Topic:
HEALTH INSURANCE;
Location:
INSURANCE - HEALTH;

OLR Research Report


May 7, 2008

 

2008-R-0277

MASSACHUSETTS UNIVERSAL HEALTHCARE FUNDING

By: Gerald Barrett, Legislative Fellow

Janet L. Kaminski Leduc, Senior Legislative Attorney

You asked for information on the problems facing the Massachusetts Healthcare Plan.

SUMMARY

In April 2006, the Massachusetts legislature passed universal health insurance legislation aimed at ensuring that all Massachusetts residents have health insurance coverage. The law (1) penalizes those who do not have such coverage and (2) imposes a surcharge on employers who do not offer health insurance to their employees. The law also created the Commonwealth Care Health Insurance Program (CCHIP), which offers subsidized insurance coverage for those who cannot afford coverage.

According to media reports, CCHIP will cost the state at least $100 million more in FY 09 than the $869 million that Governor Deval Patrick proposed in his budget. The shortfall is primarily due to more people enrolling in the subsidized plan than originally anticipated, as well as rising healthcare costs in the state. As of March 2008, there were approximately 176,000 people enrolled in the plan. By June 2009, Massachusetts expects enrollment to increase to 225,000.

Massachusetts lawmakers are seeking new ways to address the higher-than-expected program costs. These include increasing (1) cigarette taxes, (2) premium rates, and (3) patient co-payments for medical services. We have enclosed numerous media reports on the funding issues discussed here.

COMMONWEALTH HEALTHCARE INSURANCE PROGRAM

In 2006, Massachusetts passed universal health insurance legislation aimed at ensuring that every Massachusetts resident has health coverage. The legislation is comprehensive, including elements requiring all residents to have coverage; imposing a surcharge on employers who do not offer coverage; expanding the existing public health insurance safety net, including MassHealth (Medicaid and State Children's Health Insurance Program), while shifting resources from uncompensated care; and providing incentives for those residents who exhibit healthy behaviors (Mass Gen. Laws Ann. Ch. 118H, 2 et seq.).

The law created the Commonwealth Insurance Connector and required the Connector's board to administer the health insurance program. Under the law, CCHIP offers subsidized insurance coverage from health plans the Connector procures. Individuals pay premiums based on a sliding scale. The law requires that enrollment in the program be capped if the projected costs exceed what is available in a Commonwealth Care Trust Fund, which the law created (Mass. Gen. Laws Ann. Ch. 176Q 1 et seq.)

For details about the Massachusetts universal healthcare legislation, including Commonwealth Care, see OLR Report 2006-R-0285 (attached).

INCREASING COSTS OF THE HEALTHCARE INSURANCE PROGRAM

As of March 2008, the program enrolled more people at a faster rate than anticipated, so the state incurred higher costs than expected early in the program. Currently, there are approximately 176,000 people enrolled in the state-subsidized plan. Various media sources estimate that that it will cost the state at least $100 million more than the $869 million that Governor Deval Patrick proposed in his FY 09 budget to cover these and additional anticipated enrollees.

RESPONSES TO INCREASING PROGRAM COST

To offset the budgetary shortfalls, lawmakers are proposing increasing (1) cigarette taxes, (2) premium rates, and (3) patient co-payments for medical services. Others are also calling for increased penalties.

Cigarette Taxes

Massachusetts lawmakers are considering raising cigarette taxes by as much as $1 per pack. In April, Massachusetts House Speaker Salvatore F. DiMasi pushed to raise the tax by $2.51. The tax increase is

expected to generate between $152 and $175 million per year (Stack, Kevin, “States Look to Tobacco Tax for Budget Holes” N.Y. Times, April 21, 2008).

Premium Rates

Beginning July 1, 2008, Massachusetts will increase insurance premiums by 10% to help offset the increased costs incurred by the subsidized program. The lowest premiums will range from $39 to $116 per month. Individuals with an annual income of less than $15,000 do not pay any premiums (S.B. 2650, 185th Gen. Assem., Reg. Sess. (Mass. 2008)).

Patient Copayments

Beginning July, 1, 2008, the copayments for members of Commonwealth Care who visit a primary-care physician will increase by $5, $10, or $15 dollars. Copayments for drugs will also increase. Additionally, out-of-pocket expenses will be capped between $750 and $1,500 for all medical expenses, depending on an individual's income. A separate cap will be placed on prescription drugs (S.B. 2650, 185th Gen. Assem., Reg. Sess. (Mass. 2008)), (Dembner, Alice. “State Health Plan Underfunded” Boston Globe, March 21, 2008).

Penalties

For tax year 2007, the law penalizes individuals who do not enroll in coverage through a $219 tax deduction loss. The penalty increases for 2008 to an amount equal to 50% of the lowest premium the person would have paid for coverage. The penalty is paid from any tax refund due, or if this is insufficient, through additional tax payments.

The law also imposes a “fare share” surcharge on employers not offering employees health insurance at a cost of $295 per employee. About 500 companies out of tens of thousands covered by the law paid the surcharge in 2007. While state officials and business leaders reported that the small number reflects compliance with the law, healthcare advocates believe it is due to the state not enforcing the surcharge in many circumstances.

The state will collect about $6 million in employee surcharge instead of the $24 million budgeted based on a survey of employers done in 2005. By law, businesses with at least 11 full-time equivalent employees are subject to the surcharge unless 25% of their employees buy company-sponsored insurance or the employers contribute at least one-third of employees' premiums for individual insurance.

Healthcare advocates believe the law's employer surcharge is too low and premium contribution requirement is too weak, resulting in taxpayers carrying a larger-than-expected burden (Dembner, Alice. “Most Firms Comply with Health Law” Boston Globe, November 22, 2007 and “State Health Plan Underfunded” Boston Globe, March 21, 2008).

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