Massachusetts law calls for low-cost options

May 1, 2006

WASHINGTON, D.C.-The new law that requires all Massachusettsresidents to obtain healthcare coverage challenges the healthcarecommunity to devise affordable coverage options. The landmarklegislation calls for insurers to offer "affordable," high-qualityhealth plans. These are expected to carry average monthly premiumsof about $325 for individuals-much less than the current $600monthly cost of coverage in the individual market (more than $1,000for families).

WASHINGTON, D.C.-The new law that requires all Massachusetts residents to obtain healthcare coverage challenges the healthcare community to devise affordable coverage options. The landmark legislation calls for insurers to offer "affordable," high-quality health plans. These are expected to carry average monthly premiums of about $325 for individuals-much less than the current $600 monthly cost of coverage in the individual market (more than $1,000 for families).

The program requires individuals to purchase "creditable coverage" and employers with more than 10 workers to offer plans that meet set criteria. A new state agency will certify those insurance products that meet standards for "high value and good quality."

Such plans, however, are likely to face detailed coverage requirements, including dental and vision services, mental health and a range of mandated benefits.

Insurers will be able to market high-deductible plans with health savings accounts, which will be supported by favorable state tax treatment. Such flexibility will be important for MCOs trying to craft affordable plans, but may not be sufficient as industry struggles to devise low-cost plans that meet the state's criteria.

RANGE OF SUBSIDIES

A key part of the program is to extend the state's Medicaid program for individuals and families from 200% to 300% of the federal poverty level (income of $38,400 a year for a family of two). Qualifying individuals will receive subsidies on a sliding scale, with no premium payments for those earning less than $9,600 a year. The cost of a basic coverage package for individuals at the higher end of the scale, though, is expected to be about $200 a month. Such premiums for those receiving partial subsidies may be too expensive and could prompt many to simply pay the penalty for non-coverage. The fine is only $150 during the first year that they do not buy coverage, although penalties are slated to rise considerably in later years.

EMPLOYERS' ROLE

The new Massachusetts law also requires employers with more than 10 workers to provide health coverage for employees or pay a fee to the state. The concern, again, is that the relatively low fine (which may be dropped altogether) will prompt some employers to drop current coverage or switch to less expensive plans with less comprehensive coverage.

A $295 penalty amounts to one-fifth to one-tenth of what it costs companies to offer most plans available today, explains William Custer of the Department of Risk Management and Insurance at Georgia State University. "Given the penalties for non-compliance, it would seem that plans can't cost much or many individuals and employers would just pay the penalty," he points out. "It's really unclear how the state will determine the characteristics of an affordable plan."

Expanded individual coverage and changes in the structure of the individual and small-group market should reduce non-group premium costs by 24%, according to actuarial analysis. However, if coverage is too costly, less healthy individuals are more likely to sign up, creating a more costly risk pool.

NATIONAL MODEL?

Healthcare advocates praised the Massachusetts plan for taking a bold step to deal with the rising number of uninsured. The program, which represents a compromise crafted by Republican Governor Mitt Romney and a Democratic legislature, aims to cover 90% of the state's uninsured residents. In addition to the individual and employer coverage mandates, which are expected to reach 215,000 currently uninsured workers, the program also expands Medicaid eligibility for about 300,000 lower-income residents.