By Michael T. Caljouw and Sarah G. Gordon
On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act (hereinafter the “ACA”).1 The law has been characterized as the most sweeping reform act since the implementation of Medicare and Medicaid. ACA goes beyond these historical areas of federal involvement in health care and impacts how insurance products are sold to employers and consumers.
At a very basic level, ACA increases access to health insurance cover-age through broadened Medicaid eligibility, the Children’s Health Insurance Program (“CHIP”), and subsidized premium assistance for certain lower-income individuals. These costs are intended to be met by increased insurer, employer, and pharmaceutical taxes; reduced Medicare and Medicaid spending; and other revenues. The law also includes important measures designed to enhance the delivery and quality of health care. While some provisions of ACA became effective shortly after passage in 2010, most provisions do not take effect until 2014, and others will be phased in over the next few years.
Four years earlier, in the Spring of 2006, Massachusetts enacted its own version of health care reform when then-Governor Mitt Romney signed Chapter 58 of the Acts of 2006 (“Chapter 58”). Chapter 58 increased health insurance coverage through a combination of Medicaid expansions, subsidized private insurance programs, and insurance market reforms. This expansion of coverage was financed through an individual mandate to purchase health cover-age, redirected Uncompensated Care Pool and Disproportionate Share Hospital funds, and requirements that employers either make a “fair share contribution” to their employees’ health insurance or pay a “free rider surcharge.” Since enactment of Massachusetts health care reform, over 98% of the Commonwealth’s residents have health insurance coverage, including 99.8% of children.2
ACA follows the Massachusetts model in many important ways. While many have noted that both pieces of legislation include individual mandates to purchase health insurance, there are many other similarities, ranging from insurance exchange structures to new rules for insurers and employers. Despite these thematic parallels, Massachusetts policymakers have much work to do implementing the thousands of pages of federal laws and regulations within an existing state framework.3 Harmonizing the two laws will be a painstaking, multi-year process involving every major health care stakeholder: Massachusetts and federal governments, employers, insurers, consumers and health care providers. While some states have chosen to challenge ACA pro-visions, Massachusetts policymakers and stakeholders have instead already commenced the implementation process. Accordingly, the following article examines five key features4 of ACA that must be addressed during Massachusetts implementation:
- The Individual Mandate to Purchase Health Insurance Coverage;
- Employer Responsibilities;
- Individual and Employer Subsidies;
- Essential Health Benefits and Minimum Credible Coverage Requirements; and
- Medicaid Expansions and Basic Health Plan Coverage Options.
1. The Individual Mandate
The major expansion and reform provisions under ACA occur in 2014. Beginning that year, ACA mandates that individuals must purchase insurance coverage if they can afford it – meaning that there are affordability exemptions from ACA’s individual mandate based on limitations in income.5 Otherwise, a qualifying individual must demonstrate that cover-age exists (through either private or public insurance programs), or face a federal penalty. This penalty gradually increases over a three-year period, from a maxi-mum of $285 per family (or 1% of family income, whichever is greater) in 2014 to a maximum of $2,085 per family (or 2.5% of family income, whichever is greater) in 2016. The penalty will be prorated by the number of months without coverage, and post-2016 penalty amounts will increase annually by the cost of living. Chapter 58 includes a conceptually similar mandate. Massachusetts residents are required to obtain health insurance coverage only if affordable coverage is avail-able. The Massachusetts Health Connector (the “Health Connector”) annually sets a schedule of affordability based on income levels and defines the minimum level of required or creditable cover-age. The affordability schedule is progressive, with the percentages of income people are expected to pay for coverage rising over time. Individuals with incomes under 150% of the federal poverty level (“FPL”) and those with valid religious exemptions are exempt from the Massachusetts individual mandate. Otherwise, Chapter 58 establishes fiscal penalties for qualifying adults who do not purchase health insurance that meets the standards of minimum creditable coverage. Penalties are assessed through the Massachusetts Department of Revenue tax filing process and are based on the affordability and premium schedules. As a general matter, penalties are lowest for those ages 18–26 and for anyone with income below 300% of FPL. While the penalty was phased in over time, the penalty for non-compliance can now reach up to half the cost of the lowest available yearly premium.
In light of the operational differences between the Massachusetts and federal mandates, Massachusetts policymakers must resolve certain key issues. First, different income exemption standards mean that there are different standards of who is subject to being penalized. There is also conflict in the amount of the penalty and how it is phased in over time. Because the federal individual mandate has somewhat different provisions and does not appear to preempt the state man-date, Massachusetts legislative action is likely required to prevent uninsured Massachusetts residents from facing both state and federal penalties.6 To illustrate the real conflict between the laws, in 2016 and beyond, uninsured people who earn less than 250% of FPL are subject to higher penal-ties under ACA than under Chapter 58.7 Meanwhile, individuals with more moderate income levels are penalized less under ACA than under Chapter 58. Indeed, unless reconciled, uninsured individuals may face both state and federal mandate penalties for the same period of time.
2. Employer Responsibilities
ACA, like Chapter 58, relies on the central premise that the majority of individuals will obtain their insurance through employer-based coverage. Accordingly, employer responsibilities are central to the success of both statutes. Under ACA, businesses with fifty or more employees must offer coverage that meets minimum standards beginning in 2014, or face two types of penalties.8 First, businesses that do not offer cover-age are fined $2,000 per full-time employee (after the first thirty employees). Second, businesses that offer coverage to employees who receive a public subsidy based on affordability are fined the lesser of $3,000 per employee receiving the subsidy or $2,000 multiplied by the total number of employees. Chapter 58 establishes a separate set of standards, requiring that businesses with more than ten full-time-equivalent employees bear a “fair and reasonable” contribution to the insurance premiums of their employees. The annual assessment is $295 per employee (verified by prorated quarterly filings).9 Compliance with the so-called “fair share contribution” is determined through two tests:
- Percent of Full-Time Employees Enrolled: Are at least 25% of “full-time” employees enrolled in a qualifying employer-sponsored health plan? O
- Premium Contribution Levels: Does the business pay at least 33% of the cost of individual coverage for its “full-time” employees who have been employed for at least ninety days?10
As of 2009, Massachusetts businesses with fifty or fewer employees needed to meet only one of these two prongs. Larger employers (those with at least fifty-one employees) automatically comply if 75% of their “full-time” employees are enrolled in a qualifying employer-sponsored health plan. Larger employers with less than 75% enrollment must meet both prongs of the test to be exempt from the assessment. Chapter 58 also establishes a Free Rider Surcharge on businesses.11 This surcharge is different from the state’s fair share contribution. The surcharge is applied when a qualifying employer (with eleven or more employees) does not arrange for a pre-tax payroll deduction sys-tem for health insurance and has employees who receive care paid for by the Health Safety Net.12
Massachusetts officials are currently working to reconcile many differences between the state and federal health care reform laws relating to employer obligations. At a basic level, ACA imposes significantly higher penalties but also exempts more businesses. ACA exempts all small employers (with fifty and fewer employees) while the state law applies to businesses with eleven or more full-time employees. The state and the federal laws also use different definitions of “full-time” employment.13 Another key difference between the state and federal rules is that under ACA, full-time equivalent employees (FTEs) are used only to determine if the employer has a sufficient number of employees to be subject to the coverage requirements while Chapter 58 uses employee thresholds to calculate the assessment as well. Since the federal law becomes effective in 2014, Massachusetts legislative action is needed in 2012 or early 2013 to allow adequate time for administrative agency and business operational compliance.
3. Essential Health Benefits and Massachusetts Minimum Creditable Coverage
ACA, like Chapter 58, sets baseline requirements in order to ensure that individuals receive access to (and health insurers offer) a comprehensive set of benefits and services. The federal baseline coverage requirements are called Essential Health Benefits (“EHB”),14 while the state baseline coverage requirements are called Minimum Creditable Coverage (“MCC”).15 While both laws set forth basic requirements for coverage of benefits and services as well as cost sharing, the laws differ in both scope and applicability.16
A. Federal Essential Health Benefits (“EHB”)
The federal EHB requirement applies to all individual and small group coverage offered in a state’s commercial health insurance market. Fully insured large group health plans, grandfathered health plans, and certain self-insured health plans17 are exempt from the requirements to provide EHB.
Health plans subject to the federal EHB requirement must provide an “Essential Benefit Package” (which must include EHB as defined by the Secretary of Health and Hu-man Services (“HHS”)), annual limitations on cost sharing, and offer coverage in one of the “tiers” – Bronze, Silver, Gold, or Platinum — available through the exchange.18 While ACA grants the Secretary of HHS broad authority to define the EHB requirements, ACA establishes ten categories of benefits that must be included within any final EHB rule. These include emergency services, maternity care, prescription drugs, preventive care and pediatric services.19 ACA also caps total annual out-of-pocket costs for these plans (equal to the out-of-pocket limit in Health Savings Account qualified plans), and sets annual limits on deductibles for employer-sponsored health plans.20
B. Benchmark Plans and State Implementation of EHB
In order to provide the states with flexibility to implement ACA EHB provisions, HHS issued a bulletin on December 16, 2011.21 ACA requires that the scope of EHB benefits be equal to the scope of benefits covered under a typical small group employer plan avail-able in the state. Rather than set forth a prescriptive regulatory scheme for the initial years of implementation (2014 and 2015), HHS offers states broad flexibility in selecting a “benchmark” plan, which will define the benefits (but not the cost-sharing requirements) that each individual and small group health plan must provide.22 The bulletin provides four alternative benchmark plan options:
- The largest plan by enrollment in any of the three largest small group insurance products in the state’s small group market;
- Any of the largest three state employee health benefit plans by enrollment;
- Any of the largest three national Federal Employee Health Benefits Plan (“FEHBP”) options by enrollment; and
- The largest insured commercial non-Medicaid HMO operating in the state. 23
HHS intends to assess the bench-mark plan selection process and is expected to issue subsequent guidance for EHB for years 2016 and beyond. This later approach may ultimately exclude some state mandated benefits from inclusion in the EHB package.
The interplay between state and federal mandated benefits and the state selection of a benchmark plan will be key implementation issues. Currently, Massachusetts has 58 mandated benefit laws on the books, none of which are pre-empted by ACA,24 and ACA requires states to defray the costs associated with coverage of any state-man-dated benefit that is in excess of the EHB for individuals enrolled in a qualified health plan (“QHP”).25 At the same time, of the plans that could potentially be selected as the “benchmark” plan in Massachusetts, only the health plans offered in the small group market and by HMOs are required to cover all of the state mandated benefits. This is important because, if the state selects one of the State Employee Health Benefit plans or the FEHBP, only those mandated benefits that are included as part of that “benchmark” plan become part of the EHB package. The state would then become responsible for funding coverage associated with the remaining benefits mandated by state law. Finally, the guidance further clarifies that if a state enacts additional mandated benefit legislation after December 31, 2011, and those new mandated benefits are not included as a covered benefit within the benchmark plan, the state is responsible for the cost of covering those benefits as well.
As part of the state implementation activities in Massachusetts, the Division of Insurance and the Health Connector are examining the implications of each potential benchmark plan on the state’s commercial market. The Division of Insurance is collecting data on the benefits and services provided by health plans within each category. While meaningful similarities exist between the health benefit plans offered in the small group and the largest HMO plan, there are important differences between these offerings and the state employee health benefit plans in terms of covered benefits.26 The most striking differences however are between the FEHBP and the state plans. The FEHBP does not cover some of the state’s mandated health benefits, including those mandates that are the most expensive.27 The federal guidance recommends that states select a benchmark plan by the third quarter of 2012, and Massachusetts is expected to make its decision by this fall.
C. EHB and Minimum Creditable Coverage (“MCC”)
Finally, many questions have been raised regarding the intersection between the federal EHB requirements and Chapter 58’s requirement that individuals purchase coverage meeting MCC requirements – and whether Massachusetts will eliminate or modify Chapter 58’s MCC rule. The Board of the Health Connector has promulgated regulations requiring that an MCC-compliant health plan cover a broad range of medical services, include limits on the out-of-pocket costs for individuals and families, and not include limits or caps on certain benefits.28 Unlike EHB, the Massachusetts rules govern out-of-pocket spending such as deductibles and co-payments, and set a basic actuarial value as a floor for minimum cover-age. While the requirements for obtaining MCC-compliant health care coverage apply to individuals, health plans writing coverage in Massachusetts provide cover-age that is consistent with these requirements.
By contrast, EHBs apply to non-grandfathered plans in the individual and small group markets both inside and outside of the Exchanges, Medicaid benchmark and benchmark-equivalent, and Ba-sic Health Programs.29 Large group (both fully- and self-insured), and grandfathered health plans in existence as of the effective date of the federal law, are exempted from the EHB requirements. While Massachusetts law does not reach those employers subject to ERISA, most Massachusetts employers nevertheless offer coverage that enables their employees to comply with the requirements of the Massachusetts mandate. There is some concern that if Massachusetts eliminates its own requirements for comprehensive coverage, individuals employed by large employers will lose access to MCC-compliant coverage.
Massachusetts individual mandate and MCC requirements are not preempted by ACA. Massachusetts is therefore permitted to continue to enforce its own individual man-date and baseline requirements for coverage. This will continue to be an important discussion during the forthcoming year as the state con-siders legislation designed to bring the state into compliance with ACA.
4. Individual and Employer Subsidies
ACA expands access to health insurance coverage through the establishment of premium credits, available to both individuals and to small employers purchasing cover-age through the exchange. Massachusetts health care reform took a similar approach through subsidies for individuals below a set income threshold who purchase coverage through the Health Connector; however, Massachusetts did not provide corresponding subsidies for small employers. The upcoming sections discuss the intersection between the Federal assistance provided to individuals and employers and the subsidies provided through Massachusetts health care reform.
A. Individual Premium Credits
ACA provides individuals without access to Medicare, Medicaid, or affordable employer-sponsored insurance the opportunity to purchase coverage through the Exchange with premium and cost sharing assistance, provided that certain income criteria are met.30 The ACA premium credit program provides refundable and advance-able premium credits to eligible individuals and families with house-hold incomes between 100% and 400% of FPL. Individuals seeking premium credits are restricted to purchasing a QHP through the state’s exchange. At the time an individual seeking assistance enrolls in coverage through the state exchange, the exchange is required to determine the individual’s eligibility for advanced tax credit.31 The expected individual premium contribution will be set on a sliding scale, ranging from 2% of income for individuals earning up to 122% FPL and 9.5% of income for individuals earning between 300%-400% FPL.
ACA makes the premium credit advanceable and paid directly to the health plan in which the individual enrolls. However, the state ex-change is required to annually reconcile these advanced payments against the actual credit for the taxable year. Unlike the structure of the Massachusetts premium assistance models, individuals obtaining ACA premium credits could receive additional credits over the course of the year should their income status change (through a loss of employment or wages); conversely, such a scheme could potentially result in individuals owing additional income tax liability should their income status improve mid-year.32 In addition to premium credits, ACA provides cost-sharing subsidies to eligible individuals and families to assist in payment of an individual or family’s out-of-pocket costs, including co-payments and deductibles.
In Massachusetts, the most significant aspect of Chapter 58 was arguably the eligibility expansion of the publicly-subsidized MassHealth and the establishment of the publicly-subsidized Commonwealth Care program. Commonwealth Care provides individuals earning up to 300% FPL with access to comprehensive and affordable coverage. Unlike the federal premium tax credits, however, individuals enrolling in Commonwealth Care enroll in one of the four “Plan Types” and pay a discounted monthly premium on a sliding scale that is based on income. There is no reconciliation at the end of the year, thus no opportunity to either receive additional subsidies or be responsible for tax liability. How-ever, the Health Connector does conduct regular reconciliations to redetermine eligibility.
By 2014, federal premium tax credits will become available and could replace state subsidies for current Commonwealth Care members who earn between 133% and 300% FPL.33 These federal subsidies will provide less assistance to individuals than is currently provided by Common-wealth Care. Critical decisions still need to be made by Massachusetts officials as to how to address this overlap and whether to continue to provide state assistance to individuals who are now enrolled in this program at the amount currently available. A discussion of current options for providing continued assistance for Commonwealth Care enrollees is contained in subsequent sections.
State fiscal considerations may resolve many of the questions concerning restructuring state programs, and the Commonwealth is in the process of conducting an analysis of different options for restructuring the programs and the impact on the state budget going forward. However, if the Health Connector does not provide for additional “wrap” subsidies, Commonwealth Care enrollees could have to pay higher premiums and out-of-pocket expenses than they do now.
B. Employer Subsidies
ACA created a new premium tax credit to enable small businesses to purchase health insurance coverage for their employees.34 This credit, unlike the individual premium credit, became effective immediately upon enactment of ACA in 2010. For years 2010 through 2013, the tax credit is worth up to 35% of a taxable eligible small employer’s premium payments. During those years for eligible small employers, the maximum amount is 25% of the employer’s premium payments. That amount increases to 50% in 2014. In order to qualify for the credit, an employer is required to meet three qualifications. The first is to have fewer than twenty-five FTEs during the taxable year. Second, the annual average wage for all employees during the taxable year must be less than $50,000. Finally, the employer must have in place a “qualifying arrangement.”35
Currently, Massachusetts offers an assistance program for eligible small employers and self-employed individuals to provide health insurance coverage for employees. Similar to ACA’s small employer tax credits, the Massachusetts Insurance Partner-ship Program provides premium subsidies for small employers with between two and fifty FTEs, provided that the employer offers comprehensive coverage to employees and contributes at least 50% of the costs of the premi-ums.36 MassHealth is authorized to provide as much as $1,000 per year for each qualified employee.37
An open question remains as to the fate of the Insurance Partnership Program, given the new insurance tax credits made avail-able by ACA for small businesses that are in effect today. Much will be contingent upon the status of the Massachusetts Section 1115 federal Medicaid waiver and avail-ability of state and federal dollars as the current public insurance programs are reorganized to satisfy the new coverage requirements contained within ACA and maximize new federal matching funds.
5. Medicaid Expansion and the Basic Health Plan
One of the centerpieces to Chapter 58 was its expansion of Medic-aid eligibility and the creation of subsidized coverage through the Commonwealth Care program – and these will be impacted by the mandatory Medicaid expansion included within ACA. In particular, Massachusetts will likely need to reorganize several existing public programs due to changes in eligibility criteria created by ACA. Although by no means an exhaustive list, the analysis below illustrates just a few ways in which the Massachusetts landscape may change in the coming year.
First, ACA expands mandatory coverage of Medicaid eligibility to individuals who earn up to 133% FPL.38 This change will allow most legal residents with incomes up to 133% FPL to qualify for MassHealth. One of the key features of ACA is that it simplified Medicaid eligibility by removing
categorical eligibility requirements. Coverage provided to expansion population is not required to comply with the Medicaid benefit requirements that are required for other mandatory populations; how-ever coverage must at least equal benchmark or benchmark equivalent coverage.39 ACA allows states the option of developing a Basic Health Plan, which covers eligible individuals with incomes between 133% and 200% FPL and allows legal immigrants with incomes up to 133% FPL to receive coverage through this plan.40
In Massachusetts many of these individuals within the mandatory expansion population may already be covered through the MassHealth Basic, MassHealth Essential or Commonwealth Care programs.41 Members enrolled in either the Commonwealth Care program or MassHealth experience significant churn between programs as their individual eligibility status changes. Moving these individuals into MassHealth will simplify the program and reduce churn. However, as with all of the new federal rules, ACA’s Medicaid expansion provisions bring about new and important policy considerations that the state will have to address. During the coming months, Massachusetts will need to sort through the existing state coverage programs and determine how to incorporate the new classification of eligible individuals and how to fully take advantage of opportunities to receive enhanced federal matching dollars. The Patrick Administration has announced its recommendation to establish a Basic Health Plan within MassHealth for this population.42 Many of the individuals who will become eligible for the Basic Health Plan are currently enrolled in Commonwealth Care today, including legal immigrants.
Finally, Massachusetts must determine how to cover those individuals who currently receive insurance or subsidies through Commonwealth Care and earn 200% -300% FPL along with those earning up to 400% FPL. The Patrick Administration has announced recommendations to provide individuals with incomes between 200% and 300% FPL who receive a premium tax credit with additional state subsidies.43 This population will be transitioned to the ACA-mandated exchange and receive premium tax credits. However, premium tax credits and cost sharing subsidies will not pro-vide the same level subsidies that individuals within this population receive through Commonwealth Care today. The Patrick Administration further announced its recommendation to provide additional assistance to those between 200% and 300% FPL with “wrap” coverage. The amount is currently estimated to cost the Common-wealth $187 million.44 Both ACA and Massachusetts health care reform contain provisions that expand affordable health care options for the state’s most vulnerable populations. Important decisions need to be made at the state level as to how best to transition this population in a manner that maintains coverage for this population and ensures that Massachusetts is in full compliance with the new federal rules.
Much of the public’s attention on national health care reform, including much legal analysis, has been focused on Washing-ton, D.C. With a United States Supreme Court challenge and a national election in which health reform is center stage, that is quite understandable. However, there are very significant challenges related to federal health reform facing Massachusetts today. Policymakers are confronting the hard task of reconciling a federal law which – in many important ways – differs from its older sister in Massachusetts.
Massachusetts has convened a dedicated workgroup to address these and the many other issues presented by ACA. The group has met several times since September 2010, and consists of state officials from the Executive Office of Health and Human Services, the Massachusetts Health Connector, the Massachusetts Division of Insurance, the Massachusetts Department of Public Health, MassHealth, other relevant state agencies, health plans, providers, employer groups, consumer groups and other interested parties.45 In addition, smaller state-led workgroups have commenced more focused discussions with stakeholders.46 Led by the Massachusetts Division of Insurance and the Massachusetts Health Connector, these groups have included the so-called “Three R’s” Workgroup addressing implementation issues centering on reinsurance, risk adjustment and risk corridors. The separate Insurance Market Reform Workgroup has focused on essential health benefits, catastrophic health plans, child-only health plans, group market size and rating issues and enrollment matters. As of April 2012, no workgroup sessions have begun to address the many issues presented by the individual mandate or employer responsibility issues.
This article illustrates that there are difficult legal, policy and operational issues to face from ACA’s implementation in Massachusetts. Much of the work has already begun in earnest. However, with many of the major provisions effective in 2014, state lawmakers and agency officials will need to continue with careful deliberation and timely legislative and regulatory actions.
Michael T. Caljouw is Vice President of Public Government and Regulatory Affairs for Blue Cross Blue Shield of Massachusetts. Mr. Caljouw directs the leading Massachusetts-based health plan’s activities in a wide range of policy, legislative and regulatory issues including major health care reform matters in Massachusetts. Prior to joining Blue Cross, he was Senior Counsel at a national law firm, Holland & Knight, within their Boston office. In this capacity, Mr. Caljouw represented national and local clients in the administrative law, regulatory compliance, licensing and insurance law fields.
Sarah G. Gordon is Vice President of Legal Affairs for the Massachusetts Association of Health Plans. Ms. Gordon joined MAHP in 2006, shortly following passage of Massachusetts Health Care Reform, Chapter 58 of the Acts of 2006. Sarah brought with her two years of litigation experience in criminal, financial, and insurance litigation. Since joining MAHP, Ms. Gordon was extensively involved in implementation of Massachusetts Health Care Reform, working with issues related to commercial, Medicaid and Connector programs. Ms. Gordon is responsible for coordinating MAHP’s public policy agenda, including all issues related to Medicaid and MassHealth and MAHP’s payment reform and cost control policies. Ms. Gordon is MAHP’s representative to the Advisory Committee to the Health Care Quality and Cost Council, where she has served as both Vice Chair and Chair for the Committee. Ms. Gordon also serves as MAHP’s general counsel and advises MAHP on compliance with state Ethics laws and regulations. Ms. Gordon currently serves on the MWPC PAC Board, and also serves as the co-chair for the MassGap Health and Human Services and Elder Affairs Task Force. Ms. Gordon received a BA, Honors, in Environmental Policy from the University of Kansas and holds a JD from Vermont Law School.