Universal health care in Massachusetts: setting the standard for national reform.

• Author: Chirba-Martin, Mary Ann

1. INTRODUCTION

   Health care reform in the United States has proven to be one of the most complex challenges facing lawmakers and private citizens today. Although there is widespread agreement that the system is in disarray and in dire need of fundamental reform, the core problems of affordability and access continue to steadily worsen. The extent of the national health care crisis is reflected in the fact that although health care annually consumes some sixteen percent of the nation's GDP (or $2.0 trillion), (1) 46.5 million Americans under the age of sixty-five are currently uninsured. (2) Notwithstanding the astronomical resources devoted to health care, the number of uninsured nationwide is expected to rise if skyrocketing costs and other barriers to access are not systematically addressed. Despite this national crisis, the country's political and economic leadership continues to debate while avoiding any real action. Compounding the lack of political consensus and will is the specter of record budget deficits as a considerable road block to systemic reform. (3)

   Facing this dearth of national leadership, a growing number of states, including Vermont, Wisconsin, and California, are undertaking health care reform at the state level. Of all the state reforms, none has received more attention than Massachusetts' newly enacted health care reform law. This landmark legislation entitled, An Act Providing Access to Affordable, Quality, Accountable Health Care (the "Act"), was passed on April 12, 2006. (4) Having taken effect on July 1, 2007, it is to date the boldest plan for achieving universal coverage, especially with its aggressive timetable of being fully implemented in just three years. (5)

   The plan has garnered much attention for its innovative design, but is equally noteworthy for the political process behind the plan's adoption and implementation. In early 2006, a broad-based coalition of over eighty private and public interest groups teamed with a Democratic state legislature and a Republican governor to enact the most comprehensive state health care reform bill in the nation. (6) That such a disparate group of supporters agreed to any state-wide health care reform proposal is remarkable. Even more impressive, however, is that such depth and breadth of support have coalesced for a plan that is largely untested. Given the profound importance of achieving universal coverage and the political and financial stakes involved, all eyes are on Massachusetts. The nation waits to see what lessons will unfold from a plan which may or may not be practically feasible and economically sustainable. No one, however, is watching more intently than the people of Massachusetts, whose lives may hang in the balance.

   The new law seeks to provide universal health care coverage to all residents of the Commonwealth. (7) Its key provisions mandate coverage, emphasize personal responsibility, and create incentives for employers, particularly small businesses, to provide insurance. It also reorganizes the insurance market to foster competition and choice, and expands subsidized assistance without raising taxes. (8) This Article examines the plan's strategy for achieving its fundamental objective of providing all residents with universal access to affordable, quality, and accountable health care. Part II begins by describing the health care challenges that have confronted Massachusetts given the Commonwealth's fiscal and political climate as well as its demographic make-up. It then analyzes the plan's primary components, paying particular attention to the costs and benefits of expanding Medicaid coverage, the use of health care mandates, and the newly-created Commonwealth Health Insurance Connector Board (the so-called "Connector"). The extent to which the Massachusetts Health Care Plan can achieve its goals is discussed in Part III, especially in light of what has proved to be the bane of even incremental state reform for too many years: ERISA preemption of state law.

2. HEALTH CARE IN MASSACHUSETTS AND THE ROAD TO REFORM

   1. Background: A State of Challenges and Opportunities

      Massachusetts faces many of the same challenges and deficiencies that trouble every state in the nation in terms of financing and delivering health care. According to the Commonwealth, some 550,000 Massachusetts residents lacked health care coverage prior to reform. (9) Without decisive action, that number was sure to rise since premium costs would continue to increase at double-digit rates and increasing costs would incite more small and medium-sized businesses to drop employee health benefits. (10) Declining employer coverage, coupled with over a half-million uninsured residents was clearly detrimental to the families and individuals directly affected. In Massachusetts, it also imposed a significant strain on state finances, businesses, and working families who inevitably funded the Commonwealth's $1 billion per-year Free Care Pool that reimbursed hospitals for providing uncompensated care. (11)

      Despite the significant challenges facing the Commonwealth, it was in a stronger position than most states to enact broad reform. Although the half-million or so residents without health care represented roughly 10% of the state's population, this percentage was significantly lower than the 16% national average. Plus, a notably higher percentage of Massachusetts residents benefited from employer-provided insurance. In Massachusetts, 68% of residents received insurance through their employer, compared to the national average of 61%. (12) While the 12.7% of insured residents in Massachusetts receiving coverage through Medicaid was on par with the 12.8% national average, it is important to note that 20% of those who were uninsured in Massachusetts before implementation of the new law--about 106,000 people--were eligible for Medicaid but were not enrolled. (13)

      In addition to its comparatively lower number of uninsured, the Commonwealth's tax structure and its access to millions in federal resources from Medicaid offered unique opportunities to fund the projected $1.2 billion reform without imposing additional state taxes. In Massachusetts, like other states, hospitals have provided emergency and other medical services to thousands of uninsured patients. In other parts of the country especially, this has been a significant driver of premium cost escalation. States frequently use hospital surcharges or other techniques to generate revenues from patients who have coverage in order to cross-subsidize hospitals for caring for those who lack coverage. Massachusetts applies an explicit tax to insurance companies and businesses to fund the Commonwealth's Free Care Pool for the uninsured. (14) Insurance companies typically pass these added costs on to the insured by way of premium hikes that effectively function as an implicit tax. (15) As a result, before enactment of the reform statute, hospitals would pay the full costs of uninsured patients upfront; the Commonwealth would then reimburse them for medical services through its $1 billion uncompensated care pool. (16) In essence, this amounted to a $1 billion per year subsidy for the uninsured that had become a financial headache for the insurance industry and a glaring liability for the state in securing federal Medicaid funding.

      Facing shortfalls in funding the Free Care Pool by relying on employer-sponsored and other private insurance, Massachusetts had increasingly used federal Medicaid dollars to support its hospital reimbursement transfers. (17) In 2006, it became clear that the strategy of borrowing from Medicaid funds was on borrowed time. By that point, the federal government was threatening to withhold $385 million in Medicaid funding unless Massachusetts developed a plan to apply federal resources more strategically. (18) Facing such a considerable loss of federal resources made it clear to legislators and stakeholders alike that the time to act had arrived.

      Just as the federal government's threat to withhold Medicaid funds was at the core of the immediate funding crisis, the reallocation of uncompensated care funds was at the heart of the new plan. Seeking to maximize and capitalize upon the millions available in federal dollars, the new law converted the Free Care Pool from a hospital reimbursement fund into a premium assistance support resource for the uninsured. (19) This change allowed the state to renew its Medicaid waiver under [section] 1315 of the Social Security Act, (20) and secure an additional $385 million federal transfer. (21) These amounts, combined with the $1 billion in state funds, laid the financial foundation to increase access to coverage and reduce costs by transforming the overall insurance market.

      Putting a financing plan in place enabled policymakers to analyze the characteristics of the uninsured and design a largely consumer-driven program based on personal responsibility. Identifying and enrolling the estimated 20% of the uninsured in Massachusetts who are eligible for Medicaid into MassHealth--the state's Medicaid program--should be, at least in theory, fairly straightforward to accomplish using administrative resources already in place. (22) However, dealing with the remaining 80% of the uninsured who are not eligible for Medicaid poses far greater legislative, financial, and political complexities. At the time of reform, approximately 150,000 to 200,000 uninsured individuals in Massachusetts earned too much to be covered through Medicaid, but also earned less than 300% of the federal poverty level, or $29,412 per person per year, and could not afford basic premiums. (23)

      Equally significant were the roughly 200,000 individuals who earned more than 300% of the federal poverty level, but still could not--or would not--purchase insurance due to high costs, poor value, little consumer choice, or overly-restrictive risk pools, among others reasons. (24) Taking into consideration...