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Health care insurance market transforming in Massachusetts


BOSTON—One year after enactment, Massachusetts' landmark health care reform law already is transforming the state's health insurance market, while serving as a template for reform efforts across the United States.

Because of the law, a new state-subsidized health insurance premium program has been launched, enabling tens of thousands of state residents to obtain coverage from commercial insurers, bringing the state much closer to achieving near-universal coverage.

A second program, which was rolled out this month, could provide coverage to tens of thousands of other state residents. That program, while not subsidized by the state, is offering coverage through insurers at a cost that is, in some cases, roughly half of what buyers would have paid in the individual market, state officials say.

All this has been accomplished with remarkably little acrimony, observers say, with state health officials implementing the new law and the programs it created in a measured, careful way.

"The progress that has been made so far has been pretty significant," said Phil Edmundson, chief executive officer of insurance brokerage William Gallagher Associates in Boston.

Massachusetts' efforts have not gone unnoticed by lawmakers in other states. In fact, reform proposals developed by the governors of California, Illinois and Pennsylvania borrow heavily from what many call the Massachusetts model.

"Massachusetts has become not only a model for state-based reform, but also a model for collaboration between the private and public sectors and a model for pragmatism and compromise," said Randy Abbott, a senior consultant with Watson Wyatt Worldwide in Wellesley Hills, Mass.

The Massachusetts model has many elements, but at its core is the concept of shared responsibility. Under the law, unless affordable coverage is not available, state residents are required to obtain health insurance coverage or face fines. To ease that cost burden, though, the state heavily subsidizes premiums for lower-income uninsured residents.

Employers are not required to offer health insurance coverage. However, except for very small firms, those that don't are assessed modest financial penalties. The cost of not offering coverage, though, can be quite steep if their employees seek hospital care with employers then responsible for paying for a portion of the so-called free care.

Much is riding on the outcome of Massachusetts' groundbreaking law. For the uninsured, the law means they have coverage, which reduces the likelihood of facing financially catastrophic medical bills. It also could mean they will receive more preventive care, increasing the chances that medical problems will be detected sooner and treated in cost-effective settings and not in emergency rooms.

"If people get more preventive services upfront, you avoid some catastrophic costs," said Rich Stover, a principal with Buck Consultants L.L.C. in Secaucus, N.J.

Indeed, some believe the cost of subsidizing health insurance premiums for the uninsured may turn out to be less than the traditional health care financing model in which the uninsured can get free care in hospital emergency rooms with states, in some cases, partially reimbursing providers for uncompensated care and providers also inflating charges for insured patients to offset the costs of uncompensated care.

"If health insurance coverage is provided and people are treated earlier, that does save money," said Edmund Haislmaier, a senior research fellow at The Heritage Foundation in Washington.

At the same time, the law will be a test on whether an individual mandate can significantly increase coverage, especially for those for whom the state is not subsidizing premium contributions.

"Will they have enough disposable income to afford coverage?" asked Vince Capozzi, senior vp-sales and marketing for Harvard Pilgrim Health Care, a Wellesley, Mass.-based health care plan.

"We'll have to wait and see how effective the individual mandate is," said Mr. Haislmaier.

For employers, the stakes are high. If Massachusetts is able to achieve near-universal coverage and other states follow with similar initiatives, that could mean a bigger reduction in provider cost-shifting, one of the drivers of group health care plan inflation.

"If everyone, or nearly everyone, has coverage, employers will save money because there will be less provider cost-shifting," Mr. Stover said.

But at this point, there are many unknowns, chiefly how big a dent the law will make in reducing the number of uninsured, though some early signs are encouraging. For example, about 70,000 people already have enrolled in Commonwealth Care, the program in which the state subsidizes—in some cases totally—premium contributions for those earning up to 300% of the federal adjusted poverty level.

Hitting the 70,000 enrollment mark came about two months sooner than state officials expected. "I'm thrilled about our enrollment numbers at this relatively early point in health care reform," said Jon Kingsdale, executive director of the Health Insurance Connector Authority in Boston, which is charged with implementing key parts of the law (see Q&A, page 18).

Current enrollment in Commonwealth Care still is only about 50% of the 140,000 people eligible for the subsidized program.

The bulk of those enrolled in Commonwealth Care have been those whose incomes entitle them to free coverage. How close Massachusetts comes to enrolling all 140,000 uninsured eligible Commonwealth Care likely won't be known until the stiff financial penalties set by the individual mandate kick in next year. That will give the uninsured a strong financial incentive to obtain coverage.

Yet another test is just beginning and involves the program known as Commonwealth Choice, which starting May 1 is available to individuals. Commonwealth Choice also is available to employers of any size that want to provide a health insurance plan to employees, especially part-timers, who are not eligible for group coverage, and for which employees would pay the premium through pretax contributions. Later this year, the program will be available to employers with fewer than 51 employees.

Employers have a powerful financial incentive to offer such a plan. If a part-time employee obtains free care in a hospital, for example, the employer can be forced to pay a portion of the charges.

Six health plans, which submitted successful bids, are offering coverage through Commonwealth Choice. Already, there is significant interest: The program's call center received over 400 calls within a couple of hours of its launch.

For individuals, the program could significantly reduce their premium costs. Mr. Kingsdale, for example, cites an example of a health plan offered through Commonwealth Choice that will charge a monthly premium of $175 for single coverage. By contrast, a plan now being offered in the personal lines market—imposing much greater cost sharing—charges a monthly premium of $335, he said.

How many of the roughly 160,000 people eligible for Commonwealth Choice will enroll isn't known. "The next few months will be critical," said Mr. Edmundson, the Boston insurance broker.

Just as important as the number of enrollees will be the demographics of those enrollees. For example, if enrollees tend to be older and use health care services extensively, that could force insurers to increase premiums significantly in future years, making coverage much less affordable and perhaps discouraging enrollment.

"What will be the risk profile? That is a key question and one for which we don't yet know the answer," Watson Wyatt's Mr. Abbott said.

Realistically, Mr. Abbott said, "I have high hopes, but moderate expectations."