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Affordability Remains a Key Concern in Massachusetts Health Reform

News Release
July 26, 2007

Alwyn Cassil (202) 264-3484 or

WASHINGTON, DC—As Massachusetts’ landmark effort to reach nearly universal health coverage continues, affordability of coverage remains a key concern for individuals and small employers, according to a study released today by the Center for Studying Health System Change (HSC).

"Despite reforms of the individual and small-group health insurance markets, including development of new insurance products, concerns remain about the affordability of coverage and the ability to stem rising health care costs," said Paul B. Ginsburg, Ph.D., president of HSC, a nonpartisan policy research organization funded primarily by the Robert Wood Johnson Foundation (RWJF).

Funded by RWJF, the study’s findings are detailed in a new HSC Issue Brief—Massachusetts Health Reform: Employers, Lower-Wage Workers and Universal Coverageavailable here. The study was based on interviews with about 25 market observers in January 2007, including representatives of employer groups, state agencies, health plans, providers, advocates and other health care leaders knowledgeable about the reform. HSC’s Community Tracking Study site visit to Boston in June 2007 provided additional perspectives on the reform.

All employers—except firms with fewer than 11 workers—face new requirements under the 2006 law, including establishing Section 125, or cafeteria, plans to allow workers to purchase insurance with pre-tax dollars and paying a $295 annual fee if they do not make a "fair and reasonable" contribution to the cost of workers’ coverage.

Market observers believe many small firms may be unaware of the law’s specific requirements and that some could prove onerous, according to the study. The largest impact on small employers is expected to come from the individual mandate for all residents to have health insurance. The individual mandate could have spillover consequences for employers if more workers take up coverage offers, seek more generous coverage or pressure employers to offer coverage.

Because state residents will face tax penalties for going without health insurance, observers predicted that employers that do not offer coverage might become less attractive to workers. Moreover, while the direct employer requirements are targeted at firms with 11 or more employees, the individual mandate applies to all residents, so it is likely to affect employers more broadly.

"Workers who now decline coverage offered by their employers may choose to participate because of the individual mandate, raising costs for employers," said HSC researcher Laurie Felland, M.S., a study co-author along with HSC Senior Researcher Debra A. Draper, Ph.D.; and Allison Liebhaber, an HSC research assistant.

As part of the health reform law, the state created the Commonwealth Health Insurance Connector Authority (the Connector), an independent public agency charged with key decisions involving the reform. For example, the Connector is responsible for administering the Commonwealth Care program for low-income people eligible for subsidized coverage; determining the minimum level of coverage an individual must have to be in compliance with the mandate; approving Commonwealth Choice insurance products for individuals and small groups; and creating an affordability schedule for individuals to determine who will be subject to the mandate.

While most market observers agreed that the primary goal of the reform is to improve access to health insurance, they contended that its ultimate success depends on affordability-both in the short term, as well as the long term. If affordable coverage is not available, it is unlikely that small employers on the cusp of offering insurance to their workers will be motivated to do so, according to the study. Instead, employers are more likely to pay the $295 annual fee rather than incur the greater costs of offering insurance.

Affordability is also a concern of individuals and, despite the individual mandate to have health insurance, there are likely to be some people who will forgo coverage and pay the tax penalty. They may decide this based on individual assessments that they cannot afford coverage, which for lower-income individuals, in particular, may mean that basic needs such as housing and food take precedence over obtaining health insurance.

While the individual mandate took effect July 1, the penalties for individuals who remain uninsured are relatively small this year. In 2008, the financial penalties for individuals opting out of coverage are more substantial. Consequently, it is unlikely that the first year of the reform will provide answers to key questions about the individual mandate. Additionally, most small employers have already renewed coverage for 2008, so it will be some time before more is known about the effects of the reform on their behavior with regard to health insurance coverage.

HSC researchers will continue to track the reform’s impact with a follow-up site visit to Massachusetts in 2008.

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The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded principally by the Robert Wood Johnson Foundation and is affiliated with Mathematica Policy Research, Inc.


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The Center for Studying Health System Change Ceased operation on Dec. 31, 2013.