Massachusetts Enacts Landmark Health Care Reform Bill:
An Overview of H. 4850,
“An Act Providing Access to Affordable, Quality, Accountable Health Care”

On Wednesday, April 12, Massachusetts Governor Mitt Romney signed into law a sweeping health care reform bill (House Bill H. 4850, as reported out by the Conference Committee) entitled, “An Act Providing Access to Affordable, Quality, Accountable Health Care” (the “Act”). The Act’s stated purpose is to “more effectively cover currently uninsured low-income populations, and . . . make quality health coverage more affordable for all residents of the Commonwealth.”¹ It includes a mandate under which residents of the Commonwealth are generally required to obtain health insurance, and employers who do not offer health insurance to employees are subject to an assessment.² There are also a host of provisions aimed at assuring access to coverage through premium support programs and providing so-called “safety net” care. The Act is structured to assure the availability of $385 million in federal matching funds under the most recently approved version of the Massachusetts’ Medicaid waiver. It also makes important changes to the Commonwealth’s Medicaid program by expanding benefits, especially to children, and by enhancing acute hospital and physician provider reimbursement.

Set out below is a summary of the principal features of the Act.

Individual and Employer Mandates

The Individual Mandate

Perhaps the Act’s most novel and controversial provisions relate to what the Conference Committee calls the “individual mandate”. The individual mandate requires that, beginning July 1, 2007, all residents of the Commonwealth obtain and maintain a minimum level of health insurance coverage—referred to as “creditable coverage”—based on a premium schedule published each December 1 that will allow for variations for age and rate. (The requirement has been likened to the requirement imposed on motorists to obtain automobile insurance.) Residents will be required to confirm that they have health insurance coverage on their state income tax forms filed in 2008, and coverage will be verified through a database of insurance coverage for all individuals.

The Act’s individual mandate provisions will be enforced by the Department of Revenue. Individuals who fail to comply with the individual mandate in 2007 (and do not otherwise qualify under an exception) are faced with the loss of their personal exemption. For 2008 and beyond, failure to comply results in the imposition of a penalty of up to 50% of the monthly “minimum insurance premium for creditable coverage” for each month without coverage. The penalty is first satisfied by forfeiture of any available tax refunds (subject to higher statutory priority claims on use of refunds), and, if that is insufficient, a direct assessment on the affected individual for the balance.

An individual need not obtain coverage in accordance with the individual mandate where his or her refusal to obtain coverage is based on:

1. religious beliefs,
2. a hardship (based on criteria established by regulation), or
3. a determination that no affordable coverage is available.

Toward this end, the Act establishes a sliding “affordability scale.” In addition, individuals will have appeal rights to dispute a determination that the mandate applies or that he or she can access affordable coverage.

The Employer Mandate and the “Fair Share Contribution”

The Act imposes on employers with 11 or more full time employees (FTEs) who are not “contributing employers” an obligation to make an annual “fair share employer contribution,” which is capped at $295 for each FTE. (The requirement is pro-rated for employers with seasonal or part-time employees.) A “contributing employer” is an employer that offers a group health plan to which it makes a “fair and reasonable premium contribution,” as defined by regulations issued by the Commonwealth’s Division of Health Care Finance and Policy (DHCFP). The amount of the fair share contribution is established based on a portion of the cost paid by the state for free care used by workers whose employers do not provide insurance. Under current law, a portion of the payments made by employers who provide health coverage goes towards free care costs, and this obligation will continue under the new law at the current level (a total of $160 million per year). The purpose of the fair share contribution is to level the playing field between employers who offer group coverage and those that do not.

There is also a separate surcharge—referred to as the “free rider surcharge” — which is imposed on employers who do not provide health insurance and whose employees access the Commonwealth’s uncompensated care pool. The Act refers to these employers as “non-providing employers.” A “non-providing employer” does not include an employer that:

1. contributes to or arranges for the purchase of health insurance and is a signatory to bona fide collective bargaining agreement,
2. participates in the current so-called Insurance Partnership which provides for Commonwealth contributions toward premium payments for employed qualifying individuals, or
3. employs fewer than 10 individuals (it is not clear if this means 10 FTEs).

The free rider surcharge is triggered when an employee receives free care more than three times a year, or a company has five or more instances of employees receiving free care in a year. The surcharge ranges from 10% to 100% of the state’s costs of services provided to the employees, with the first $50,000 per employer exempted.

Internal Revenue Code Section §125 Cafeteria Plan Mandate

Internal Revenue Code Section §125 permits employees to make pre-tax contributions under employer-sponsored group health plans. These plans are referred to as “cafeteria” plans. While often misunderstood and underappreciated, cafeteria plans allow employees to make contributions toward the costs of employer-provided coverage with pre-tax dollars.

Under the Act, employers with more than 10 employees are required to offer cafeteria plan coverage to their employees. The employer will also need to provide access to group health coverage either under its own group health plan or through the health insurance connector (described below). Coverage may be entirely employee paid, but, unless the employer contributes at least a minimum amount established by DHCFP, the employer will be required to pay its “fair share” contribution (as discussed above.)

The Health Insurance Connector

The Act establishes an entity that it refers to as the “Commonwealth Health Insurance Connector” (or the “Connector”), the purpose of which is to connect individuals and small businesses with health insurance products. The Connector will issue a “Good Housekeeping Seal of Approval” through which it certifies that group health insurance products meet certain pre-established criteria. Individuals can also purchase coverage directly from the Connector.

Policies purchased through the Connector will include mental health coverage and other state-mandated benefits. Employer-sponsored group health plans that offer coverage through the Connector can choose to contract only with certain providers so long as their products are Connector-approved. Regulations will establish deductibles and co-pays (other than those sold in connection with health savings accounts (HSAs), which will have the deductibles established by law).

Individuals who are employed by businesses with 50 or fewer employees may also may purchase health insurance through the Connector on a pre-tax basis under a cafeteria plan that the employer is required to make available. The Connector, which is under the jurisdiction of the Commonwealth’s Department of Administration and Finance, will be overseen by a separate board of private and public representatives.

Insurance Market Reforms

The Act merges the non-group insurance and the small-group insurance markets, and it enables health maintenance organizations to offer coverage plans that are linked to HSAs. Children are permitted to stay on their parents’ insurance plans for two years past the earlier of the loss of their dependent status, or until they turn 25, and 19-26 year-olds will be eligible for new, lower-cost, specially designed products offered through the Connector. Finally, the Act also imposes a moratorium on the creation of new health insurance mandated benefits through 2008.

Health Insurance Subsidies

The Act creates a subsidized insurance program called the Commonwealth Care Health Insurance Program (Commonwealth Care). To be eligible to enroll in Commonwealth Care, individuals must satisfy the following criteria:

1. They must be residents of the Commonwealth;
2. Their income must not exceed 300% of the Federal Poverty Level (FPL);
3. They must not be eligible for Medicare, Medicaid or a State Child Health Insurance Program (SCHIP);
4. They must not have accepted employer financial incentives to decline employer insurance; and
5. Their employers may not have provided insurance coverage in the previous six months for which they were eligible and for which their employers met certain contribution thresholds. (This criterion may be waived under appropriate circumstances.)

Premiums for Commonwealth Care will be set on a sliding scale based on household income, and no plans offered through this program will have deductibles. The program will be operated through the Connector, which will retain any employer contribution to an employee’s health insurance premium.

The Act includes special provisions for eligible individuals with income up to 100% of FPL. Plans covering these individuals will include inpatient and outpatient services, preventive care, prescription drugs (through the MassHealth formulary established for the Medicaid program), medically necessary inpatient and outpatient mental health/substance abuse services, and medically necessary dental services. No premium, deductible or other cost sharing will apply to these plans. Enrollees will be responsible only for co-payments for prescription drug and for non-emergency use of emergency rooms at levels equivalent to those established for MassHealth participants. Co-payments may be waived, however, in the case of substantial financial or medical hardship.

The Act also expands eligibility for employee participation in the current Commonwealth-subsidized Insurance Partnership program from the current limit of 200% of FPL to 300% FPL.

Medicaid

The Medicaid Waiver

In order to comply with changing requirements of Federal law, the Act shifts federal Medicaid reimbursement dollars from the support of individual hospitals to the funding of health insurance coverage for uninsured individuals. This provision was required under the terms of a waiver previously granted to the Commonwealth by the federal Centers for Medicare & Medicaid Services (CMS). The Act also expands Medicaid coverage under a series of community-based outreach programs to locate people who are eligible for Medicaid but not yet enrolled, and by expanding eligibility for children. Currently, children in families who earn up to 200% of the FPL are eligible for MassHealth. The Act increases eligibility to children in families earning up to 300% FPL and restores all MassHealth benefits that were cut back in 2002. There is also 2-year pilot program for smoking cessation treatment for MassHealth enrollees. In addition, the Act expands enrollment caps for certain categories of MassHealth eligibles, such as for persons with HIV.

The Act sets aside $90m in fiscal year 2007, $180m in fiscal year 2008, and $270m in fiscal year 2009 for Medicaid rate increases for acute hospitals and physicians. (The Act specifies no methodology for calculating these rates or increases.) 15% of the total amount each year is to be allotted to physician rate increases. Amounts earmarked do not include rate increases for community health centers (CHCs), although it is expected that additional funding for Medicaid rate increases for CHCs will be added by an amendment to the Act or by separate appropriation. This funding for acute hospital and physician rate increases comes from the Commonwealth Care Trust Fund (The "Fund") and is only one of the purposes for which the Fund may be used. If revenues in the Fund are less than projected, all of the funding obligations of this Fund are to be reduced proportionately.

The Act also creates the “MassHealth Payment Policy Advisory Board” (the “Board”) for the purpose of:

1. reviewing and evaluating Medicaid rates and payment systems;
2. recommending rates and methodologies that provide fair compensation; and
3. promoting “high-quality, safe, effective, timely efficient, culturally competent and patient-centered care.”

Before implementing payment policies recommended by the Board, DHCFP must provide 90 days advance notice to the joint committee on health care financing and the House and Senate ways and means committees.

The Act directs the Secretary of Health and Human Services to seek all needed amendments to the Commonwealth’s Medicaid waiver to implement its provisions and to obtain the maximum available federal matching funds. This is intended to secure the expected $385 million in federal matching funds to be made available as part of the approved waiver. However, one of the tests for the availability of federal matching funds is that the additional expenditures under the Act do not cause the Commonwealth to be in violation of the so-called “budget neutrality” condition of the waiver, which, based on a fairly complex formula, provides, more or less, that, over the life of the Medicaid waiver, federal matching funds to Massachusetts under the waiver do not exceed what the federal government would have funded absent the waiver.

The Act requires that the Secretary must conduct all negotiations with CMS, and with the federal Office of Management and Budget, regarding the waiver in consultation with a member of the House appointed by the Speaker and a member of the Senate appointed by the Senate President. Any terms or conditions negotiated with CMS, and all correspondence related to the waiver, must be submitted to the House and Senate appointees at least seven business days prior to submission to CMS. The Secretary must also report quarterly to the joint committee on health care financing and the House and Senate ways and means committees on the status of waiver amendment.

The Safety Net

The Act eliminates the current “uncompensated care pool” and replaces it with the “Health Safety Net Fund” (or the “Fund”). The Fund will be administered by a newly-created Health Safety Net Office. Funding for uncompensated care will remain at the same level in FY 2007 as it is in FY 2006. However, beginning in FY 2008, the only identified sources of dollars for the Fund will be the current payor and hospital assessments of $160 million each. There is no assurance, after FY 2007, of continued state support for uncompensated care, given the expectation that the new mechanisms for accessing affordable insurance coverage will reduce dependency on uncompensated care.

Rates of payment to hospitals and CHCs from the Fund will be derived from Medicare’s payment methodologies.

Funding

The Act is designed to leverage federal dollars to match state resources and to use revenue generated by employer contributions and, eventually, the individual mandate, to fund premium support for health insurance coverage.

¹ Conference Committee Report (April 3, 2006), at page 1 (emphasis in the original)

² Concurrent with his signing of the Act, the Governor used his line-item veto authority to veto the imposition of $295 per worker fee on most employers who fail to offer coverage to workers as well as a dental benefit for Medicaid recipients. The Legislature is expected to override the veto of the business fee, which is projected to raise $48 million a year.

Copyright © 2006 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

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