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May 7, 2013

Patrick Bill To Comply With ACA Adds Wrinkle To Health Care Reform

While other state legislatures have struggled with decisions about whether to accept a federal expansion of Medicaid and how to set up exchanges for the purchasing of health care, Massachusetts lawmakers have largely sat back and watched.

Much of the heavy lifting to implement the national Affordable Care Act (ACA) by 2014 had already been done as part of the 2006 reform law in Massachusetts that served as a model for President Obama’s federal reform. Until now.

Gov. Deval Patrick last Friday quietly placed before the Legislature a 21-page bill designed to bring Massachusetts into compliance with new federal regulations under the ACA that will further expand subsidized health coverage in Massachusetts and require major changes in the health insurance industry that some business groups say will drive the premium costs for small businesses in direct conflict with state efforts to get costs under control.

The House on Monday referred the governor’s legislation to the Ways and Means Committee for review.

“This legislation will allow Massachusetts to realize the full benefits of the Affordable Care Act, including expanded federal funding to support coverage for low and middle-income families and federal insurance reforms that will secure additional protections for Massachusetts residents,” Patrick wrote in his filing letter to the House and Senate.

One of the more significant aspects of the bill is a three-year transition in the individual and small group market away from rating factors currently used by insurers to determine premiums for subscribers. State law currently permits the use of nine rating factors, but the ACA allows only four: age, family size, geographic area and tobacco use.

The Patrick administration sought a full waiver from the new federal rules, but instead Massachusetts became the only state granted a phase-in period over three years to transition to the new rating system to avoid “sticker shock” and smooth the impact of premium increases.

Five unique factors — industry, participation rate, group size, intermediary discount and group purchasing cooperatives — will be phased out simultaneously by the end of 2016, counting for progressively less of the overall rates.

Still, for many business leaders the transition period doesn’t do enough to limit the premium hit on employers.

“A significant portion of the small business market place will see increasing premiums over the next three years,” said Josh Archambault, health care policy director at the Pioneer Institute, adding that the three-year transition will “smooth the spike.”

While the largest small businesses under 100 employees stand to see the biggest premium increases as a result of the rating factor changes, the smallest companies and individuals could actually see a decrease, according to Associated Industries of Massachusetts.

A Patrick administration health care official described the changes as having a “redistributive effect.”

AIM says redefining the small-group market to include businesses with up to 100 employees, instead of 50, and changes to rating factors could lower premiums for the smallest companies, but cause double digit increases of up to 17 percent for some medium and larger small businesses.

The Pioneer Institute and AIM have also been critical of the Division of Insurance for not being more transparent with the analyses done for the agency to assess the potential impact.

In a December letter to the Centers for Medicare and Medicaid Services, administration officials warned that the proposed reduction in rating factors could result in “extreme premium increases” for a significant number of small group members. The letter was signed by Insurance Commissioner Joseph Murphy and Glen Shor, the governor’s secretary of administration and finance who led the state Health Connector at the time.

The bill filed by Patrick also reflects another concession state health officials were able to negotiate from their federal counterparts allowing insurers to file small group health insurance rates on a quarterly basis, rather than once a year as required under the ACA for individuals.

The quarterly filings will be permitted through 2016, and allow the small group market to adjust throughout the year based on market trends and utilization.

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