AcademyHealth Stateside

The past two St@teside issues have featured articles on novel approaches to covering the uninsured in both Massachusetts and Vermont. With a focus on providing greater access to health care for residents while keeping costs in check, these two states have taken the lead in untested, yet innovative policy solutions. When Massachusetts enacted landmark health care reform legislation this past April, it prompted numerous questions about a key component of these new plans: individual and employer mandates.

Individual Mandates: To promote a culture of insurance and personal responsibility, Massachusetts developed a system where everyone “plays their part,” including the government, employers, individuals, and healthcare providers. While a handful of states have proposed employer mandates to address the problem of uninsured populations, Massachusetts is the first state to require that individuals obtain health care coverage and the first to use that mandate, in combination with employer requirements, to provide near-universal health coverage for all its residents.

The new plan requires that as of July 1, 2007, every individual in Massachusetts must have health insurance. Residents who cannot afford insurance, as determined by the Commonwealth Insurance Connector, will not be penalized. Instead, those who fall into the gap between Medicaid and employer-based coverage will receive subsidies and assistance in locating an affordable health plan. Given the presence of both Medicaid assistance and subsidized insurance products, all Massachusetts residents will, according to the policy, have access to health insurance they can afford. To discourage individuals who remain uninsured from unfairly passing their health care costs onto the rest of the population, starting in 2007, residents in the state will have to confirm insurance coverage on state income tax returns. The Department of Revenue will penalize those who can pay the health care premium but remain uninsured by revoking their personal tax exemption in 2007, followed by a fine equaling 50 percent of the monthly cost of health insurance for each month they remain without coverage.

The architects of the Massachusetts legislation have commented on the necessity of an individual mandate to effect change. Voluntary measures may not be sufficient to encourage take-up and, despite the presence of a subsidized and affordable insurance product, some people will still go without coverage. Massachusetts has engineered a plan to assure that every taxpayer contributes to the cost of health care coverage in some fashion. In addition, the state is hoping that individuals who are healthy yet currently uninsured will enter the insurance risk pool and stabilize costs for everyone.

Employer Mandates: In addition to the individual requirements, Massachusetts will use an employer mandate to achieve its goal of insuring 95 percent of the population.

To date, Hawaii is the only state that has implemented an employer mandate, the Prepaid Health Care Act of 1974, and that state has one of highest rates of individuals covered through employer-sponsored insurance. The 1974 law required nearly all Hawaiian employers to provide health insurance to employees who work 20 hours or more per week for four consecutive weeks. The mandate, while effective, is not perfect, as evidenced by the 10 percent[1] of Hawaiian residents who remained uninsured as of 2005. Recent analysis shows that Hawaii has a disproportionate rate of employees working under 20 hours, possibly reflecting hiring practices used by employers to avoid providing insurance.

California came close to an employer mandate in 2003, which would have required businesses with more than 50 employees to pay a fixed fee for workers. However, the law was rejected by the state’s voters in 2004.

In January 2006, Maryland became the first state to require an employer to spend a specific minimum percentage of payroll on health care for its employees. The Maryland General Assembly passed legislation requiring private-sector for-profit employers with 10,000 or more employees to spend at least eight percent of their payroll (or six percent in the case of a nonprofit employer) on health care. Those employers that provide less than the required amount must pay the difference between their health insurance expenses and the percentage threshold into a new Fair Share Health Care Fund, which then directs the funds into the state’s Medicaid program.

Massachusetts’ new law will impose penalties on employers who do not provide health care coverage for employees. According to the law, Massachusetts employers will be required to make a “fair share” contribution to employee health insurance coverage. Those with more than 10 employees who do not contribute to employer-based coverage will be required to make a per worker “fair share” contribution equal to the cost of free care used by its employees. Employer contribution will be capped at $295 per full time equivalent (FTE) employee; small businesses with 10 or fewer employees are not subject to this requirement. The law also requires that, as of January 1, 2007, all employers with 11 or more workers must adopt a Section 125 “cafeteria plan” which permits workers to purchase health insurance with pre-tax dollars. In addition, employers with 11 or more employees who do not offer health insurance may be assessed a “free rider” surcharge if their employees access free care a total of five times per year in the aggregate, or if one employee uses free care more than three times. This fee will range between 10 and 100 percent of the state’s cost of services provided, with the first $50,000 per employer being exempt.

Vermont has also passed legislation that compels employers to play a greater role in employee health care. Although the state’s newly developed Catamount Health Plan is a voluntary program for individuals, it does include some strict requirements for employers. The policy asks employers who do not currently contribute to their employees’ health care costs to help pay for the program costs. These employers are assessed $365 per FTE in the first year (with increases allowed as premiums change) on three groups of employees: 1) those who are not offered health insurance by their employer; 2) those whose firms offer health insurance to some but who are not eligible themselves; and 3) those who are eligible for coverage through their employer plans, but choose not to enroll and are therefore uninsured. This last category is striking in its difference from the Massachusetts plan where individuals, not employers, bear the consequences of uninsurance. The Vermont assessment focuses on requiring employers to shoulder the cost of providing health care to uninsured workers.

Future Directions: Since the passage of the Massachusetts plan, legislative officials and policymakers from around the country have considered the feasibility of adopting a similar program for their states. Skeptics have pointed out that the percent of uninsured Massachusetts residents (10 percent), is significantly less than the national average of 16 percent and that the state has particularly far reaching Medicaid and employer-based coverage compared to most other states. Mandates rely on the concept that a fully insured population is the cornerstone to control health care costs and potentially lead to improved health outcomes. However, until the new programs are fully implemented, the effectiveness of these mandates will remain debatable.

Individual and employer mandates will be discussed at the State Coverage Initiatives Summer Workshop for State Officials, “State Innovations in Health Coverage,” on August 3–4, 2006 in Chicago. For information and registration details, please see http://www.statecoverage.net/meetings.htm.

[1] Urban Institute and Kaiser Commission on Medicaid and the Uninsured estimates based on the Census Bureau’s March 2004 and 2005 Current Population Survey.

AcademyHealth Stateside - 06/20/2006 (Plain Text Version)

Individual and Employer Mandates: Renewed State Interest