‘New Territory’ Industry Cautiously Embraces Reform Bill

Michael Widmer, president of the Mass. Taxpayers Foundation, said the health care reform legislation that just made history in Massachusetts is largely an effort to level the playing field in terms of health care costs, accessibility, and coverage, and he thinks that the new law is on the right track.

But now, he says, the state has to stay the course.

“The structure of this legislation is inherently sound,” he said. “But obviously, we’re going to hit some rough spots with this, and the classic, Massachusetts response at the first sign of trouble is ‘man the torpedoes.’

“This time,” Widmer stressed, “we have to keeping working, to progress into new territory.”

His sentiments are shared by many in the health care community who were asked to comment on the bill, passed by the Legislature on April 4 and signed into law by Gov. Mitt Romney a week later. The health care reform bill sets forth a number of changes to the Commonwealth’s health insurance make-up, all geared toward universal health insurance coverage for state residents.

Much has to happen before this veritable experiment can be called a success, including the creation of new, affordable health insurance plans; reallocation of thousands of residents from the uncompensated (free) care pool to the Medicaid system; the implementation of new quality-reporting mechanisms within hospitals; and, perhaps most importantly, the retention of $385 million in federal funds, slated to shift from health care providers to health care insurers.

That’s a lot for any state to chew on, but with such a comprehensive plan now on the books after months of debate on Beacon Hill, few are ready to bow to a challenge, much less concede defeat.

“Everyone is concerned about how this is going to play out over the long-term,” said Daniel Keenan, vice president of Government Relations with the Sisters of Providence Health System and a 12-year veteran of the state Legislature, who left the House for his new position earlier this year. “But we’re going to have tangible proof of that very soon, and that will be a positive.”

Breaking Down the Bill

Indeed, the first aspects of the reform bill are scheduled to take effect in just six months, and the implementation phase will extend through 2009. Among other components, the legislation calls for:

  • An individual mandate that will require, as of July 1, 2007, that all adult residents obtain and maintain health care coverage that satisfies a minimum standard, set by the state. Those who fail to secure coverage will be subject to tax penalties or fees;
  • A new employer responsibility, set to take effect in October, that requires all employers with 11 or more employees that do not offer health insurance to pay a per-worker assessment to the state’s uncompensated care pool, capped at $295 and based on actual free care costs to the state. (This provision was vetoed by Romney, at presstime that veto was expected to be easily overridden by the legislature). In addition, all employers with 11 employees or more who do not contribute to health coverage on their own or through contributions to a ‘cafeteria plan,’ which allows employees to independently access health insurance with pre-tax dollars, will be subject to a ‘free rider surcharge,’ triggered when employees or their dependents collectively utilize more than $50,000 in free care in one year;
  • Overall market reforms, which are designed to streamline access to health care coverage, and include the creation of new, affordable health insurance products and the ‘Commonwealth Health Insurance Connector,’ which will link businesses and individuals with affordable health insurance products, and
  • Health care funding reforms, which will allocate an additional $90 million a year for Medicaid rate increases over the next three years, and will help to create an advisory board to review reimbursement rates and methodologies. Hospitals, conversely, will be required to meet and verify a number of performance targets in order to receive reimbursement rate increases, and both health care providers and insurers will be required to submit cost and quality data to the Health Care Quality and Cost Council, also created by the reform bill. This will allow for greater transparency within the industry and a more informed consumer base.

With the framework for reform in place, work must now begin to set each aspect of the plan in motion, on the part of the health insurance sector, health care providers, legislators, and employers alike. The stated goal is coverage for all of the state’s 500,000 uninsured by 2009. To that end, the plan stipulates that an estimated 100,000 people who are eligible for but unenrolled in Medicaid (the disabled, elderly, children, and parents of children who also fall at approximately 200{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of the poverty level) be enrolled through a comprehensive outreach program. In addition, 200,000 low-income residents who do not qualify for Medicaid must be signed-up for state-subsidized health insurance.

The remaining uninsured residents will be offered a number of health insurance package options —created and offered directly through health insurance providers in the Commonwealth — that are expected to feature reduced rates (by about 25{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5}) and several targeted products, particularly for 19- to 26-year olds. The Connector will also provide for subsidies for these products on a sliding scale, for residents whose incomes fall at or below 300{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of the federal poverty level (for example, $48,000 a year for a family of three).

The actual creation of affordable health insurance products by health insurance companies – these must be ready for rollout by October 2006 – is currently underway.

Cost and Effect

Widmer said the creation of those affordable products is one area of the legislation many groups, including his own organization, are keeping a close eye on.
“Health insurance providers are in a huge hustle,” he said, noting that insurance providers are being charged with creating packages for low-risk residents and young or college-enrolled customers, and to also ensure that products include strong preventative medicine and catastrophic coverage components. “It will be interesting to see the products they introduce, especially given that each product can be totally unique to each company. We’re keeping an eye on the cost structure in particular, because the key to all of this is affordability.”

Widmer said the control over creation of the affordable packages was given to health insurance providers in part to offer consumers choice and variety among plans. Overall, he said, that structure is sound.

“More options will make the marketplace easier to navigate for individuals,” he said, “and that in turn will stimulate the creation of more comprehensive, low- cost plans.”

But many organizations, the MTF included, have voiced concerns that the reforms included in the bill will not go far enough to give insurers the flexibility they need to create products at the suggested price point: $250 to $300. Since individuals will not be required to purchase insurance until those products are available, that could delay the overriding goal of providing coverage for everyone in the state, thus shrinking the free care pool, a major concern for health care providers.

Hank Porten, president and CEO of Holyoke Medical Center, said his hospital struggles with the realities of providing free care every day, and that he, too, is keeping watch over the creation of those affordable plans.

“My hope is that insurance coverage will be such that our patients will be able to effectively work with them,” he said. “I hope there is a strong focus on manageable co-pays and deductibles while these packages are being created.”

Similarly, Steven Bradley, vice president for Government Relations with Baystate Health, said he’s optimistic that the affordable plan structure will help to whittle down the free care pool and financial burdens on hospitals, as long as all affordable packages are easily accessible, state-subsidized or otherwise.

As the largest Medicaid provider in the Commonwealth, Bradley noted that the initial shift of 100,000 residents from free care to the Medicaid program is a major boost for Baystate Medical Center, because it will increase Medicaid reimbursements by $70 million a year and move the hospital close to the cost of providing those services. But the gap can’t be fully closed until the remaining plans are in place.

“Nothing will be perfect on day one, and nothing is going to work as well as people want it to at first,” he cautioned. “But the affordable plans are a great idea, and I’ve heard they will look a lot like Medicaid. The Connector will also establish some criteria – insurance companies will develop the products and submit them to the Connector for approval. I tend to have confidence that these plans will be affordable for Massachusetts residents in the end.”

Keenan said the plans will be also be searchable by individuals and employers alike through the Connector, which he called a significant and largely overlooked aspect of this legislation.

“The Connector is sort of an imaginary box that people who need insurance can open and sift through,” he said. “And part of what the Connector will do is make it easier for employers to satisfy the mandatory requirements and allow individuals to easily combine contributions from different employers. That’s huge for the many people living in Massachusetts who hold down two or three part-time jobs, and currently have no way of paying for health care.”

Connecting the Dots

Keenan contended that the creation of the Connector, an administrative piece of the legislation that will be monitored by the state Dept. of Administration and Finance, will prove to be a critical component of the legislation despite being overshadowed by the debate that raged over other facets of the bill, including the employer assessment.

He said the $295 per employee annual assessment for employers who do not contribute to health coverage is another move toward stabilizing the free care pool, and does constitute the only ‘new money’ filtering in as part of the health care reform bill.

However, the amount is negligible when compared to the accompanying free rider surcharge, which stipulates that employers who don’t provide health care coverage to their employees could be responsible for up to 100{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of the costs incurred by employees who access health care through the free care pool.
“That’s an issue that could potentially bankrupt employers,” he said.

Widmer agreed, adding that the fee represents an alternative to a payroll tax that was originally proposed in an early draft of the bill, and which the MTF strongly opposed.

“The employer assessment has been widely misrepresented,” he said. “A payroll tax would have been harmful to the Massachusetts economy, and the assessment is an alternative approach.

“That piece was critical to breaking the log jam,” Widmer continued, “but it’s not critical to the overall success of this legislation. The individual mandate, and the Connector, those are.”

Widmer said the notion that employers could potentially drop health insurance coverage for their employers in favor of paying the assessment, which in many cases would be a savings, is a faulty one given the costs that would be incurred by the free rider surcharge.

He noted that the presence of the individual mandate could also create increased pressure on employers who currently do not offer insurance to provide coverage or access thereto.

“Employees are going to be leaning that much more on their employers to help them with their insurance costs,” he said. “But there are a whole host of reasons why we don’t believe this is going to be an inducement to drop coverage. For one, people have gotten hung up on the ideology of this, not the reality.”

Widmer explained that the description of the assessment as an ‘employer mandate’ is a misnomer.

“A mandate it is not,” he said. “This is a fair share contribution, and that’s a very different construct than a mandate. Those employers who do not provide coverage will have employees who draw on the free care pool, and in turn it will be the employers who are paying for that.

“In addition,” he added, “if this reform works, there will gradually be less of a draw on free care, and therefore less of an assessment.”

All Hands on Deck

Overall, optimism regarding the reform legislation is generally high within the Commonwealth’s health care community, which sees the underlying drivers for the reform – increased access, controlled costs, and the preservation of millions in federal funding – as paramount to the inevitable kinks.

“This legislation is the product of new ideas and collaboration at the legislative level, and in the area of health care, there’s not a lot of either going on right now,” said Widmer. “I think there are pieces of this legislation that could absolutely serve as national models. We just need to see it through to the end.”

Jaclyn Stevenson can be reached at stevenson@healthcarenews.com