Massachusetts Health Care Reform

September 26, 2006

2

Why healthcare reform in Massachusetts?

Double-digit, annual increases in insurance premiums and the highest per capita healthcare spending in the nation

460,000 uninsured in 2004 state survey

Small businesses and individuals facing significant barriers to entry for coverage

Limited availability of information to consumers and businesses precludes informed health insurance purchase decisions

Potential loss of at least $385 million in federal government Medicaid funding

Two “universal” healthcare ballot initiatives

$1 billion and growing of “free-care” forcing all stakeholders to deal with costs for uninsured and under-insured

3

The Uninsured in Massachusetts

Total Commonwealth Population: 6,400,000

Currently insured (93%)-Employer, individual, Medicare or Medicaid

5,940,000

Currently uninsured (7%) 460,000

-<100% FPL 106,000 Medicaid Eligible but unenrolled

-~100-300% FPL 150,000 Commonwealth Care

->300 FPL 204,000 Affordable Private Insurance

Note: Based on August 2004 Division of Health Care Finance statewide survey, 2006 survey 372,000

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Broad consensus that healthcare reform must be a “system”, not a “product” approach

AffordableProducts

Ease of Offer,Ease of Purchase

Efficiencies/CostContainment

A Cultureof Insurance

Eliminate CostShifting

Subsidies forLow Income

5

Insurance market reforms: A good start

Existing Market Reformed Market

Dysfunctional individual market

Individual/small market merger

Limited take-up of HSAs More products with HSAs

Bad value for younger adults 19-26 year-old market

“Any willing provider” Value-driven networks

No consequence for lifestyle choices Tobacco usage is a rating factor

Hard cut-offs for dependent status More flexible up to 25 years-old

Optional, smaller risk pools Mandatory, larger risk pools

Growing list of mandatory benefits Two year moratorium

6

Insurance reforms will provide better value for consumers

Existing Market Reformed Market

Primary care Yes Yes

Hospitalization Yes Yes

Prescription Drugs Yes Yes

Mental Health Yes Yes

Provider network “Open Access” “Value-Driven”

Annual deductible “First Dollar Coverage” $250-$1,000

Co-pays Low ($0,10,20) Moderate ($0,20,40)

Monthly Premium $350+ $154 - $280

7

The Connector is a breakthrough concept

Increasing adoption of pre-tax premium payment options for businesses (e.g. Section 125 plans)

Providing small businesses, sole-proprietors, and individuals with more affordable product choices

Shifting the employer/employee health insurance relationship from design, benefits, product offering, and contribution to just a discussion regarding financial contribution

Posting “good value” products to facilitate the purchase of this complex product

Reaching non-traditional workers through innovative means

Allowing portability for the consumer

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Non-offeredIndividuals

SmallBusinesses

SoleProprietors

Non-workingIndividuals

Blue CrossBlue Shield

FallonHarvard Pilgrim

Insurance Connector

The Connector makes it work

New Entrants

MMCOsTufts NHP

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The Uninsured in Massachusetts

Total Commonwealth Population: 6,400,000

Currently insured (93%)-Employer, individual, Medicare or Medicaid

5,940,000

Currently uninsured (7%) 460,000

-<100% FPL 106,000 Medicaid Eligible but unenrolled

-~100-300% FPL 150,000 Commonwealth Care

->300 FPL 204,000 Affordable Private Insurance

Note: Based on August 2004 Division of Health Care Finance statewide survey

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“Commonwealth Care” makes private insurance affordable for eligible individuals Redirects existing spending on the uninsured away from opaque

bulk payments to providers to direct assistance to the individual

Premium assistance up to 300% of the Federal Poverty Level (FPL)- Zero premium for individuals under 100% FPL- Premiums increase with ability to pay up to 300% FPL- No cliff; glide-path to self-sufficiency- No deductibles permitted for low-income individuals

Private insurance plans offered exclusively through Medicaid Managed Care Organizations (MMCOs) for first three years

The Connector will serve as the exclusive administrator of Commonwealth Care premium assistance program

- Works closely with Medicaid program to determine eligibility

SCHIP and Insurance Partnership programs expand to achieve the same objective

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Commonwealth Care: Key assumptions

Approximately 200,000 individuals will be eligible

Estimated health insurance monthly premium is $300/individual

Average state subsidy will between 80-85% of the monthly premium

Over a transition period, over $1 billion in funding can be available for premium assistance

- Medicaid demonstration project monies- Existing provider and payer assessments- DSH funding

Funds not used for premium assistance will remain available to compensate for “free-care” services

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Commonwealth Care: Premium assistance schedule

FPL

<100%

150%

200%

250%

300%

MonthlyPremium*

Free

$18

$40

$70

$106

% of Income**

NA

1.8-2.1%

2.8-3.8%

3.8-5.4%

4.7-6.3%

Single PersonIncome

$9,800

$14,700

$19,600

$24,500

$29,400

*Rates for single individuals** Range as a percent of mid-point income for individuals and two adults with one child

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Redeploying existing funding makes the program financially sustainable

Ratio of Premium Assistance to “Free Care” – FY06-09

Free Care

PremiumAssistance

Free Care

PremiumAssistance

Free Care

PremiumAssistance

Free Care

FY06 FY07 FY08 FY090

20

40

60

80

100%

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Connector funding

Connector received an up-front block appropriation of $25M- Start-up/build costs, outreach and marketing, on-going operations- Portion of Connector operations related to Commonwealth Care expected to qualify for federal Medicaid reimbursement

Law empowers the Connector to assess fees on premiums written for future funding needs

- Silent on need for future appropriations

Premium assistance payments funded without further appropriation from the Commonwealth Care Trust Fund

- 50% Federal reimbursement

Transferability between the Health Safety Net Fund (UCP) and the Commonwealth Care Trust Fund

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Employers will remain the cornerstone for the provision of health insurance

Existing IRS/ERISA provisions

Existing and new state non-discrimination provisions- Fully insured companies are prohibited from varying financial contribution to employees enrolled in group health plans

Health Insurance Responsibility Disclosure- A form signed by every employer and employee- Indicates whether the employer has offered to pay or arrange for employees’ health insurance

- If an employee declines an employer’s coverage, then sign a disclosure form that employee understands their responsibility to pay for their healthcare costs

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Employer implementation issues

The law requires most employer requirements to be implemented in an expeditious manner

Guiding policy principles- Be mindful of the potential for ERISA challenges- Do not create incentive for employers to drop- Agreement was that everyone will contribute to the UCP assessment

Offering employers already paying in

Guiding administrative principles - Keep it simple for smaller employers- Part-time, seasonal, temporary, and foreign workers are important part of the workforce

Conducted informational hearings across the state- Attended mostly by employers

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Employer responsibility provisions: “Free Rider” surcharge

Surcharges any employer with 11 or more FTEs that does not pay or arrange for the purchase of their employees’ health insurance

Includes full-time and part-time employees

The surcharge is based on employee and dependent’s use of the “free care” health services

Surcharge applies when an employer’s employees use “free care” in excess of certain usage and aggregate costs triggers

Employer assessed 10 – 100% of the state’s costs of “free care”

An employer can avoid the surcharge by: Offering a group health insurance plan or Establishing a section 125 cafeteria plan for all employees Important to note that no employer financial contribution is

required to avoid the “Free Rider” surcharge

Proposed “Free Rider” surcharge regulations proposed on June 30th

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Employer responsibility provisions: “Fair Share” assessment

The Commonwealth has assessed insurers, hospitals and certain businesses to help partially reimburse the costs of “free care” provided by hospitals and community health centers

- This assessment has been in existence for more than 20 years- $320 million in annual assessments

An unintended consequence of the existing structure is the exclusion of employers which do not offer employee health insurance from the assessment

The “Fair Share” assessment was to extend the existing assessment to “non-offering” employers

- Maximum assessment is $295/employee/year based on “free care” usage

- Employees deemed offering a “fair and reasonable” financial contribution would be exempt from the new assessment

-Regulations were adopted on September 8, 2006

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“Fair Share” test

Two-step test- Primary Test: Take-up rate must be equal to or greater than 25%

If the business passes this test, then no assessment If the business fails this test, then move to secondary test

- Secondary Test: The business must offer to contribute 33% or more towards health insurance

The two-step test accomplishes the following objectives:- The primary test ensures that the employer is covering not just offering insurance to its employees (thus paying into the UCP)

- It respects free market principles by allowing the employer and employee to determine a “fair and reasonable” employer contribution

Employees “vote with their feet” by enrolling in the employer’s health plan

The Commonwealth is measuring the result of the employer and employees’ wage and benefit negotiations

- The secondary test provides employers with a “safe harbor” from employees who turn down health insurance for reasons that the employer has no control over

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The law contributes to market stability by addressing cost shifting Medicaid rate increases

- $270 million rate increases for hospitals and physicians over a three years

$90 million/year 85% for hospitals and 15% for physicians

- Increase rates for community health centers- Beginning in year two rate increases for hospitals must be tied to “pay-for-performance” measures

Enroll eligible individuals in the Medicaid program- On-line, streamlined application process- 77K in the last twelve month period- Lifting of enrollment caps for certain programs

Restoration of certain Medicaid benefits (adult dental, eyeglasses)

Reforms the Uncompensated Care Pool reimbursement mechanisms

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Personal responsibility: health insurance is the law

Statewide open-enrollment period in March 2007- Both Commonwealth Care and whole insurance market

Beginning on July 1, 2007 all Massachusetts residents will be required to have health insurance

Enforcement mechanisms- Indicate insurance policy number on state tax return- Loss of personal tax exemption for tax year 2007 - Fine for each month without insurance equal to 50% of affordable insurance product cost for tax year 2008 (approximately $1,200/person)

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Encouraging efficiency and cost containment strategies

Program integrity efforts- Provider re-credentialing- Non-custodial parent responsibility- Increased funding for Medicaid Fraud Control Unit and State Auditor

Cost, Quality and Patient Safety initiatives- Improving the Commonwealth’s purchaser and consumer website- Funding for Betsy Lehman Center for Patient Safety- Statewide infection and prevention control program- Health Care Quality and Cost Council

Funding for certain public health programs to help raise public awareness

- Diabetes- Renal disease- Cancer screening

“Pay-for-Performance” measures- Mandated for the Medicaid program- MassHealth Payment Policy Board- Working with other payers and providers to ensure consistency

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The law provides the guidelines, but success will be measured by its implementation CMS approval for Medicaid waiver

Creation of affordable, quality health insurance products

Well-functioning Connector that addresses the needs of small businesses and consumers

Premium assistance program that is financially sustainable and not rife with adverse selection

True transparency in the cost and quality of healthcare services

All purchasers (large businesses, government, insurance companies) must demand that the fragmented healthcare supply-chain become more efficient and coordinated

Acceptance of personal responsibility principle by hospitals and individuals