Massachusetts residents trying to comply with a state law passed in 2006 are in sticker shock today.
Last April, then-Gov. Mitt Romney (R) signed into law an ambitious proposal to insure all Massachusetts residents by making health coverage mandatory. The centerpiece of the plan is a state-run Commonwealth Health Insurance Connector, through which families without access to employer-sponsored health plans can obtain coverage.
Romney estimated the coverage could be obtained through the Connector for as little as $200 per month. However, the Massachusetts Legislature did not agree to eliminate as many costly regulations as Romney proposed to do.
This January, when the state-run Connector announced its minimum plan requirements, some insurers projected their premiums would run as high as $380 per month–nearly double the earlier estimate.
Wondering Why
The Connector board was surprised by the high price tag–they were expecting monthly premiums in the range of $250 to $300. Executive Director Jon Kingsdale told The Boston Globe in late January he did not consider an annual price of $4,560 affordable for people earning little more than 300 percent ($29,400) of the federal poverty level (FPL).
“We are not entirely sure why the bids were so high,” said Jonathan Gruber, a Connector board member and well-known health economist at the Massachusetts Institute of Technology. “The restrictions we set were not major. We are working with insurers now to get the bids down.
“Clearly, the more restrictions you place on the plans, the less ability they have to offer low-cost products,” Gruber added. “But we weren’t that restrictive in fact.”
Setting Requirements
Deductibles cannot exceed $2,000 per year for an individual policy offered through the Connector. An individual’s annual out-of-pocket maximum cannot exceed $5,000; family coverage limits could be twice as much. Insurers are not permitted to set lifetime or annual limits on coverage.
Under Connector-approved policies, three visits to a doctor’s office and generic drugs would receive first-dollar coverage before the deductible is met. But name-brand drugs, hospital stays, or a fourth visit to the doctor would not be covered until after the deductible is met.
In February, Blue Cross Blue Shield, the largest insurer in Massachusetts, told The Boston Globe it could sell coverage for approximately $210 per month if the Connector board would provide the flexibility to offer reduced benefits.
Dealing Plans
Proponents of the Massachusetts plan envisioned the Connector working like a giant auto dealership, catering to a wide range of buyers.
In a 2006 “Web Memo,” Heritage Foundation Research Fellow Edmund Haislmaier wrote, “Massachusetts is now committed to restructuring its health insurance system in a way that looks a lot like CarMax’s auto market: [T]here are many different kinds of cars to choose from, all obtainable through one giant dealership. That dealership is the new Massachusetts health insurance Connector.”
The Heritage Foundation helped craft the Massachusetts plan. CarMax operates dealerships in 23 states nationwide.
Accusing Insurers
In an interview for this article, Haislmaier explained the Connector has several different components. Families earning less than 300 percent of the FPL would receive a subsidy to purchase a comprehensive insurance plan priced at $320 per month. Families with higher incomes don’t qualify for subsidies and would have to pay the full cost.
But some carriers say monthly premiums might reach nearly $380.
“It would appear that one or two of the carriers were, at least in part, padding their estimates,” Haislmaier said of the unexpectedly high prices. “I’m also sure that part of what is going on is a little ‘reality therapy’ for folks who think that somehow one can have ‘lower cost’ but still ‘comprehensive’ insurance.”
In January, Connector officials decided to delay a vote on minimum coverage requirements until March 8, to allow insurers time to revise their bids. That, Haislmaier said, illustrates how the Connector was designed to work through problems.
“When things like this arise, everybody has to go back and reexamine their data and assumptions, and if necessary, make changes to the parameters,” Haislmaier said, adding that the process of give and take may lead legislators to engage in more deregulation than they originally felt comfortable accepting.
Asking to Pay
Others are not so confident in the program. They say they believe this may be only the first of many cases of sticker shock.
Professor Alan Sager, co-director of Boston University’s Health Reform Program, said, “The April 2006 Massachusetts legislation has no cost control provisions. To cover more people, it therefore boosts health spending, mainly through higher payments by individuals and families–many of whom can’t afford the premiums they are being asked to pay.”
Devon M. Herrick, Ph.D. ( [email protected]) is a health economist and senior fellow at the National Center for Policy Analysis.
For more information …
“The Significance of Massachusetts Health Reform,” by Edmund F. Haislmaier, Web Memo #1035, The Heritage Foundation, April 11, 2006, http://www.heritage.org/Research/HealthCare/wm1035.cfm
“$380 Rate for Health Coverage Called High,” by Alice Dembner, The Boston Globe, January 23, 2007, http://www.boston.com/news/local/articles/2007/01/23/380_rate_for_health_coverage_called_high/
“Universal Plan Can Cost under $300, Insurers Say” by Alice Dembner, The Boston Globe, February 5, 2007, http://www.boston.com/yourlife/health/other/articles/2007/02/05/universal_plan_can_cost_under_300_insurers_say/
