing insurance coverage for
employees, so it is expected that many companies will opt
to pay the assessment rather than provide insurance coverage
to their employees. The same employers also are
required to set up Section 125 Cafeteria Plans for all
employees. These plans enable employees to pay for medical
insurance with pre-tax dollars.
Massachusetts also has established a “Free Rider
Surcharge.” If employers do not provide Section 125 plans
for their employees, or if those employees use more than
$50,000 in free medical services in a year, the state may surcharge
the employer for between 10 percent and 100 percent of state funded hospital costs for the employees and
their dependents. This is the stick to get employers to
implement Section 125 Cafeteria plans.
Insurance market reforms also are part of the Massachusetts
formula. Currently, the purchase of individual health
insurance is much more expensive than group insurance and
generally provides a lower level of benefits to the insured.
Also, small businesses have less negotiating power to purchase
health insurance than larger companies. As a rule of
thumb, employees of small companies are only half as likely
to be insured as employees of larger companies.
The Massachusetts Plan merges the individual and small
insurance markets together in order to create a broader risk
pool. It is the only state in the U.S. that has thus far done this.
Blue Cross/Blue Shield of Massachusetts estimates the premiums
for individual policies will go down by 25 percent, but
the cost of small company premiums will go up by 2 percent
to 8 percent. A new public entity was created by the state to
help reduce the administrative and technical barriers faced by
individuals and small companies when purchasing health
insurance. The new plan also allows young adults to stay on
their parent’s insurance coverage until they reach age 25, or
for two years from the time they lose dependent status.
Medicaid eligibility in Massachusetts also will be
increased from the current 200 percent of the federal poverty
level (FPL) to 300 percent of FPL. This makes more residents
eligible for Medicaid. However, if parents are eligible
for employment-based health insurance, they are not eligible
for Medicaid. A waiting period of six months was
implemented in order to be eligible for Medicaid to discourage
parents from dropping private health insurance to
go on the program. The plan also increases the rates paid
for patient Medicaid care over the next three years, but will
require hospitals meet quality standards and benchmarks.
Massachusetts has entered into a complex agreement
with CMMS on the future use of safety net funds. Funding
of this new plan in Massachusetts relies heavily upon new
federal matching dollars from “Safety Net” programs such
as the Disproportionate Share Hospital program as well as
new federal Medicaid and CHIP matching funds for coverage
expansions. The fundamental change to the program is
that to resolve the problem of the uninsured, safety net
funding must begin a careful transition from directly funding
institutional safety net providers to supporting expansion
of health insurance coverage.
Will the Massachusetts plan be successful? Many questions
still remain. How many people will switch to the
insured side, the effectiveness of enforcement, change of
the safety net model and the balance between private and
public coverage are the areas to be measured.
Texas, other states and the federal government can learn
much from the Massachusetts experiment, however it turns
out. Stay tuned.
The source for this article was a study by Health Management
Associates prepared for Methodist Healthcare Ministries entitled “The Massachusetts Healthcare Reform Plan: Could it Work for
Texas,” prepared in March 2007.
