A New Plan for Covering the Uninsured

The new Massachusetts health insurance plan, signed by Governor Mitt Romney on April 12, is being hailed as a groundbreaking solution to the health-care mess, which has been confounding federal and state legislators throughout the country for years. It's one of the rare times that lawmakers on both sides of the aisle have come together to support a health-care plan -- passing the state's House of Representatives by 154-2 and 37-0 in the state Senate.

The new law aims to reduce the number of uninsured people in Massachusetts (now more than 500,000) by about 90% over the next three years.

Residents earning less than 300% of the poverty level (about $48,000 for a family of three) will receive government subsidies to cover all or part of the cost of insurance. Plus, a new entity, the Commonwealth Care Health Insurance Connector, will enable many individuals to purchase health insurance with pre-tax money -- just like employees can do now -- and is supposed to offer low-cost plans.

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Residents who don't have insurance by July 2007 will have to pay a penalty equaling half the cost of health insurance. The original bill required employers with more than ten full-time workers to pay a $295 penalty per employee if they didn't offer or contribute to their employees' health insurance costs. Governor Romney did veto the employer assessment, but Salvatore DiMasi, speaker of the Massachusetts House of Representatives, expects the House to override the veto early next week, and the Senate may follow suit soon.

Who benefits

The new program will provide plenty of benefits to low-income residents. "This bill at the minimum will result in the expansion of affordable coverage to hundreds of thousands of people in Massachusetts," says John McDonough, executive director of Health Care for All, an alliance of consumers, physicians, hospitals and businesses that has been pushing for health reform in the state for years.

But there's still a lot of work to be done. "We are absolutely not referring to this as universal health care," says McDonough. "We may call it that in three to five years. Whether it's the biggest change, no one knows yet." McDonough is a veteran of the health reform efforts in the state, serving in the Massachusetts legislature for 13 years and as lead legislator in the state's last round of health-care reform laws in 1996.

Middle-income people still may face challenges because Massachusetts has some of the most expensive individual insurance costs in the country. A family of four in Boston currently pay at least $865 per month -- that's more than $10,000 per year -- for a policy with a $2,000 family deductible and 20% coinsurance, according to a recent study by eHealthInsuarnce.com. A family in Des Moines would pay $194 per month for a similar policy, and a family in Baltimore would pay $231.

Individuals in Massachusetts now pay between $350 to $500 per month for coverage, says Julie Jennings, a health insurance broker in Dartmouth, Mass., and president of the Massachusetts Association of Health Underwriters.

Governor Romney and state officials have talked about creating health plans that cost individuals $200 per month, but there's quite a way to go.

"Neither the administration nor any insurer has been willing to come forward with an analysis and details about what these so-called low-cost plans would look like," says McDonough. "We're not holding our breath waiting for these plans to emerge. We expect the final plans will be somewhere between $300 and $400 per month. We'll see."

However, several provisions of the new law should help lower the cost of coverage a bit. Self-employed people, part-time workers and people who work for small companies will be able to buy coverage with pre-tax dollars through the Commonwealth Health Insurance Connector (like people with employee coverage can do now), which could effectively reduce the price by 25% for people who don't currently get those tax benefits.

The law also lets insurers create special products for 19- to 26-year-olds who have smaller networks and aren't subject to all of the same rules as other plans -- enabling them to lower their costs. It also lets children stay on their parents' plans until age 25 or until they lose their dependent status, whichever comes first.

Lowering costs

One of the big reasons why Massachusetts health insurance costs are so high is because the state requires insurers to cover everybody, regardless of their health. And insurers can't charge more because of your health, either. They can adjust your rates based only on your age and location.

Only a handful of other states -- like New York and New Jersey -- have these guaranteed issue and community rating laws, and they're all among the most expensive places in the country to buy health insurance. It's a great deal if you're unhealthy because you can't be rejected. But if you are healthy, you could pay a lot less for your insurance in another state.

Because of the high cost of insurance Massachusetts, quite a few healthy people decide not to buy health insurance at all because they know they can get coverage when they do get sick. "We've created a young population who sees no value in insurance," says Julie Jennings. "They figure with guaranteed issue that they can just wait until they get sick or pregnant and get insurance during open enrollment."

Massachusetts also spends more than $1 billion per year on its uncompensated care pool, which reimburses hospitals for providing care to people without insurance.

Because of these rules, insurers have been losing some of the best people in their risk pool. The entire concept of insurance is the pooling of risk -- the healthy people's premiums help subsidize the cost for unhealthy people. Guaranteed issue laws work for employer coverage because every employee has insurance, regardless of whether they're healthy.

But it's different in the individual marketplace. When only unhealthy people buy insurance, the premiums rise for everyone. The new law's penalties for people who don't sign up for insurance aim to get more healthy people in the risk pool, and the state plans to shift the money from the free care pool to provide the low-income insurance subsidies.

That's the theory anyway, and it will be interesting to see what the products actually end up looking like. "There are a lot of moving parts here, and a lot of interest in the insurers in figuring this out," McDonough says.

The plan will be a total success only if the insurers and lawmakers can come up with a way to make insurance more affordable for everybody. "We need to continue to work on the legislation to bring about affordability," says Jennings. "It's a good first step, but we have a long way to go."

For advice on shopping for individual health insurance in other states, see In Search of Health Coverage. And for help finding affordable coverage for new college graduates, see Health Insurance for College Grads.

Tell us about your health insurance struggles or strategies for finding affordable coverage in your state.