Massachusetts Health Care Reform:
Overview and Employer Considerations
By Patrick Haraden, CEBS, CLU, ChFC, REBC
Director, Employee Benefit Services, Longfellow Benefits

On April 12, Governor Romney signed into law “An Act Providing Access to Affordable, Quality, Accountable Health Care” formally known as Chapter 58 of the Acts of 2006, and informally the Massachusetts Healthcare Reform bill.  The Act is actually an amalgamation of three separate bills proposed by the Governor, and the House and Senate leaders to reform Massachusetts’s healthcare delivery system.  The driving force behind some of the provisions, and more importantly the timing of the Act was the potential loss of $385 million dollars of federal Medicaid matching funds.  The bill would ensure the Massachusetts Medicaid program complies with the terms of a previously granted federal waiver, which would allow Massachusetts to continue to receive those funds.

All of the bills started off with the following goals for Massachusetts residents: to have more of the uninsured covered by health insurance, more eligible individuals enrolled in MassHealth (Medicaid), and greater access to more affordable, and better quality health insurance products.

Although the Governor vetoed some portions of the Bill, the House and Senate have (or will have) voted to successfully override the Governor’s vetoes.  Final rules, procedures, forms, and regulations still need to be drafted, and some of the provisions do not take effect until 2007 or later, but there are some issues that employers can begin to address and prepare for now.

The Act creates the Commonwealth Health Insurance Connector, which will be utilized by individuals and small businesses to evaluate and purchase health insurance products on a pre-tax basis.  The Connector will be a “quasi public” authority (Similar to the Group Insurance Commission for State employees and retirees) in that it will fall under the Department of Administration and Finance, but will have public and private board members.

The Connector will allow for portability of coverage as employees move from job to job and it will also allow more than one employer to contribute to an individual’s health insurance.

Insurance Market Reforms
The Act also merges the small and non-group markets in July 2007.  An actuarial study will be commissioned prior to implementation, so the results of the study may influence the implementation (or repeal) of this part of the Act.

The key provision of this section are that young adults will be able to stay on their parent’s insurance plan for two years past the loss of their dependent status or until their 25th birthday regardless of their student status.

Health Savings Accounts (HSAs) and other lower cost, or tax-favored accounts are encouraged through this provision of the Act.

The Act requires that as of July 1, 2007 all residents (as defined in the regulations) of Massachusetts must purchase health insurance.  The mechanism for proving coverage will be the filing of their personal income tax form in 2008.  Coverage will be verified through a database, and the penalties will be the loss of the personal exemption in 2007, and a percentage of the premiums (what an individual would have paid) for health insurance coverage in subsequent years.

There will be provisions for individuals who have financial hardship or other issues that may prevent them from obtaining coverage in a given year.

The Act also has a “Fair Share Contribution” for employers.  Employers who do not offer health insurance coverage to their employees will make this contribution.  The estimate of this contribution is approximately $295 per employee, per year.  This contribution would apply to employers with 11 or more employees and do not provide insurance, or contribute to it.

There will also be a “Free Rider” surcharge for employers who do not offer health insurance.  This surcharge will be paid by employers whose employees access free care (the uncompensated care pool is eliminated by this Act) more than three (3) times, or the employer has five (5) or more instances of employees receiving free care in a year.  The surcharge will be an escalating percentage of the cost of the free care utilized by its employees.

The Act also mandates Section 125, or cafeteria plans for employers with 11 or more employees. 

Other provisions also allow different health insurance rates for smokers and non-smokers, further regulate waiting periods, and provide for monitoring and “rating” of health plans.

Other Provisions
The Act also provides funding for increased, and performance based, Medicaid payment rates to hospitals and other providers.  This should reduce the “cost shifting” that takes place in the market and ultimately result in lower health insurance premium rates to employers and employees.

Funding is also provided for education, awareness, and prevention of medical errors and reducing the infection rate at medical facilities.  These provisions of the Act should also have the long-term impact of reducing premium rates.

The Act, and subsequent rules and regulations will create communication, compliance, reporting and strategic issues that employers will need to address both this year and in subsequent years.  More details about the legislation will be known in the coming weeks and months ahead.  As with all legal and regulatory changes, all members of the employee benefits team – Human Resources, Finance, Legal and your benefits consultant or broker should be involved in developing a strategy for compliance and implementation.

Other White Papers of Interest:

• New HSA Guidance for 2006- November 2005
  
• Health Savings Accounts (HSAs):  A review of the Treasury Department Guidance and Planning Implications- October 2004
  
• Audit of Health Plan Claims Administration- Plan Fiduciary, Trustee, and Management Issues- March 2006
• Health and Welfare Benefits in Merger and Acquisitions, COBRA, Hidden Costs and Due Diligence- May 2005