Any comprehensive plan to reform health care will contain complex, and likely contentious, provisions. The recently enacted Massachusetts plan, based on a proposal by Governor Mitt Romney, is no exception. It contains complex provisions that have raised questions and concerns. But much of this controversy stems from confusion about the provisions. Therefore, understanding these provisions, especially in the context of the larger reform, is important.
Four Points of Confusion
The individual “mandate”: Under federal law, nearly all hospitals are required to provide a certain level of treatment to all patients who visit their emergency rooms, regardless of those patients’ ability to pay. Governor Romney sought a way to prevent the free-rider problem: those who take advantage of emergency services skip out on the charges, leaving taxpayers to cover the bill. Romney proposed that state residents either purchase health insurance or, if they chose not to do so, “self insure” by posting a $10,000 bond that could be put towards the cost of any hospital care they might use but be unable to afford. The Democrat-controlled legislature rejected the Governor’s proposal and forced on state residents a different choice: buy health insurance or pay a fine.
While many oppose a mandate to buy insurance — even basic catastrophic insurance to protect the community from individuals not paying their bills — on philosophical grounds, they should still have a firm factual understanding of the Massachusetts mandate, which may be less problematic than they realize. Thanks to regulatory changes that are a part of the Massachusetts plan, residents will be able to satisfy the mandate merely by purchasing catastrophic coverage through a high-deductible health plan or a Health Savings Account (HSA). With this regulatory change, the plan will promote HSA/high-deducible plans and make health care coverage more accessible and somewhat more affordable for individuals. The state will also provide lower-income individuals with a subsidy (essentially a voucher) to help them purchase health insurance, an approach similar to the refundable health tax credits that many support at the federal level. These changes make the mandate far less of a burden on individuals than it otherwise would have been.
The new employer “mandate”: The Governor’s original proposal did not include an employer mandate. The legislature, however, decided to add requirements for employers to its final legislation. For years, employers in Massachusetts that purchased coverage for their employees have had to pay a health insurance premium tax to the state’s uncompensated care pool. This tax applied only to employers paying for insurance — not to employers that didn’t provide coverage, despite that many of their employees benefited from the uncompensated care pool. Ideally, the plan should have repealed the existing premium tax. Instead, the legislature inserted a provision that will require companies that do not make any provision for insurance to pay a levy — set at a maximum of $295 per employee per year — into the state’s uncompensated care pool.
The Governor vetoed this provision under his line-item veto authority, but the legislature will likely vote to reinstate it. Still, this requirement, though objectionable, actually is quite limited. This new fee can easily be avoided: firms subject to it need only offer their employees a Section 125 Cafeteria Plan and give them the opportunity to buy coverage through the new health insurance Connector on a pre-tax basis to escape the levy at little expense. Further, the actual assessment is likely to be less than the statutory maximum of $295 because the other legislative provisions in the plan are designed to reduce the demand on the uncompensated care pool.
The regulation of health insurance: Massachusetts is one of the most highly regulated health care markets in the nation. In particular, insurers in the state’s individual health insurance market have been required to provide a comprehensive standardized benefit package with little flexibility. In this legislation, however, Governor Romney was able to achieve some deregulationof the health insurance market.
The health care reform plan achieves four regulatory changes. First, it allows small businesses and individuals to buy insurance through the “Connector,” which will expand coverage options, especially for those in the individual market. Second, it allows HMOs to also offer HSA-qualified high-deductible health plans, which are more affordable than other plans. Third, it permits insurance plans offered through the Connector to contract with health care providers as they choose, relieving them of the costly “any willing provider” requirements that prevent plans from steering patients to providers that offer the best value. And fourth, it permits insurers to offer plans to individuals between the ages of 19 and 26 subject to fewer costly state mandates and puts a two-year moratorium on any new insurance mandates while the state conducts a review of all mandated benefits. The Governor projects that this new flexibility could reduce average premiums for individuals from $350 to $194 per month. While more deregulation is desirable, with the state’s political and regulatory climates, Romney’s changes constitute significant progress.
The role of the “Connector”: As in many states that heavily regulate health insurance in the small group and individual markets, Massachusetts sets underwriting rules, imposes rating restrictions, and mandates the inclusion of certain services in health coverage. And like other states, it does little to promote choice, portability, or individual ownership — the critical ingredients of a true consumer-based health care system.
The cornerstone of the new plan is an innovative mechanism to promote real consumer choice. The legislation creates a health insurance “Connector,” a marketplace in which individuals can shop for and buy health care coverage from competing health insurers. Conceptually, the Connector is like a stock exchange, which is just a single market organizing the sale and purchase of equities and securities. It is also similar, broadly, to the Federal Employee Health Benefit Program (FEHBP), which allows federal employees to choose from a variety of competing, private health insurance plans and keep the plan of their choice if they change jobs within the federal government.
Under the new Massachusetts plan, instead of picking a plan for their employees, small businesses can let their employees participate in the Connector and provide a cash contribution to the plan of each employee’s choice. Individuals can also choose to use the Connector. All participation is voluntary: The Connector is not a regulatory agency; it does not purchase health plans on behalf of individuals or businesses; and it does it not impose a comprehensive standardized health benefit package requirement. Instead, it is a marketplace for small businesses and individuals to purchase coverage from insurers competing for their business.
The Connector is a new market mechanism that will enable small-business employees and individuals to buy personal, portable health insurance of their choice, outside the place of work, without losing the tax benefits afforded by federal law to employer-sponsored coverage. The Connector is a major innovation and a model for other states.
States are taking the lead in health care reform, and Massachusetts’ new system includes important innovations. Much can and should be learned from states’ efforts. Successful health care reform in the United States is much more likely to come from such experimentation, and its lessons, than from imposing solutions from Washington. State experimentation in health care follows in the footsteps of welfare reform and embodies the benefit of federalism.
Comprehensive health care reform is difficult, especially in a divisive political environment. The Massachusetts plan is not perfect. It contains some unwise features that reflect the state’s liberal politics, though these are not as damaging as they might initially appear. But the plan also includes several creative policy innovations that move towards the goal of a consumer-based health system and that other states should watch closely.