Alerts and Updates
Massachusetts Adopts Universal Healthcare Coverage Package
May 9, 2006
As widely reported, Massachusetts recently passed a comprehensive healthcare reform statute that by July 1, 2007 ensures healthcare coverage for all Massachusetts residents, including the roughly one-half million uninsured persons in the state.1 Under the statute, consumers obtain coverage through the state's Medicaid program, their employers, or on an individual basis. The law achieves the goal of universal coverage by providing substantial subsidies for low-income persons to secure healthcare coverage; by reshaping the state's existing healthcare insurance market; by mandating employer contributions, surcharges and other requirements; and by redistributing Medicaid and other government healthcare funding. Also, universal coverage is enforced by requiring individuals to report on income tax forms that they have coverage, or face penalties.
Although the passage of a universal coverage law is historic, the reform package has yet to face its greatest challenge - implementation. Several state agencies perform key functions under the statute, and each must promulgate, within a little over a year, regulations interpreting the statute. Thus, it is important for Massachusetts employers, insurance companies, providers, consumers and others to understand the broad outlines of the reform package and also to follow the program's development through regulations, and possibly, legislative changes or litigation. For those outside Massachusetts, the next year's activities may provide a blueprint for similar efforts in other states.
Insurance Market Changes
By modifying existing insurance licensure statutes, the law imposes new requirements and restrictions on the state's insurance market:
- As of July, 2007, the statute merges the non-group and small-group markets in order to spread risk and lower premiums. (According to the Conference Committee report, the merger should result in a 24% decrease in non-group premium costs.)
- The statute modifies the criteria used by plans to adjust premiums and establish rates, and requires that each insurer may contract with an employer only if the employer offers insurance to all full-time employees residing in Massachusetts at the same premium contribution percentage rate for each employee (with exceptions for lower-paid employees).
- The statute permits HMOs to offer high-deductible health plans in conjunction with health savings accounts.
- Finally, it requires insurers to write family policies that maintain coverage for children through age 25 or two years past the child's loss of dependent status, whichever comes first. Young adults aged 19-26 can also be covered under new HMO plans.
Employer Contributions, Surcharges, Payments and Other Mandates
Employers with more than eleven employees must "contribute" toward the cost of health insurance or healthcare in one or more ways. If the employer offers employees health insurance coverage through a group health plan, the employer must make a "fair and reasonable" (undefined) premium contribution. This employer is considered a "contributing employer." A non-contributing employer must make a per-employee "fair share contribution," which is determined annually based on a number of factors, but which may not exceed $295 per employee (pro-rated for part-time and seasonal employees).
The statute includes strong incentives for employers to contribute or arrange for health insurance for their employees. It provides for a "free rider surcharge" to be imposed on non-contributing employers whose employees are deemed to be "state-funded employees" because they receive "free care" more than three times per year per employee (or five times per year for all company employees). The surcharge ranges from 10% to 100% of the state's costs of services provided to the employees, with the first $50,000 exempted, per employer.
Finally, the statute requires employers with more than eleven employees to offer "cafeteria plans" to permit employees to purchase health insurance and other benefits on a pre-tax basis. Employers must comply with other changes to plan benefits that are mandated in the statute, such as offering insurance to all full-time employees at the same premium contribution percentage.
The Connector
The program establishes the Commonwealth Health Insurance Connector, a government authority, to function as a central mechanism to connect small businesses (with fewer than 50 employees) and individuals with health insurance options. Through the Connector, small businesses and individuals may buy insurance, including products that offer minimum coverage at low cost, that have been pre-approved by the Connector.
The Connector also oversees the new Commonwealth Care Health Insurance Program, a financial aid program that brings health insurance to many of the currently uninsured. The Program subsidizes the purchase of Connector-approved health insurance by individuals who are not eligible for Medicaid (most childless adults are not eligible for Medicaid) and whose incomes are at or below 300% of the federal poverty level.
Individuals with employer-sponsored health insurance may be eligible for Commonwealth Care Health Insurance Program subsidies if their employer pays a portion of the premium cost. In addition, the statute expands the Insurance Partnership Program, another funding program that assists small businesses in offering health insurance to employees.
Medicaid (MassHealth)
The Medicaid program remains in place to pay for healthcare for the indigent. The statute expands Medicaid eligibility guidelines for children and others, and adds benefit enhancements such as dental and vision benefits. The Medicaid program also provides funding for the reform package through the Massachusetts Medicaid 1115(a) demonstration waiver, which allows the state to shift funding for individual hospitals to broad-based coverage for the uninsured. For hospitals and other Medicaid providers, the law includes $90 million in rate relief for fiscal years 2007, 2008 and 2009. For the first time, rate increases for providers are tied to specific performance goals under a pay-for-performance model.
Free Care
Previously, Massachusetts addressed the problem of the uninsured by reimbursing hospitals and other providers for free care through an Uncompensated Care Pool. This system is replaced by the Health Safety Net Fund, based within the Medicaid agency, to pay providers for any free care that they provide according to a standard fee schedule (much like a Medicaid fee-for-service program). It is anticipated that the use of the Fund will drop as the need for free care reimbursement declines, and monies in the Fund will be transferred to the Commonwealth Care Health Insurance Program described above.
Individual Reporting
By July 1, 2007, all Commonwealth residents must maintain health insurance coverage. (The one exception applies to residents who cannot find affordable coverage based on an "affordability scale" set by the state.) Residents must confirm on their 2007 tax forms (to be filed in 2008) that they have health insurance coverage, which will be verified through a database of insurance coverage maintained by the Department of Revenue. Any individual without health insurance will lose his or her personal exemption for 2007. In subsequent years, the penalty will be increased to the amount that the individual would have paid toward an affordable premium.
Conclusion
The Massachusetts reform package is a daring experiment by one state that seeks to solve the problem of healthcare for the uninsured. Massachusetts state agencies, employers, insurers and providers have much work to do in order to assure compliance by July 1, 2007. Across the nation, observers will be watching the Massachusetts experiment closely to determine whether all or portions of it can be implemented elsewhere.
Duane Morris attorneys practice extensively in the areas of employer benefits, insurance, healthcare, privacy and other legal areas impacted by the statute. Please do not hesitate to call if one of our attorneys can be of assistance.
For Further Information
If you have any questions about this Alert or would like more information regarding the Massachusetts healthcare reform package and its potential implications, please contact Daniel B. Winslow in our Boston office, or Donald R. Auten, or any of the other attorneys of our national Health Law Practice Group or the attorney in the firm with whom you are regularly in contact.
Footnote
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.
