Small employers begin dropping private health coverage and pay penalty to state
Massachusetts’s health reform program—touted as a model that incorporates many features of the new federal health legislation—continues be generate controversy. Despite its success in expanding the number of state residents who now have health insurance, year-over-year cost increases are exceeding the projections used by the legislature and governor when the bill was passed in 2006.
For pathologists and clinical laboratory managers, the outcome of the Bay State’s effort to introduce a form of universal healthcare coverage bears watching. That’s because many elements of the Obamacare bill passed by Congress earlier this year are similar to the Massachusetts health reform program.
In May, the four largest health insurers in Massachusetts reported first quarter losses that reached a total of $150 million. Three of these insurers drew down reserves. For example, Blue Cross Blue Shield of Massachusetts, which is the largest health insurer in the state, reported a quarterly loss of $65.2 million, along with an operating loss of $95.5 million. It drew down its operating reserve by $55 million to handle those losses, as well as losses anticipated to occur during the second quarter of 2010.
Since early this year, these health insurance companies have battled with the state of Massachusetts over premium hikes for small business (those with 50 or fewer employees). And the state is threatening to scrap the fee-for-service payment plan in favor of a per-capita plan.
Under health reform law passed in 2006, Massachusetts’ employers with 10 or more employees must offer subsidized health insurance or pay a fine of as much as $295 per year per employee. But the bill also combined the individual and small group health insurance market. This resulted in lower premiums for individuals, but higher rates for small groups.
Insurance companies want to raise rates in this market even further, as much as 30%, to cover recent cost increases. The state, however, wants to limit increases to no more than the annual rate of inflation for medical services, currently 3.2%. In April, the state’s insurance commission, acting under the direction of Governor Deval Patrick, rejected 235 of 274 premium rate increase requests for health plans covering small businesses. However, some of these decisions were overturned in May when a state appeals board ruled against the Massachusetts government.
Because Massachusetts is the only state with a health insurance mandate, it is the center of attention for health care policy analysts across the nation. The state’s mandate is similar to the federal law that will take affect in 2014, and results of the Massachusetts reform may foreshadow what happens when the federal law takes affect.
The Boston Globe reported in April that about 1,000 individuals in the state gamed the system in 2009 by briefly getting insurance, running up huge health care bills and then dropping their coverage. According to the Globe, these short-timers waited until they needed expensive care, and ran up bills four times larger than the average for other consumers.
Because the penalty for not having insurance is only $93 per month, about one-fourth the average cost of health insurance premiums, and the waiting period is just three months for pre-existing conditions, some Massachusetts residents are waiting to enroll until they know they will need the coverage.
While the number of people engaging in this behavior is small, insurers say the costs are running into the millions. Because the federal mandate has fines that are similarly small in comparison to insurance premiums, and there is no waiting period, this gaming behavior may occur on a national level.
Another story last month in The Boston Globe reported that health insurance brokers are reporting that many small employers are dropping their private health insurance plans for their employees. Small employers say it is cheaper to pay the state the $295 penalty per employee for not providing health insurance. The Boston Globe provided the example of the Early Learning Child Care Center in New Bedford. It had been paying $30,000 per quarter for a private health insurance plan on behalf of its 13 employees. It dropped its private health plan coverage and now it pays the state a $1,500 fine per quarter.
In another development, a study released in July said that the number of primary care doctors accepting new patients in Massachusetts had declined from 70% in 2007, the first year that the universal health program took effect in the state, to 60% in 2009.
There have been no published figures on the number of physicians leaving the state of Massachusetts. However, Massachusetts state Senator Richard Moore (Democrat from Uxbridge)—who was a major architect of the 2006 health reform plan—is drafting legislation that would make physician participation in government health programs a condition of medical licensure. Joseph Rago, a Senior Editorial Writer at the Wall Street Journal, described Moore’s bill as a law that “would essentially convert all Massachusetts doctors into public employees.”
Currently waiting the signature of Governor Duval is a bill that would require that health insurers spend 88% of their premium revenues on medical care. This standard would be used to evaluate and approve premium rate increase applications. Another element of the bill will allow employers of fewer than 50 employees to form cooperatives for buying health coverage. Also, health insurers would be required to offer health plans with low-cost health care providers in their networks.
What didn’t get passed in this health bill was a Senate provision that would have enacted a special assessment on Massachusetts hospitals to raise $100 million per year. But that provision should be a warning to hospitals in the Bay State. In fact, the lead Senator who negotiated on the compromise bill made a revealing statement. Senator Mark C. Montigny (Democrat from Bristol and Plymouth) declared that “All parties are on notice that we will still be squeezing costs and taking away the free lunch on consumers.”
With each passing year, the tensions and design flaws in the universal health coverage program in Massachusetts will become more visible. Currently, health insurers are the target of government actions to suppress the rate of increases in health premiums. But Dark Daily predicts that it won’t take many more years before the Massachusetts state legislature decides to reduce or restrict fees paid to hospitals and other health care providers. Such ratcheting down of reimbursements could dramatically affect the finances of clinical laboratories as hospitals and physicians look for ways to cut costs.
— K. Branz
Mass. health care bill awaits gov’s signature