Health insurance: It's the law. Now what?
The changes to the state’s health system under the sweeping Health Care Reform Act, passed this summer, haven’t been felt yet by many of the state’s employers, but they will be, predict benefits managers, insurers, and health-care industry professionals.
Massachusetts has implemented the first stages of the Health Care Reform Act, a widely-watched, first-of-its-kind health-care measure designed to provide every Bay State resident with health insurance, in some form. If they don’t receive it from their employers, they themselves will be required to buy it. As of this past October 1, the law imposes fines for employers who don’t offer insurance and, as of next July 1, it will penalize individuals who do not elect to purchase it.
The new law makes Mike Tsotsis’ life interesting. He’s president and founder of Worcester-based Benefit Development Group, a benefits management firm and broker. Most of BDG’s employer clients already provide far above the state-mandated minimum of health-care coverage for their employees, paying on average 70 to 75 percent of the average premium and covering more than 50 percent of eligible employees. They’re either the larger companies, or smaller businesses that feel they must offer health insurance to stay industry-competitive. They’re already in compliance with the law, Tsotsis says, and he doesn’t expect them to lower the level of their coverage just because the state, which set a 33 percent floor for employer contributions to health care premiums and 25 percent employee participation, says, in effect, that they can.
What Tsotsis and others are watching closely is the effect on smaller companies as a result of the combination of the small-group and individual insurance markets, set to occur Jan. 1, 2007. Individuals, whose premiums are more expensive than the premiums of small groups, will be buying the same product. Any adverse impact on pricing as a result of the combination will affect businesses in the small-group category. Whether it will be positive or negative, no one knows for sure, Tsotsis says.
Trying to keep the playing field level
"We’re afraid that if some of the small group products keep increasing in price because of [the combination of individual and small-group markets], you may be insuring the uninsured, but you may be uninsuring the insured," Tsotsis says.
Beth Helenius, senior director, business products of Worcester-based Fallon Community Health Plan Inc., which had about 156,000 members as of second quarter 2006, says the Worcester-based HMO is working hard to ensure that the programs it makes available on July 1, 2007 will not increase the costs to small business as a result of the merger of the two markets. Currently, she says, a special commission is evaluating the collaboration of all Mass. insurers, to minimize any potential increases to small-business premiums.
Insurers will be bidding on the combined market effective this January. "We are taking this very, very seriously," Helenius says.
Individuals and businesses, she says, will need to start paying more attention to which insurance packages align with their interests. She sees a move toward premium reduction by the purchase of high-deductible plans supplemented by an offsetting measure, to which they would add a supplemental savings plan.
Health Savings Accounts, which have been growing in acceptance across the country, are one such product (see related feature, page 22). But because Massachusetts is still an HMO-rich state, their acceptance has lagged here, says Tsotsis. He cites an instance in which his company worked for two years to put such a plan in place to cover 4,000 eligible people, but only 100 signed up for it.
Kira Coopersmith isn’t totally convinced of the appeal and usability of Health Savings Accounts. She’s president of Benefits Management Group, a Taunton-based benefits company that markets in Massachusetts and other states. Health Savings Accounts "[are] coming more rapidly than we ever suspected," she says, citing HMOs doing business in Massachusetts, such as Tufts, United Healthcare and Blue Cross Blue Shield of Mass., which have built high-deductible options into their plans.
Sovereign Bank is taking a proactive role in getting into the Health Savings Account business. John Merrill, market president, commercial banking for Sovereign Massachusetts, cites a Congressional analysis that predicts 40 million Health Savings Accounts will be established over the next decade, worth about $75 billion in assets. The accounts are not meant to be investment vehicles, he says, but rather to be revolving funds which need periodic replenishment.
The pretax aspect of health-care coverage will take some getting used to, says Coopersmith. She thinks the new state law is a positive step in lowering the pool of adverse selection, in which only the people most likely to have high-cost medical needs sign up for health care coverage. "Getting and remaining healthy is now going to be a very big aspect of the overall cost of insurance," she says. The catch: you need a five- to 10-year plan in place to measure results.
Pay the fine or buy insurance?
The new state law isn’t one-size-fits-all universal health insurance. It will take many forms, in a wide array of insurance products supposedly tailored to people’s means. Many of them haven’t been created yet, but they’ve got to be ready by next July 1, when mandatory individual health coverage becomes the law in Massachusetts.
Gary Goodhile of the Sullivan Group says that the state’s insurance carriers generally want much higher levels of participation in insurance plans than the state minimum of 33 percent. At this point, participation levels are indeed much higher, with most employers paying between 70 and 80 percent of premium costs for their workers, and with participation at most firms well over 50 percent.
He concurs that the issue is all about individual and small-group coverage. With the new law taking effect for companies with 11 or more employees, that’s a whole lot of companies that must now either pay a $295 annual assessment per uninsured workers - and pay for their employees’ use of free care - or must offer health insurance or access to it through a 125 plan in which employees can purchase insurance with pretax dollars.
The new law will be a burden to small employers, Goodhile says, but he questions whether the fines for noncompliance are high enough to incentivize them to contribute more to insuring their employees. For example, if the monthly premium for an "affordable" individual plan is $350-$400 and the employer pays 33 percent of that, it works out to about $1,400 to $1,600 a year, a significant difference from the per-head penalty. Also, Goodhile notes, an employee who passes up insurance may not feel the penalty of the loss of the individual state tax deduction because it’s less costly than buying insurance.
"It all depends on disposable income, and affordable is in the eye of the beholder," says Paul Wingle, spokesman for the Massachusetts Hospital Association. He worries that younger and healthier people may opt out of insurance, narrowing the risk pool. By 2008, individuals could be charged as much as half of a full insurance premium for what’s defined as an affordable product in their price and income range. "People will really have to ask themselves if they’re at an economic tipping point, whether it’s really worth it to stay out of the system or not," he says.
Additionally, the state’s hospitals have plenty of questions about what will happen to the state’s bad-debt pool under the new law. But for now, Wingle and others say, the health-care system is willing to work with the new law as it progresses. He points out that, relative to other states, Massachusetts’ uninsured population is relatively small, which says positive things about the state. "Everybody has their idea of what perfect reform could be, but we can’t let perfect become the enemy of good," he says, noting that while hospitals didn’t get everything they wanted under the new law, neither did employers. "We all have a little skin in the game," he says.
Christina P. O’Neill can be reached at coneill@wjbournal.com
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