Health Insurance Regulation

Health Care Reform in Massachusetts

With healthcare reform having passed, how will the health insurance market look a few years from now?  Although Mitt Romney may (or may not) deny it, Massachusetts has been a model for President Obama’s health reform bill.  In 2006, Massachusetts passed its own health reform and when the share of uninsured residents was at 14%.  By 2008, this figure had fallen to 2.6%.  Let us now take a look at the specific reforms Massachusetts implement to increase coverage.

Based on the research of Doonan and Tull (2010), one can divide the Massachusetts expansion efforts into five broad categories.

  • Medicaid Expansion. Massachusetts expanded Medicaid eligibility to all children below 300% of the federal poverty line (FPL) and all adults below 150% of the FPL.
  • New subsidized health insurance exchange.  Commonwealth Care is a program that provides aces to health insurance for individuals with incomes between 150% -300% FPL.  The government subsidizes these plans depending on the individual’s income.  The state moved individuals who were previously in the stat’s uncompensated care pool (UCP) to Commonwealth Care by restructuring the UCP so that copays, deductibles, and premiums were similar to those offered in Commonwealth Care.
  • Insurance Exchange for Individuals and Small Businesses.  Commonwealth Choice is a program that provides a number of unsubsidized insurance plans to individuals and small businesses (with 50 or fewer employees).
  • Mandates.  The Massachusetts legislature enacted an employer mandate and an individual mandate.  The employer mandate stats that employers with more than 50 people who do not provide insurance must pay a “fair share” assessment of $295/employee/year.  The state also mandates that all residents purchase insurance through an individual mandate.  Each year, each Massachusetts resident must submit a Schedule HC to the Massachusetts Department of Revenue to verify that they do indeed have Connector-approved insurance.  After a 90 day grace period, individuals are penalized each month that they are not insurance in the previous tax year.  The penalty for not having health insurance in Massachusetts is generally much larger than what Congress is currently considering.
  • Insurance Regulation.  The Commonwealth Health Insurance Connector Authority (the Connector) created minimum standards for any insurance product to be offered in the state.  Thus, individuals could not bypass the individual mandate by taking out a very inexpensive health insurance product with a $50,000 deductible.  The Connector Board recommended that the minimum credible coverage (MCC) include preventive and primary care, emergency services, hospitalization benefits, ambulatory patient services, mental health services, and prescription drug coverage.  Doonan and Tull (2010) claim that the mandated benefits were fairly generous, but not out line with what private insurance companies previously had offered.  Because there is more heterogeneity in insurance products across the country than within Massachusetts, Congress would have a much more difficult time determining a valid coverage minimum that did Massachusetts.

Through these measures, the number of uninsured individuals in Massachusetts has fallen.  This chart shows where the newly enrolled residents received coverage.  Previously Medicaid-eligible individuals who now have decided to sign up drives the 99,000 person increase in Medicaid enrollment. Employer coverage also rises by 83,000, mostly from workers who had previously had not taken-up employer health insurance offers.  Of the total increase, only about 12% on newly insured individuals came from resident who purchased insurance in the newly formed Commonwealth Choice nongroup market.

Although many of the Massachusetts mandates may decrease resident choice, Doonan and Tull also explain how health reform regulations have increased health insurance options for many employees.

Massachusetts reform also requires businesses with more than ten employees to establish Section 125 cafeteria plans. (Section 125 plans allow employees to choose, over wages, a range of benefits that do not count as taxable income.) Following this change, even if one’s employer does not offer health insurance, an employee can have insurance premiums deducted from his or her wages on a pretax basis, thereby avoiding federal and state payroll taxes.

An interesting aspect of the state’s reform is that Massachusetts merges the small business (less than 50 employee) and nongroup insurance markets.  “Health insurance in Massachusetts has actually become considerably less expensive in the nongroup or individual market and more expensive in the small-group market.”  Nongroup premiums fell from by 40% over this time period even though similar plans rose 14% nationally.

Additionally, Massachusetts now offers a young adult plan (YAP).  This is a less expensive, less comprehensive insurance product for individuals 19-26 years old.

One difference between the Massachusetts health reform and the federal one is the treatment of pre-existing conditions.  According to Reihan Salam, in Massachusetts, “pre-existing condition exclusion periods can last up to 6 months.”  In the federal case, there is no exclusionary period and thus the incentive to purchase insurance (and thus avoid a waiting period if one does get sick) is much stronger in Massachusetts.  The Incidental Economist has more on this issue.  Additionally, Massachusetts has guaranteed issue and modified community rating.  The modified community ratings means that premiums can only vary by age and geography and the state legislature even regulated the maximum premium ratio.


  1. What are average premiums in the Commonwealth? The lack of cross-state competition limits choices in many places.

    You note that small-group insurance is currently subsidizing individual premiums. Why? Bleed the “rich” to benefit the poor? This strategy can only go so far.

    This State was the first to offer no-fault automobile insurance the the rates skyrocketed due to a lack of alternative. In other words, you HAD to buy auto insurance so the insurance companies were under no pressure to control premiums. What effect has mandatory insurance had on Health insurance Premiums or is it too early to tell as insurers shift costs from one area to another to appear more cost effective?

  2. Of the formerly uninsured, who purchase insurance on the exchange, what percentage stay insured for the full year? Do they become insured only for the portion of the year that they seek benefits? If so, what is that portion of the year?

  3. Clearly, the Massachusetts plan has contributed to the making of the national health reform bill. The biggest factor in instituting such a plan with any hope of success is the individual mandate because without it, there is no way to maintain even moderately stable costs to plan members. A lack of stable costs then limits the percentage of people covered and contributes to an increasing lack of affordability to an ever-increasing percentage of the population.

  4. If you want to go by the results in Massachusetts as a precursor to US results come 2015-2018, the early returns are beginning to come in:

    1. The self-employed are not only rapildy becoming priced out of the market, even though they form a “small group,” for a short time in April 2010 they could not buy insurance at all
    2. The Boston Globe reports some gaming of the individual mandate (to answer one of the questions above) where some people buy insurance for a short time, simply to get a procedure done and then drop it again
    3. Participation peaked in 2008 and may be headed down because of the price issues (the 2006 14% to 2008 2.6% improvement in uninsured numbers cited at the beginning of this article is most likely a false comparison based on data from the Massachusetts Department of Healthcare Finance and Policy provided to the author of this blog)
    4. The governor is attempting to freeze insurance prices but the issue is in litigation and he will almost certainly lose the case
    5. The mandated policies offer all kinds of bells and whistles; I don’t think hair transplants are permitted but just about everything else a healthcare delivery lobbyist could think of
    6. In addition to healthcare insurance costs rising, actual health care costs continue out of sight (but no one in Massachusetts ever said it was reforming its insurance system to lower health care delivery costs)
    7. There are increasing reports of long waits and doctor shortages although these are only stories at this point; there are no statistics

  5. MA health care reform has been a disaster for my family. My wife and I are fined about $2400 each year by the state of Massachusetts for not buying health insurance. I’m almost 60, been layoff, and jobs are hard to find. We live basically off our savings and investments and always paid our own medical costs; but, since receiving the fines our family budget is now out of balance, I‘ve had to reduced my insulin shots to save money; this will eventually lead to organ failure. The state is literally killing me with there fine. I’m being fined for being responsible and paying my own medical bills. If the fines continue and get bigger we plan on moving out of the state when I retire to save money; my pension will follow me and the state will loose out on our income tax revenue. Being fined for living? Being fined for not buying a financial product? We can afford a catastrophic plan that’s about 60% of the cost of a full plan, but we’ll still be fined by the state for not meeting there requirements.

  6. The law, states that Massachusetts employers who have 11 or more employees, must provide health care for their employees. Your statement, that this law only affects employers with 50 or more employees, is incorrect.

    It was interesting that your statement about the small group employers cost going up, included a national average. When in fact it should have only included the rise in health care for Mass businesses. The true increase last year for Mass businesses in 2010 for groups who were 50 or less employees was about 25%.I know this because I am an independent broker who represent 500 small businesses in Mass. This huge increase caused the State to jump in and try to lower cost. they were able to get an 11% increase after much debate. I am an insurance broker and have been seeing that % increase every month towards 20%.

    I believe that the number of people who are being subsidized by the state partially or fully is a significant #. The state can not afford this bill and has been recieving funding from the federal Goverment. A family of 4 who makes 75k can recieve help from the state paying thier health insurance premiums. That includes a large # of families.

    The truth is that Obam and Massachusetts laws, have created significant and very important health insurance reform. The other truth is, that this reform is expensive and will and has increased the cost of medical insurance. For Example, Massachusetts has the most expensive health insurance premiums in the country. I personally pay $15,000.00 a year to cover my family.

    The country and it’s leaders need to implement torte reform, which will put a cap on how much money a doctor or hospital can be sued for.

    We also need to decrease the cost of prescription drugs.

    We also need to become a healthier nation. Our unhealthy lifestyles is a major threat to America and it’s finacial wealth.

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