RETHINKING PRESCRIPTION DRUG MANDATE by Richard C. Lord

I recently received phone calls from a few small employers who are members of Associated Industries of Massachusetts (AIM) expressing strong concern about the new “minimum creditable coverage” (MCC) standards which will become effective on January 1, 2009. The provision which is generating the concern is the requirement that insurance must cover prescription drugs in order to fulfill the MCC mandate. Individuals with insurance coverage which does not include prescription drugs presumably will not satisfy the requirements of the individual mandate and will therefore be subject to a penalty as high as $912 in 2008.

Although the new MCC standards are effective on January 1, 2009, in reality, insurance policies are generally in effect for one year, so those renewing on or after February 1st will need to meet the new standards. A recent report released by the Massachusetts Taxpayers Foundation revealed that approximately 163,000 insured individuals do not have prescription drug coverage, 30,000 of whom have non-group coverage and 133,000 of whom have employer-sponsored coverage. These individuals and employers are going to facing very steep premium increases as they renew their coverage in the next 12 months. Not only will they face the 8%-12% “inflationary” increases that most small employers are facing this year, but also their premiums will increase another 15%-20% to reflect the additional cost of a drug benefit.

Although I have to confess that as a board member of the Connector I supported the MCC compromise last March that included prescription drugs, I am now having second thoughts about the wisdom of implementing this requirement as this time.

We are still in the very early phases of putting into place some key requirements of our new health care reform law, such as the enforcement of the individual mandate. It is too early to know what the public reaction will be as penalties begin to be assessed on people who failed to obtain health insurance coverage in 2007. We also have not made any meaningful progress regarding in addressing the double digit increases in health insurance costs which we have experienced for almost the past 10 consecutive years. Finally, it must be pointed out that about 1/3 of individuals who have purchased health insurance in the last eight months through the non-subsidized Commonwealth Choice program have been choosing products without drug coverage. Many of them are probably buying insurance for the first time, and now will be required to buy much more expensive insurance if the MCC standards remain unchanged.

As I listened to the employers who called me on this, I appreciated the huge challenges they face just to remain in business in Massachusetts – rising energy costs, a sluggish economy, intense competition from overseas, and now health insurance increases that could exceed 25%. No other state in the nation requires that health insurance must include a prescription drug benefit. I am increasingly persuaded that we should, at the very least, reconsider the timing of this mandate until we are much further along in terms of implementing health care reform and have made some progress in addressing the spiraling cost of health insurance.

Richard C. Lord
President and CEO
Associated Industries of Massachusetts