Massachusetts Health Care Reform

1. 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

4. Broad consensus that healthcare reform must be a “system”, not a “product” approach Efficiencies/Cost Containment A Culture of Insurance Eliminate Cost Shifting Subsidies for Low Income Ease of Offer, Ease of Purchase Affordable Products

5. Insurance market reforms: A good start Reformed Market Existing Market Individual/small market merger Dysfunctional individual market More products with HSAs Limited take-up of HSAs Value-driven networks “Any willing provider” 19-26 year-old market Bad value for younger adults Tobacco usage is a rating factor No consequence for lifestyle choices More flexible up to 25 years-old Hard cut-offs for dependent status Two year moratorium Growing list of mandatory benefits Mandatory, larger risk pools Optional, smaller risk pools

6. Insurance reforms will provide better value for consumers Existing Market Reformed Market Primary care Yes Yes Hospitalization Yes Yes Mental Health Yes Yes Prescription Drugs 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

8. Non-offeredIndividuals Non-workingIndividuals SmallBusinesses SoleProprietors The Connector makes it work Insurance Connector MMCOs Blue CrossBlue Shield Tufts NHP Harvard Pilgrim New Entrants Fallon

9. 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

10. “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

11. 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

12. Commonwealth Care: Premium assistance schedule Single PersonIncome MonthlyPremium* % of Income** FPL <100% $9,800 Free NA 150% $14,700 $18 1.8-2.1% 200% $19,600 $40 2.8-3.8% 250% $24,500 $70 3.8-5.4% 300% $29,400 $106 4.7-6.3% *Rates for single individuals ** Range as a percent of mid-point income for individuals and two adults with one child

13. Redeploying existing funding makes the program financially sustainable Ratio of Premium Assistance to “Free Care” – FY06-09 100% Premium Assistance Premium 80 Assistance Premium Assistance 60 Free Care Free Care 40 Free Care 20 Free Care 0 FY06 FY07 FY08 FY09

14. 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

15. 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

16. 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

17. 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

18. 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

19. “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

20. 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

21. 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)

22. 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

23. 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