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The Connector Staff Recommendation on Affordability

This is a summary and some details of the staff proposal for determining who can afford to buy, and will be required to buy, health insurance in Massachusetts. The Connector board is scheduled to review this proposal tomorrow. It is a little dense...so here are a few of the key elements:

The state would spend an additional 13 million dollars next year to offer more generous subsidies for residents who earn up to $30,000 dollars a year.

That additional funding would also include providing free insurance to a larger group of low income uninsured residents. The current income limit for free insurance is just under $10,000 a year. that would rise to about $15,000 a year.

With these changes, everyone under $30,000 a year would be required to have coverage.

For residents who earn more than $30,000, insurance would be considered affordable base on income. There would be a sliding scale. The details of that range for single adults, couples and families is below.

Based on a current estimate that there are 328,000 uninsured residents in Massachusett, this proposal would require coverage for 260,000 people.

Executive Summary from Connector Director Jon Kingsdale

The intent of healthcare reform is to cover most of the uninsured, and this proposal is intended to achieve that objective in a flexible and humane way. It would do so by combining (1) an affordability schedule that obliges everyone in an income range where most people already buy health insurance at the “affordable rate,” to do so; and (2) a constructive and generous waiver process that both phases in enforcement and recognizes exceptions. The recommended affordability schedule would oblige roughly 80% of the Commonwealth’s 328,000** adult uninsured to participate.

Our recommendations reduce the costs of Commonwealth Care (“CommCare”) for adults earning below twice the federal poverty level (“FPL”) from the rates approved by the Connector Board last September. For those below 150% of FPL, it would make CommCare free.

This would provide premium relief to over half the eligible population that currently is required to contribute toward CommCare, effective July 1, 2007. It would both expedite and increase CommCare enrollment. We estimate that it would increase state/federal costs by approximately $13 million in SFY ’08.

Goals of Massachusetts Health Care Reform

The goal of Massachusetts health care reform is to extend health insurance coverage to almost everyone, which requires bringing in most of the uninsured while not disrupting existing, primarily employer-based, coverage. Most of the 6-8% of our state’s population who are uninsured already enjoy some access to medical care through the Free Care Pool or by paying out-of-pocket. There are three important reasons for insuring them.

1. There is the moral argument that all members of our wealthy society deserve access to good medical care. Under insurance, they would be “paying” patients, who can choose their physicians and hospitals, demand appropriate service, and switch providers if they are not well-served. Access to service would be guaranteed as a privilege of plan membership.

2. Systematic assessment of patient needs and continuity of care are far superior under a well-managed health plan than the episodic treatment typically given to those without insurance. Indeed, in case after case, CommCare enrollees are being diagnosed with serious chronic illnesses that were missed or incorrectly treated in crowded ERs, where the uninsured arrive when their medical problems flare up. Un-insurance is not more affordable than coverage.

3. The costs of treating the healthy uninsured represent a tax on premium-payers that makes insurance less affordable for everyone else. And the poor uninsured are vulnerable when costs get squeezed. Covering everyone will actually help us manage costs and address the overall affordability of modern medicine.

The fundamental tenet of health care reform in Massachusetts is shared responsibility—for government to subsidize coverage for the low-income uninsured, without undoing employer-sponsored insurance (“ESI”); for employers to assist their workers to secure decent coverage; and for individuals to participate in insurance. If we do not find a way to oblige most individuals to participate, health care reform will fail to achieve its promise.**DHCFP survey, 2006, provides the most recent information on the number of uninsured in Massachusetts, conducted just prior to implementing reform: 372,000 uninsured, of whom 328,000 are adults. (Note: U.S. household survey data for 2006 show just over 500,000, or 8%, uninsured in Mass.)Recommended Schedule of Affordability for CommCareWe are currently paying for CommCare on a progressive, sliding scale, with subsidies that range from a low of 68% of CommCare premiums (for those earning 250% - 300% FPL) to 100% of premiums (for those earning at or below the federal poverty level).

Seven months ago, the Board of the Connector voted overhwelmingly for a schedule of enrollee premiums, based largely on three principles. First, in light of our goal to insure almost everyone, we would subsidize health insurance for the low-income uninsured more generously than does any other state in the nation. (Six other states subsidize insurance for low-income uninsured residents who are not eligible for Medicaid, but less generously than Massachusetts.) Second, out of concern for personal affordability, we would subsidize insurance for those who earn less than twice the federal poverty level far more than employers typically do for their workers.

However, between two and three times FPL, 80% of residents pay for group insurance through their employer. The third principle was that enrollee contributions at this income level should at least approach average employee contribution rates for ESI, both because this is equitable and to avoid “crowd-out.” (If government-subsidized insurance offers more generous coverage, with far lower contributions than employer-subsidized insurance, it might eventually crowd out the private sector and enormously increase participation in, and the costs of, CommCare.).

Under the original contribution schedule, CommCare is budgeted at approximately $470 million in SFY ’08. We recommend actually lowering CommCare premiums for most enrollees. The recommended schedule, effective 7/1/07 through 12/31/07 would be:Income Scale Recommended Enrollee Contribution Current Contribution
(per adult per month) (per adult per month)

Dollars % Premium Dollars % Premium
100% FPL or less: $0 0% $0 0%

101-150% FPL: $0 0% $18 5.9%

151-200% FPL: $35 11.4% $40 13%

201-250% FPL: $70 24.5% $70 24.5%

251-300% FPL: $105 31.3% $106 31.6%We project that reducing CommCare’s contribution schedule will increase enrollment in CommCare, at an incremental budgetary expense of about $13 million in SFY ’08.

With these changes, those who are eligible for CommCare would be deemed to have access to affordable insurance. That is, they would be subject to the individual mandate, except for individual hardship through the appeals process. Not only will these rates be entirely subsidized for half the relevant income range, and subsidized 89%-to-69% for the rest of the eligible population—compared with 50%-to-80% subsidies typical of ESI--but the cost-sharing (copayments, deductibles, etc.) in CommCare is lower than is typical for ESI. Recommended Schedule of Affordability, Outside CommCareFor those not eligible for CommCare, we believe that the ability to purchase a plan that meets the state’s new (highest-in-the-land) standards for Minimum Creditable Coverage (“MCC”), at roughly the same price as CommCare, is general evidence of affordability. While CommCare offers a richer benefit package than MCC, employees will generally be able to use pre-tax payroll deduction to buy MCC, so their real premium costs should be considerably lower. (We also recommend a vigorous campaign to increase use of pre-tax, payroll deduction to pay for health insurance and the consideration of its absence in a flexible waiver process.)

On grounds of affordability and of equity between those eligible for ESI and for CommCare, we recommend that the affordability schedule for CommCare also serve as the affordability schedule for universal participation in ESI. Below 201% of FPL, the recommended schedule is actually far lower than what most employees contribute toward their group health insurance. Between 201% and 300% of FPL, 80% of employees offered ESI take it, and the CommCare schedule approaches the average employee contribution. (Employee contributions, trended forward to 2007, are projected to average about $100 for individual coverage and $300 for family coverage.)

As the federal poverty level is not a familiar (or simple) concept and loses relevance as incomes rise, for those who are ineligible for CommCare, we have translated this schedule into income brackets and apply it to singles, two-person households, and families of three or more. We have projected this progressive, sliding scale up to median income for singles and two-person households in Mass. and to the 60th percentile for larger families. (This schedule recognizes the fact that premiums for two are typically twice that for singles, and for larger families are typically three times more than for single coverage.)

We recommend this sliding scale of affordability, as summarized below and spelled out in more detail on an attachment, for 2007. Above median income (approximately $50,000 for singles and $80,000 for couples), and above the 60th percentile for families with children (approximately $110,000), we recommend reliance on appeals to waive residents from the universal obligation to participate in insurance.

Singles Couples Families of Three+$0 - $15,315 ($0) $0 - $20,535 ($0) $0 - $25,755 ($0)

$15,316 - $20,420 ($35) $20,536 - $27,380 ($70) $25,756 – $34,340 ($70)

$20,421 – $25,525 ($70) $27,381 - $34,225 ($140) $34,341 - $42,925 ($140)

$25,526 – $30,630 ($105) $34,226 - $41,070 ($210) $42,926 - $51,510 ($210)

$30,631 - $35k ($150) $41,071 - $50k ($270) $51,511 - $70k ($320)

$35,001 - $40k ($200) $50,001 - $60k ($360) $70,001 - $90k ($500)

$40,001 - $50k ($300) $60,001 - $80k ($500) $90,001 - $110k ($720)As noted above, this affordability schedule would oblige approximately 80% of the uninsured to participate. It would allow the Commonwealth to approach coverage for all (over 98%). More specifically, of the 328,000 uninsured adults, it would include approximately the following sub-groups:

Categories of Uninsured Included in the Affordability Schedule

CommCare Eligibles (<300% FPL) 140, 000

Adults offered ESI (<300% FPL) All, but about 35,000

Young Adults (>300% of fpl) 44,000

Non-Group (> 300% fpl) All, but about 30,000


















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Approx. 328,000 Approx. 260,000 Companion RecommendationsA. Insurance is considerably more affordable if paid for with pre-tax dollars under a Section 125 plan. Tax savings to employees range from 28% to 48% of their premium contribution, depending on their federal tax bracket. To encourage the widespread use of Section 125 plans, the Connector will pursue special initiatives to use payroll deduction for CommCare enrollees and to promote widespread employer adoption.

To further promote this device, we also recommend enlarging application of the Free Rider Surcharge to smaller employers who do not offer a Section 125 plan. Under existing law the penalties for not offering a Section 125 plan apply only to employers with more than 10 employees; we recommend that the statute be amended so that the Section 125 requirement applies, as of January 2009, to all employers with more than one employee. By making group health benefits tax-advantaged for all, they become more affordable for employers and employees, alike.B. Health care reform sets forth two distinct processes for making exceptions to the affordability schedule (i.e., for those whom the schedule qualifies as financially able to purchase health insurance). First, there is a prospective waiver process, under which those who are eligible for CommCare or CommChoice may apply in advance to the Connector for a one year waiver. More broadly, anyone may appeal a tax penalty retrospectively. (Importantly, appeals will be considered before penalties are enforced.)

For both sets of appeals, we recommend developing a constructive and generous process that will not penalize those who, given their individual circumstances, truly cannot afford coverage or did not understand their obligation to participate. The appeals criteria will include, among the elements to be considered:
1. Issues of individual hardship generally applicable in financial hardship waivers
2. Consideration of deductibles beyond those allowed under MCC and the net cost of employee contributions made without the benefit of s.125 plans.

3. Consideration of the timing of open-enrollment decisions on employees’ obligation to participate, given that MCC and affordability standards are only now in the process of being defined and publicly communicatedObjectives & Risk AnalysisThe goal of the affordability schedule is to clearly communicate in advance to the uninsured whether or not most people in their income bracket can afford to purchase Minimum Creditable Coverage. The goal of the waiver/appeals process is to ensure that even among those for whom Minimum Creditable Coverage might generally be considered affordable, individual circumstances may exempt them from the general obligation to participate. Specifically, our objectives are to:

1. Create a progressive, sliding schedule of affordability for those below three times FPL (about 55% of median income in Mass.) that includes everyone who is eligible for CommCare and, by extension, most employees above 200% FPL who are eligible for ESI

2. Oblige most (80%) of the uninsured to have at least Minimum Creditable Coverage, if they can buy it at rates that those of comparable income generally pay for ESI coverage

3. Preserve employer sponsored insurance and private financing of insurance for most workers

4. Waive out of the universal obligation people who can demonstrate that they would be unfairly burdened by such an obligation.

5. Make health care more affordable for everyone by expanding the insurance risk pool

The risks of getting this wrong are significant, and worth stating explicitly as well:

1. Individual affordability would be prohibitive, if the schedule is too onerous;
2. Political backlash could be substantial, if the schedule is too rigidly enforced;
3. Crowd-out (whereby ESI shrinks and CommCare becomes the default for employee insurance), if CommCare premiums and the affordability schedule are too low;
4. Budgetary strain, if CommCare premiums are too low;
5. Adverse risk selection, if CommCare is not considered affordable and CommChoice is not deemed affordable for most of the young, healthy uninsured;
6. Mass confusion, if the affordability schedule is too complex for most people to understand;
7. Administrative break-down, if there are too many appeals/waivers to process

Measured against these objectives and risks, the proposal represents a reasonable way to determine generally whether insurance is affordable for most people, while creating a constructive and generous waiver/appeals process to avoid unduly penalizing them.
However, we are walking a tightrope. CommCare enrollee contributions may well encourage some crowd-out. In a tight fiscal situation, we are recommending the addition of $13 million to the $470 million already budgeted for CommCare. The proposal requires an appeals process which must be both lenient and efficient, especially in the early years. We believe this proposal can balance the many pressures on health reform, and so we recommend the changes to CommCare described above, the accompanying affordability schedule, and a robust appeals process as a fair and flexible way to approach universal coverage and to foster health security in Massachusetts.

Click here for spreadsheet on affordability

This program aired on April 11, 2007. The audio for this program is not available.

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