Preparing for Health Reform by Understanding the Massachusetts Experience

In 2006, Massachusetts enacted health reform legislation seeking to extend health insurance to nearly all Massachusetts residents. With the eyes of the nation on the Massachusetts experiment, this ground-breaking legislation has achieved that goal—in December 2008, the state estimated that over 97 percent of Massachusetts residents had health insurance coverage. Yet Massachusetts health reform is still a work in progress. Critics point out that health care costs in Massachusetts are rising faster than the national average and that, due to high copayments and deductibles under certain health plan options, some insured residents still find it difficult to afford the care they need. Given current budget pressures, there also continues to be concern about the ability of the Commonwealth to sustain the public funding that has been provided to support the goals of the initiative.

As federal health reform begins to take shape, many are looking to Massachusetts as a model—albeit an imperfect one—for the national effort. While the extent to which federal reform will be modeled after the Massachusetts experiment is not yet clear, it is likely to incorporate at least a few of the program’s most widely supported features, including (1) an individual mandate, (2) “creditable coverage” standards, (3) subsidization of insurance premiums for low and moderate income individuals, (4) a “health insurance exchange” and (5) a “fair share” contribution from employers. These five features are explored in more depth below.

• Individual Mandate. The Massachusetts law provides for an individual mandate, which requires residents of the Commonwealth over age 18 to have health insurance benefits that meet at least a minimum standard. Residents can file for an exemption from the requirement based on their sincerely held religious beliefs, and any resident who can demonstrate that coverage is unaffordable is also entitled to an exemption. The Commonwealth offers subsidized health insurance for low income residents to assist in satisfying their obligations under the mandate. Penalties are imposed on those subject to the mandate who fail to obtain coverage. The current penalty, assessed by the Massachusetts Department of Revenue through annual tax filings, is a fine of up to 50% of the monthly premium that the individual would have to pay for the minimum amount of coverage for each month that the individual is without coverage. For 2009, penalties could be as high as $1,068 a year.

• Creditable Coverage. Creditable coverage is the minimum amount of health insurance a Massachusetts resident must have in order to satisfy the individual mandate. The minimum requirements for creditable coverage were phased in over time to provide residents with the opportunity to comply. Currently, in order to satisfy the requirements of the individual mandate, residents must have a health benefit plan that provides core services (including physician services, inpatient care, day surgery and diagnostic procedures), as well as a broad range of medical benefits (including preventive and primary care, emergency services, hospitalization, prescription coverage and mental health and substance abuse services). Beginning in 2010, creditable coverage must also provide x-rays, maternity and newborn care, radiation therapy and chemotherapy. In addition to these coverage requirements, the creditable coverage standards also address annual limits on deductibles and other out-of-pocket expenses.

• Subsidization of Insurance Premiums. To help ensure that Massachusetts residents can afford insurance coverage, Massachusetts developed the Commonwealth Care Health Insurance Program. Commonwealth Care provides health insurance subsidies and no-deductible plans to low and middle income Massachusetts residents who are not eligible for employer coverage or government-sponsored coverage. Commonwealth Care provides sliding-scale insurance premium subsidies for individuals with incomes of up to 300 percent of the federal poverty level. Individuals with incomes of less than 150 percent of the federal poverty level pay no insurance premiums. Commonwealth Care is not a “public plan” of the type that has provoked such controversy in the federal debate; instead, it provides public subsidies for individuals to enroll in independently operated plans.

• Health Insurance Exchange. Massachusetts has created a health insurance exchange called the Commonwealth Health Insurance Connector Authority, known to most simply as the Connector. Through the Connector's web-based interface, individuals and small businesses can compare different private insurance plans and choose the plan most suitable for their needs. To facilitate plan comparisons, the Connector categorizes insurance plans into three levels: "bronze,” "silver” and "gold.” Bronze level plans generally have lower premiums but higher copayments and deductibles, whereas gold level plans have higher premiums but lower copayments and no deductibles. The only plans offered through the Connector are those that have received the Connector Seal of Approval from the Connector Board. Such plans adhere both to the minimum creditable coverage standards and any other requirements established by the Connector.

• Fair Share Contribution. Massachusetts health reform has implications for employers as well. Employers with 11 or more full-time equivalent (FTE) employees must comply with a fair share contribution requirement as follows. Employers with 50 or fewer FTE employees are deemed to be making a fair share contribution if at least 25% of their employees participate in their group health plan (the Percentage Test) or the employer offers to pay at least 33% of the cost of individual coverage for full-time employees after 90 days of employment (the Premium Contribution Standard). Employers with more than 50 full-time employees must comply with both the Percentage Test and the Premium Contribution Standard unless 75% of such employer's full-time employees are enrolled in the group health plan during the quarter in which the fair share contribution is measured, in which case the Premium Contribution Standard does not apply. Employers who do not satisfy the fair share contribution requirement are required to contribute to the state health insurance pool an annual amount not to exceed $295 per full-time employee.

Although federal reform is likely to differ in significant details from the Massachusetts model—and it is not yet clear how the Massachusetts program would be affected by nationwide reform—the program offers important insights into how a reformed system might work.