Massachusetts Health Care Reform Mandates

1. Massachusetts Taxpayers Foundation Massachusetts Health Care Reform Mandates August 3, 2006

2. New Mandates • Adult residents of Massachusetts must obtain and maintain ‘creditable’ health insurance coverage • Employers with 11 or more employees must offer a Section 125 plan

3. The Individual Mandate • The individual mandate will directly affect approximately 500,000 uninsured in MA • Paths to coverage (in order of priority): • Eligible for Medicaid • Eligible for employer’s plan • Eligible for subsidized coverage; plans will be purchased through the Connector • If ineligible for any other coverage, can purchase directly through the Connector

4. Effectiveness • Only an individual mandate will get us close to universal coverage • The employer-based system provides nearly 80% of all non-elderly insurance in MA at a cost of around $10 billion; however it doesn’t cover everyone: • 30% of the uninsured are unemployed • 25% of the working uninsured declined an employer offer • 25% of the working uninsured weren’t eligible for their employer’s plan

5. Correcting Perverse Incentives • The low income uninsured in MA currently receive free medical care from the state • Employees are turning down subsidized coverage from their employers in order to utilize free services • People voluntarily buy insurance when the benefits outweigh the costs • Reducing the costs of insurance will increase the number of individuals with coverage • Conversely, increases in the cost of health insurance are pricing the healthy out of the market; the fastest growing group of the uninsured are those earning over $50,000

6. The Employer Mandate • The requirement to offer a Section 125 plan will directly affect approximately 60,000 MA employers; 92% of these already provide health coverage • The requirement directly supports the individual mandate by increasing access and affordability • A Section 125 plan can receive a 100% employee contribution, but it allows the employee to buy with pre-tax dollars making insurance more affordable • The Section 125 mandate is not a requirement for employers to contribute to health coverage

7. Effectiveness • The Section 125 requirement will reach those members of the workforce, such as part-time employees, who are often not eligible for an employer-sponsored health plan • The pre-tax benefit can reduce the costs of purchasing insurance by 15-40 percent; if the employer passes on their savings, this can be as much as 37-47 percent of the premium cost • The Section 125 plan will allow health insurance to be portable among small employers, encouraging continuity of coverage

8. Correcting Perverse Incentives • Current underwriting rules that stipulate minimum contributions and minimum participation rates create an ‘all-or-nothing’ situation for employers • A Section 125 plan offers the same tax benefits to an employer providing either health insurance or wages to be used for insurance – this encourages a defined contribution model • Once individuals can access the discounted rates businesses were paying, individuals can choose the product best suited to their needs and are likely to be a better purchaser of their health insurance than their employer

9. Additional Employer Responsibilities • Fair Share Assessment • Free Rider Surcharge and reporting requirement