Massachusetts Health Care Reform

1
Massachusetts Health Care Reform
September 26, 2006
2
Why healthcare reform in Massachusetts?

• Double-digit, annual increases in insurance
  premiums and the highest per capita healthcare
  spending in the nation
• 460,000 uninsured in 2004 state survey
• Small businesses and individuals facing
  significant barriers to entry for coverage
• Limited availability of information to consumers
  and businesses precludes informed health
  insurance purchase decisions
• Potential loss of at least 385 million in
  federal government Medicaid funding
• Two universal healthcare ballot initiatives
• 1 billion and growing of free-care forcing all
  stakeholders to deal with costs for uninsured and
  under-insured

3
The Uninsured in Massachusetts

• Total Commonwealth Population

6,400,000

• Currently insured (93)
• Employer, individual, Medicare or Medicaid

5,940,000

• Currently uninsured (7)

460,000
-lt100 FPL
106,000
Medicaid Eligible but unenrolled

• 100-300 FPL

150,000
Commonwealth Care

• gt300 FPL

204,000
Affordable Private Insurance
Note Based on August 2004 Division of Health
Care Finance statewide survey, 2006 survey 372,000
4
Broad consensus that healthcare reform must be a
system, not a product approach
Efficiencies/Cost Containment
A Culture of Insurance
Eliminate Cost Shifting
Subsidies for Low Income
Ease of Offer, Ease of Purchase
Affordable Products
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Insurance market reforms A good start
Reformed Market
Existing Market
Individual/small market merger
Dysfunctional individual market
More products with HSAs
Limited take-up of HSAs
Value-driven networks
Any willing provider
19-26 year-old market
Bad value for younger adults
Tobacco usage is a rating factor
No consequence for lifestyle choices
More flexible up to 25 years-old
Hard cut-offs for dependent status
Two year moratorium
Growing list of mandatory benefits
Mandatory, larger risk pools
Optional, smaller risk pools
6
Insurance reforms will provide better value for
consumers
Existing Market
Reformed Market
Primary care
Yes
Yes
Hospitalization
Yes
Yes
Mental Health
Yes
Yes
Prescription Drugs
Yes
Yes
Provider network
Open Access
Value-Driven
Annual deductible
First Dollar Coverage
250-1,000
Co-pays
Low (0,10,20)
Moderate (0,20,40)
Monthly Premium
350
154 - 280
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The Connector is a breakthrough concept

• Increasing adoption of pre-tax premium payment
  options for businesses (e.g. Section 125 plans)
• Providing small businesses, sole-proprietors, and
  individuals with more affordable product choices
• Shifting the employer/employee health insurance
  relationship from design, benefits, product
  offering, and contribution to just a discussion
  regarding financial contribution
• Posting good value products to facilitate the
  purchase of this complex product
• Reaching non-traditional workers through
  innovative means
• Allowing portability for the consumer

8
The Connector makes it work
Insurance Connector
MMCOs
Blue CrossBlue Shield
Tufts
NHP
Harvard Pilgrim
New Entrants
Fallon
9
The Uninsured in Massachusetts

• Total Commonwealth Population

6,400,000

• Currently insured (93)
• Employer, individual, Medicare or Medicaid

5,940,000

• Currently uninsured (7)

460,000
-lt100 FPL
106,000
Medicaid Eligible but unenrolled

• 100-300 FPL

150,000
Commonwealth Care

• gt300 FPL

204,000
Affordable Private Insurance
Note Based on August 2004 Division of Health
Care Finance statewide survey
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Commonwealth Care makes private insurance
affordable for eligible individuals

• Redirects existing spending on the uninsured away
  from opaque bulk payments to providers to direct
  assistance to the individual
• Premium assistance up to 300 of the Federal
  Poverty Level (FPL)
• Zero premium for individuals under 100 FPL
• Premiums increase with ability to pay up to 300
  FPL
• No cliff glide-path to self-sufficiency
• No deductibles permitted for low-income
  individuals
• Private insurance plans offered exclusively
  through Medicaid Managed Care Organizations
  (MMCOs) for first three years
• The Connector will serve as the exclusive
  administrator of Commonwealth Care premium
  assistance program
• Works closely with Medicaid program to determine
  eligibility
• SCHIP and Insurance Partnership programs expand
  to achieve the same objective

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Commonwealth Care Key assumptions

• Approximately 200,000 individuals will be
  eligible
• Estimated health insurance monthly premium is
  300/individual
• Average state subsidy will between 80-85 of the
  monthly premium
• Over a transition period, over 1 billion in
  funding can be available for premium assistance
• Medicaid demonstration project monies
• Existing provider and payer assessments
• DSH funding
• Funds not used for premium assistance will remain
  available to compensate for free-care services

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Commonwealth Care Premium assistance schedule
MonthlyPremium
of Income
Single PersonIncome
FPL
lt100
Free
NA
9,800
150
18
1.8-2.1
14,700
200
40
2.8-3.8
19,600
250
70
3.8-5.4
24,500
300
106
4.7-6.3
29,400
Rates for single individuals Range as a
percent of mid-point income for individuals and
two adults with one child
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Redeploying existing funding makes the program
financially sustainable
Ratio of Premium Assistance to Free Care
FY06-09
100
Premium
Assistance
Premium
80
Assistance
Premium
Assistance
60
Free Care
Free Care
40
Free Care
20
Free Care
0
FY06
FY07
FY08
FY09
14
Connector funding

• Connector received an up-front block
  appropriation of 25M
• Start-up/build costs, outreach and marketing,
  on-going operations
• Portion of Connector operations related to
  Commonwealth Care expected to qualify for federal
  Medicaid reimbursement
• Law empowers the Connector to assess fees on
  premiums written for future funding needs
• Silent on need for future appropriations
• Premium assistance payments funded without
  further appropriation from the Commonwealth Care
  Trust Fund
• 50 Federal reimbursement
• Transferability between the Health Safety Net
  Fund (UCP) and the Commonwealth Care Trust Fund

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Employers will remain the cornerstone for the
provision of health insurance

• Existing IRS/ERISA provisions
• Existing and new state non-discrimination
  provisions
• Fully insured companies are prohibited from
  varying financial contribution to employees
  enrolled in group health plans
• Health Insurance Responsibility Disclosure
• A form signed by every employer and employee
• Indicates whether the employer has offered to pay
  or arrange for employees health insurance
• If an employee declines an employers coverage,
  then sign a disclosure form that employee
  understands their responsibility to pay for their
  healthcare costs

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Employer implementation issues

• The law requires most employer requirements to be
  implemented in an expeditious manner
• Guiding policy principles
• Be mindful of the potential for ERISA challenges
• Do not create incentive for employers to drop
• Agreement was that everyone will contribute to
  the UCP assessment
• Offering employers already paying in
• Guiding administrative principles
• Keep it simple for smaller employers
• Part-time, seasonal, temporary, and foreign
  workers are important part of the workforce
• Conducted informational hearings across the state
• Attended mostly by employers

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Employer responsibility provisions Free Rider
surcharge

• Surcharges any employer with 11 or more FTEs that
  does not pay or arrange for the purchase of their
  employees health insurance
• Includes full-time and part-time employees
• The surcharge is based on employee and
  dependents use of the free care health
  services
• Surcharge applies when an employers employees
  use free care in excess of certain usage and
  aggregate costs triggers
• Employer assessed 10 100 of the states costs
  of free care
• An employer can avoid the surcharge by
• Offering a group health insurance plan or
• Establishing a section 125 cafeteria plan for all
  employees
• Important to note that no employer financial
  contribution is required to avoid the Free
  Rider surcharge
• Proposed Free Rider surcharge regulations
  proposed on June 30th

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Employer responsibility provisions Fair Share
assessment

• The Commonwealth has assessed insurers, hospitals
  and certain businesses to help partially
  reimburse the costs of free care provided by
  hospitals and community health centers
• This assessment has been in existence for more
  than 20 years
• 320 million in annual assessments
• An unintended consequence of the existing
  structure is the exclusion of employers which do
  not offer employee health insurance from the
  assessment
• The Fair Share assessment was to extend the
  existing assessment to non-offering employers
• Maximum assessment is 295/employee/year based on
  free care usage
• Employees deemed offering a fair and reasonable
  financial contribution would be exempt from the
  new assessment
• -Regulations were adopted on September 8, 2006

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Fair Share test

• Two-step test
• Primary Test Take-up rate must be equal to or
  greater than 25
• If the business passes this test, then no
  assessment
• If the business fails this test, then move to
  secondary test
• Secondary Test The business must offer to
  contribute 33 or more towards health insurance
• The two-step test accomplishes the following
  objectives
• The primary test ensures that the employer is
  covering not just offering insurance to its
  employees (thus paying into the UCP)
• It respects free market principles by allowing
  the employer and employee to determine a fair
  and reasonable employer contribution
• Employees vote with their feet by enrolling in
  the employers health plan
• The Commonwealth is measuring the result of the
  employer and employees wage and benefit
  negotiations
• The secondary test provides employers with a
  safe harbor from employees who turn down health
  insurance for reasons that the employer has no
  control over

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The law contributes to market stability by
addressing cost shifting

• Medicaid rate increases
• 270 million rate increases for hospitals and
  physicians over a three years
• 90 million/year
• 85 for hospitals and 15 for physicians
• Increase rates for community health centers
• Beginning in year two rate increases for
  hospitals must be tied to
• pay-for-performance measures
• Enroll eligible individuals in the Medicaid
  program
• On-line, streamlined application process
• 77K in the last twelve month period
• Lifting of enrollment caps for certain programs
• Restoration of certain Medicaid benefits (adult
  dental, eyeglasses)
• Reforms the Uncompensated Care Pool reimbursement
  mechanisms

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Personal responsibility health insurance is the
law

• Statewide open-enrollment period in March 2007
• Both Commonwealth Care and whole insurance
  market
• Beginning on July 1, 2007 all Massachusetts
  residents will be required to have health
  insurance
• Enforcement mechanisms
• Indicate insurance policy number on state tax
  return
• Loss of personal tax exemption for tax year 2007
• Fine for each month without insurance equal to
  50 of affordable insurance product cost for tax
  year 2008 (approximately 1,200/person)

22
Encouraging efficiency and cost containment
strategies

• Program integrity efforts
• Provider re-credentialing
• Non-custodial parent responsibility
• Increased funding for Medicaid Fraud Control Unit
  and State Auditor
• Cost, Quality and Patient Safety initiatives
• Improving the Commonwealths purchaser and
  consumer website
• Funding for Betsy Lehman Center for Patient
  Safety
• Statewide infection and prevention control
  program
• Health Care Quality and Cost Council
• Funding for certain public health programs to
  help raise public awareness
• Diabetes
• Renal disease
• Cancer screening
• Pay-for-Performance measures
• Mandated for the Medicaid program
• MassHealth Payment Policy Board
• Working with other payers and providers to ensure
  consistency

23
The law provides the guidelines, but success will
be measured by its implementation

• CMS approval for Medicaid waiver
• Creation of affordable, quality health insurance
  products
• Well-functioning Connector that addresses the
  needs of small businesses and consumers
• Premium assistance program that is financially
  sustainable and not rife with adverse selection
• True transparency in the cost and quality of
  healthcare services
• All purchasers (large businesses, government,
  insurance companies) must demand that the
  fragmented healthcare supply-chain become more
  efficient and coordinated
• Acceptance of personal responsibility principle
  by hospitals and individuals