By Ian Duncan

September 2010 – The health reform plan enacted by Massachusetts in April 2006 has been the subject of considerable scrutiny, both on its own merits and because it is a model for the national reform recently enacted by Congress.  This Massachusetts legislation reformed insurance markets, subsidized insurance coverage for a large subset of the previously uninsured population, introduced a new purchasing or exchange mechanism, and mandated insurance coverage for almost all citizens.

At the time of the enactment of the law, Massachusetts enjoyed a relatively low uninsured rate.  Approximately 10.3% of the non-elderly population, on average, was uninsured between 2004 and 2006, compared with a national average of 15.3% (and as high as 25% in some states).   A relatively high percentage of Massachusetts employers offered coverage to employees (70%), compared with national averages (60%).

The low baseline uninsured rate, re-direction of generous payments for uncompensated care from hospitals to insurers, and federal subsidies allowed the legislature to subsidize insurance coverage for (at the high point) nearly 200,000 citizens who earned between 100% and 300% of the Federal Poverty Level (FPL). (Citizens earning less than the FPL qualified for Medicaid benefits.)  As a result of the mandate, the uninsured rate is now estimated to be between 2% and 3%, down from 10.3% in 2006.

Governor Romney’s Reform Plan

For background, Governor Mitt Romney (R) proposed a plan for universal coverage that included:  

  1. The establishment of an “exchange,” a central purchasing pool through which insurance could be offered to individuals at lower rates than those that were available in the non-group market.
  2. A requirement that all employers would be required to establish Section 125 accounts, through which employees can pay their insurance premiums on a pre-tax basis, either for insurance provided by the employer or purchased individually through the exchange.
  3. Large subsidies for families living below 300% of the poverty line.
  4. A more limited insurance plan for those above 300% of poverty, at a cost of roughly $200/month for individuals, so that insurance was affordable even outside of the subsidized range.
  5. A mandate that all individuals be required to purchase health insurance coverage, as the state mandates for auto insurance.

The plan would be funded in part by rededicating the federal funds previously paid to safety net hospitals and much of the funds in the uncompensated care pool.   For Fiscal Year 2011, the premium paid by the program averages approximately $430 per member per month, or more than $5,000 per participant per year.

Eligible individuals are able to choose a plan from one of four not-for-profit Medicaid Managed Care Organizations (MCOs), the largest two of which are maintained by the large safety net hospitals.   A fifth managed care organization has since entered the market, which is (unusually for Massachusetts) a for-profit plan.  All plans include coverage for inpatient, outpatient, and preventive care services, inpatient and outpatient mental health and substance abuse services, and prescription drugs.  For members earning up to 100% FPL, dental services were also covered initially, although these services were subsequently eliminated as a result of state budgetary problems.   Members whose income is in excess of 150% FPL pay minimal contributions, depending on plan selected and level of income.

In addition to this component of the program, there is also something for those above 300% of poverty. The program operates an “exchange,” develops standards for benefits to be sold to individuals and small groups, and distributes coverage to citizens via its website.   Policies that meet its standards of value and price are assigned a “Seal of Approval” and given prominence on the website.

These policies are grouped into three levels, “bronze,” “silver,” and “gold,” with six health plans offering options at each level.  The “gold” level was set to a very generous HMO benefit (e.g. $5 office visit copayment).  The silver level was set to an actuarial value of approximately 80% of the gold level, and the bronze level was set at approximately 60% of the gold level.

Unlike the population between 100% and 300% of the poverty level, which has to obtain its coverage through the exchange, the commercially-insured population may obtain coverage directly from an insurer, employer or union, as well as through the exchange.  The exchange is also prohibited from operating its own insurance vehicle.  The combination of insurer competition and limitations on its role has resulted in a relatively small participation by individuals and small groups in the exchange.

Achievement of Reform

The major achievement of reform is the coverage of all but approximately 2.6% of the Commonwealth’s citizens.  Employers and consumers have joined with the state to live up to the mandate.  Medical trend in the 100% – 300% FPL program has been moderate, at around 8% annually.  However, despite adding more covered lives to the individual and small group pool, costs have continued to escalate rapidly.   A recent study by the consulting firm, Oliver Wyman, found that the merger of the small group and individual markets has raised the cost to small group employers by an additional 2% to 3% to subsidize individual coverage.  At the same time, the cost of small group coverage has risen faster than both inflation and the cost of the 100% – 300% FPL program.  As a result, small employers have lobbied successfully for a rate cap on increases, which has potential long-term implications for insurance company solvency.

Implications for National Reform

Massachusetts was uniquely positioned to implement reform because of its low uninsured percentage, its relatively generous uncompensated care payments, and a federal subsidy.  National reform has potentially more significant cost implications because these factors are not replicated throughout the country.  One important difference is Federal cost-sharing: approximately 50% of the increased cost of coverage of the 100% – 300% FPL program is subsidized by CMS. The subsidy is one reason that Massachusetts has not had to raise taxes to pay for increased coverage.   At the Federal level there is no other source of funds, and reformers have therefore had to raise a number of taxes to offset some of the increased cost.  Reformers in Massachusetts were hopeful that expansion of coverage would increase competition between insurers and reduce premiums.  They are beginning to realize that premiums are simply a reflection of underlying medical costs, and that costs that continue to escalate at 8% in an environment of state budgets that (at best) grow at 3% annually are unsustainable.

Unfortunately, as experience is beginning to show in Massachusetts, the national expansion of coverage without real reform of healthcare financing and delivery is likely to face the same problem.

About the Author

Ian Duncan, FSA FIA FCIA MAAA, is active in public policy and healthcare reform, and serves on the boards of directors of the Commonwealth of Massachusetts Healthcare Connector Authority (the body that manages the health reform program) and SynCare, LLC.

He is president and founder of Solucia Consulting, a SCIOinspire company.  Solucia, based in Hartford, CT, provides analytical and consulting services to the healthcare financing industry. Solucia consults on a wide range of issues in Disease Management and other care management programs to health insurers, employers and state Medicaid plans.  He has over 30 years of experience in healthcare and insurance product design, management, financing, pricing, and delivery.  He is also the only actuary who has actually implemented and managed disease management programs!

Mr. Duncan holds a post-graduate degree in economics from Balliol College, Oxford, and is a fellow of the Society of Actuaries, the Institute of Actuaries (London) and the Canadian Institute of Actuaries. He also serves as chair of the Society of Actuaries Healthcare External Relations committee, and chair of its predictive modeling seminar group.   Academically, he is a Senior Scholar of the Dept. of Health Policy of the Thomas Jefferson Medical College, and is an Adjunct Research Professor of the School of Nursing and Health Studies at Georgetown University.  He is the author of a number of peer-reviewed papers, (two of which have won best-paper awards from the Disease Management Association of America) and a number of books.  His last book, “Managing and Evaluating Healthcare Intervention Programs” (Actex Publishers) was published in September 2008, and his next book, “Healthcare Predictive Modeling and Risk Adjustment” will be published at the end of 2010.

Ian Duncan can be reached at (860) 676-8808 or email him directly at


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