The Commonwealth of Massachusetts is being watched closely after the recent implementation of their health care reform initiative. In April 2006 the Commonwealth enacted legislation that is aimed at providing nearly universal coverage for their residents. There are many different components to the plan, many of which we have discussed and modeled in previous sections of this paper. Due to the extraordinary interest in the impact of this reform effort, ASPE worked with The Lewin Group to model a national health reform initiative with many, but not all, of the elements in the Massachusetts plan.
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Features
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The features included in the combined model include: an individual mandate, insurance market reforms, premium subsidies for low-income populations, mandatory Section 125 plans, an employer mandate, and a creditable coverage requirement.
Individual mandate. All individuals would be required to obtain health insurance coverage or pay a penalty equal to one half the cost of coverage (less any subsidy they could have received). The mandate would be enforced through automatic enrollment facilitated through the tax system, other income tested programs, and schools. Individuals in families with incomes between 300% and 600% FPL would be exempt from the mandate, and could elect to remain uninsured, if the cost of coverage exceeded a certain percentage of income, ranging from 5.5% for the lowest income families to 8.6% for higher income families.
Insurance market reforms. The insurance market would be modified to assure that all individuals can obtain coverage. The reform would require guaranteed issue, so that no one could be turned down for coverage for any reason. Also, premiums could not be varied based on health status. These protections would ensure individuals could obtain the necessary coverage to meet the individual mandate requirements.
Premium subsidies. Premium subsidies would be provided for individuals in families earning up to 300% FPL. Those with income below 150% FPL would receive fully subsidized premiums, while those with incomes between 150% and 300% FPL would receive a partial subsidy that decreases as income increases. The amount of the individual contribution to the premium would be equal to between 2 and 5 percent of income, with the remainder being covered by the subsidy.
Mandatory Section 125 plans. Employers with 10 or more workers would be required to create Section 125 plans so that their employees could purchase health insurance coverage using pre-tax dollars.
Employer mandate. Like the Massachusetts program, employers would be assessed a $295 fair share contribution for each employee who does not have health insurance coverage. Firms are not assessed the fee if they offer coverage to all employees and pay at least 33% of the premium. Uninsured workers of firms who pay the assessment are not automatically enrolled into an alternate coverage program. The assessments would be used to fund, in part, the premium subsidies for low-income families (see above).
Creditable coverage. The mandate for coverage includes a defined benefits package, which must be met to meet the coverage obligation and to receive the premium subsidy (for those eligible). The benefit package required to be eligible for the subsidy is modeled after the Massachusetts Commonwealth care plans, described in the Health Insurance Premium Subsidy Programs section. For those not eligible for the subsidy, creditable coverage would be a benefit package that is actuarially equivalent to the Federal employees’ BlueCross Blue Shield standard plan. This is estimated to have an actuarial value at approximately the 60th percentile of employer health plans (Lewin, 2008).
Excluded features. The features of the Massachusetts plan that were not included in our combined model consist of an expansion of the State Children’s Health Insurance Program (SCHIP), improved Medicaid and SCHIP provider payment rates, and the creation of a health insurance “connector” program.
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Coverage Impact
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A national combined health care reform initiative modeled after the Massachusetts plan would reduce the number of uninsured by 39.4 million (Figure 11). Over twenty million previously uninsured individuals would be newly covered with the premium subsidy, 7.4 million would gain coverage from Medicaid and SCHIP, and 11.7 million would gain private coverage despite not being eligible for subsidized or public coverage. Approximately 100,000 individuals would become newly uninsured as a result of their employer dropping coverage.
Change in Coverage Figure 11. Changes in Enrollment under a Combined Reform Approach (in millions) Number of People who take the Subsidy (< 300% of FPL) 23.3
Previously uninsured 20.4
Previously non-group 1.4
Previously ESI coverage 1.5
Workers and dependents whose employer drops coverage a/ 2.2
Take non-group coverage 2.0
Enroll in Medicaid/SCHIP 0.1
Go uninsured 0.1
Take up ESI coverage 8.3
Currently decline ESI who take it 5.2
Previously ineligible workers now offered coverage 1.4
Firms who start offering coverage 1.7
Net Reduction in uninsured 39.4
Newly covered under Medicaid/SCHIP 7.4
Newly covered people eligible for the subsidy 20.4
Newly covered people ineligible for subsidy 11.7
Uninsured from employer dropping coverage (0.1)
Uninsured from dropping non-group coverage (0.0)
a/ Impact of insurance market reforms on employer coverage.
Source: Lewin Group estimates using the Health Benefits simulation model (HBSM).
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Cost Impact
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A national combined health care reform initiative of this magnitude would have a net federal cost of $155.8 billion dollars and a net state savings of $2.4 billion, for a total program cost of $153.4 billion (Figure 12). States would achieve a savings of $15.6 billion as a result of reduced spending on other state and local programs, but would incur expenditures totaling $9 billion for the increased enrollment in Medicaid and SCHIP. Previously uncompensated care would be reduced by almost $26 billion.
Change in Health Spending Figure 12. Summary of Public Program Costs under a Combined Reform Approach (in billions) Net Public Costs $153.4 Change in Spending by Program Federal Government Costs $155.8 Medicaid and SCHIP Programs $11.9 Premium Subsidies $103.0 Penalty for Remaining Uninsured $0.0 Employer Assessments for not Offering Coverage ($2.9) Tax Revenue Loss from Mandatory Section 125 Plans $41.9 Tax Revenue Loss/(Gain) Due to Wage Effects $1.9 State and Local Government Costs ($2.4) Medicaid and SCHIP Programs $9.0 Other State and Local Programs ($15.6) Tax Revenue Loss from Mandatory Section 125 Plans $4.1 Tax Revenue Loss/(Gain) Due to Wage Effects $0.1 Uncompensated Care Net Reduction in Uncompensated Care ($25.9) Source: Lewin Group estimates using the Health Benefits simulation model (HBSM).
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