Massachusetts Health Reform Legislation
In 2006, the Commonwealth of Massachusetts passed landmark legislation with the goal of covering 95 percent of its residents within three years. This health care reform law includes provisions to increase access to health insurance, contain health care costs, and improve quality. The Massachusetts’ reform package is built on six key elements:
An individual mandate that all who can afford insurance obtain it
Massachusetts broke new ground with its requirement that individuals purchase health insurance. Individuals who could afford insurance were required to obtain health insurance by July 1, 2007 or risk the loss of their personal exemption for 2007 income taxes. In subsequent tax years, the penalty will include a fine equaling 50 percent of the monthly cost of health insurance for each month without insurance. On an annual basis, Massachusetts establishes standards that determine whether individuals, married couples and families can afford health insurance, based on their incomes and affordable health insurance premiums. Those who are not deemed able to afford health insurance pursuant to these standards will not be penalized.
An employer requirement for ‘fair and reasonable’ contributions toward employees’ health coverage
Massachusetts had a high rate of employer-sponsored insurance relative to the rest of the nation prior to the current reforms. Building on this foundation, the state added several provisions to share responsibility with employers. Employers with 11 or more full-time employees (FTE) that do not make a “fair and reasonable” contribution toward their employees’ health insurance coverage will be required to make a per-worker contribution, not to exceed approximately $295 per FTE annually. Employers will pass the “fair and reasonable” test if at least 25 percent of full-time employees are enrolled in the company’s group health plan. Should employers not meet that criterion, they still can pass if they can demonstrate that they offer to pay at least 33 percent of the premium cost for an individual plan for their full time employees that work at least 90 days. .
As of July 1, 2007, all employers with 11 or more workers must offer a Section 125 “cafeteria plan” that (as defined in federal law) permits workers to purchase health care with pre-tax dollars, saving approximately 25 percent on the cost of premiums. If these employers do not “offer to contribute toward or arrange for the purchase of health insurance,” they may be assessed a “free rider” surcharge if their employees or employees’ dependents access the Health Safety Net. The surcharge will exempt the first $50,000 of free care that the employees use but, after that threshold is met, the employer may be charged from 10 to 100 percent of the state’s cost of the free care, as determined by the Division of Health Care Finance and Policy.
The Commonwealth Health Insurance Connector helps individuals and small businesses find affordable health coverage. Plans participating in the Connector developed new Commonwealth Choice benefit packages, designed to make coverage more affordable. The Connector facilitates the process of small employers offering Section 125 plans and facilitating Section 125 plans for part-time, seasonal workers or employees who are ineligible for group coverage from large employers. Part-time and seasonal workers can combine employer contributions in the Connector as well. One of the unique features of the Connector is that it allows individuals to keep their policy (and therefore, their health care providers), even if they switch employers.
Subsidies to assist low-income populations
The Connector also administers the Commonwealth Care Program, which provides comprehensive health insurance coverage to the low income uninsured that are not eligible for enrollment in MassHealth. Commonwealth Care provides sliding scale subsidies to individuals with incomes below 300 percent FPL. No premiums are imposed on those individuals with incomes below $10,404 (100 percent FPL).
Insurance market reforms designed to reduce premiums and create new options
The health care reform legislation also included a number of insurance market reform provisions. Starting in July 2007, the non- and small group markets were merged, allowing for the design of new lower cost Commonwealth Choice insurance plans for people currently purchasing in the individual market with premiums reduced by at least a quarter of their current cost. Commonwealth Choice plans have been available since July 1, 2007 and include new products to attract young adults between the ages of 18 and 26. Starting in the summer of 2008, small employers with 50 or fewer workers will also be able to purchase insurance products directly through the Health Connector.
The law also requires Massachusetts insurers to cover young adults through their parents' health insurance policy for two years after the loss of their dependent status, or until age 25, whichever occurs first.
Financing strategies that rely on state, federal, employer, and individual contributions
The reform will be financed via several significant sources. First, $385 million in federal matching funds previously used to fund the safety net and uncompensated care has been redirected to cover the subsidies. Additionally, the state invested $472 million in general fund revenues in FY08 and collected individual and employer contributions as well. The plan was implemented in three phases. On October 2, 2006 Commonwealth Care enrollment began for the nearly 62,000 residents requiring a full subsidy. Starting in January 2007, the state began enrolling residents with annual incomes between 100 percent and 300 percent FPL. This group pays premiums on a sliding-scale basis. There are no premiums for the children of adults covered by Commonwealth Care as the children are covered by MassHealth. Finally, the last phase occurred in July 2007, when the individual mandate became effective.
Implementation
December 31, 2007 marked the deadline for adults to obtain health coverage or face a tax penalty. The most significant finding from the report was that more than 439,000 people have acquired health insurance since the reforms were implemented in mid-2006. That number is two-thirds of the estimated 650,000 people who were without insurance at the time of the plan’s inception.[1] Other key figures for Massachusetts since the time of implementation include:
- The overall uninsured rate dropped from 6.4 percent in 2006 to 5.6 percent in 2007. Massachusetts is now the state with the lowest rate in the nation.
- More than 40 percent of the newly insured gained private coverage without any government subsidies. Among the state’s insured population, 82 percent have private insurance, 14 percent are covered by Medicaid, and 3 percent are enrolled in Commonwealth Care subsidized plans.
- The percentage of employers providing health insurance rose to 73 percent in 2007 and increased to 79 percent in 2008. The national rate is about 60 percent.
The number of residents using free care from hospitals or community centers declined by 37 percent from the past year and the cost of uncompensated care decreased from $166 million in the first quarter of fiscal year 2007 to $98 million in the first quarter of 2008.[2]
[1]“Health Care in Massachusetts: Key Indicators,” Massachusetts Division of Health Care Finance and Policy (August 2008); September Stateside; Editorial, “The Massachusetts Way,” The New York Times (August 30, 2008);
