For immediate release
Thursday, Sept. 14, 2006
12:01 a.m. EDT


Christopher Fleming

Massachusetts Health Reform Plan Offers Great Benefits, But Significant Challenges Remain

Policy Innovations, Political Consensus May
Point The Way To Reforms Elsewhere

Bethesda, MD -- Massachusetts’ plan to move toward universal coverage represents an impressive political achievement, and the plan’s policy innovations offer important lessons to other states. However, the true significance of the Massachusetts experiment will become clear only after the state addresses daunting implementation challenges over the next several years.

That’s the verdict delivered by the two lead papers of a six-paper package on the Massachusetts experience published today on the Health Affairs Web site. John McDonough, executive director of the Boston-based Health Care For All, teams with three colleagues from that organization to provide a comprehensive look at the important events and key players involved in the plan’s package. John Holahan and Linda Blumberg (Urban Institute) survey the issues Massachusetts will have to address as it seeks to turn its path-breaking plan into reality. Four additional papers offer perspectives on these lead studies.

Massachusetts’ plan, passed in April 2006 as Chapter 58 of the Acts of 2006, “is a complex mix of Medicaid changes, subsidized insurance offerings, insurance market reforms, safety-net alterations, individual and employer responsibility provisions, and more,” according to McDonough and coauthors. They explain that the Massachusetts plan includes the following:

-- The Commonwealth Care Health Insurance Program. Commonwealth Care will provide subsidized health insurance coverage for uninsured adults with incomes below 300 percent of poverty ($29,400 for an individual and $60,000 for a family of four). Those below 100 percent of poverty will pay no premiums, and those at relatively higher incomes will receive income-based subsidies on a sliding scale.

-- The Insurance Connector. The Connector is an independent state authority that will serve as a marketplace for insurance offered to individuals without employer-sponsored coverage, enabling them to purchase coverage with pretax dollars. Companies with fifty or fewer employees may also purchase coverage for their employers through the Connector. In addition, the Connector will manage Commonwealth Care.

-- Individual Mandate. The law requires all adults to purchase insurance, subject to the availability of “affordable” insurance. In 2007 the penalty for violating the individual mandate will be the loss of the Massachusetts state personal income tax exemption -- about $218 for an individual and $418 for a family. In 2008 and thereafter, the penalty increases to up to half the cost of the least expensive available insurance policy. The Connector board will set the definition of “affordable” and determine what types of coverage satisfy the individual mandate.

-- Medicaid Expansion. The plan expands MassHealth, the state’s Medicaid program, to children in families with incomes up to 300 percent of poverty.

-- Employer Mandate. At a minimum, employers are required to set up a Section 125 plan for their employees. Under these plans, workers can buy insurance with pretax dollars through the Connector, even if their employer contributes nothing to the coverage. If employers with more than ten employees do not make a “fair and reasonable” contribution to their workers’ insurance coverage -- with the definition of “fair and reasonable” to be defined administratively -- they will be subject to a per worker per year assessment not to exceed $295, prorated for part-time and seasonal workers.

The Potential Impact Of The Massachusetts Plan Is Large,
But So Are Its Implementation Challenges

Holahan and Blumberg say that the Massachusetts plan “is potentially of enormous consequence.” The two authors say that the plan could bring Massachusetts economic gains from improved health with a present value of $1.5 billion dollars, but they also caution that the state faces major challenges in implementing its reform plan, including the following:

-- Affordability. “Ideally, the subsidy schedule [offered to low-income state residents] would be directly linked to the affordability standard,” so that “each family would be subsidized to an extent that would allow them to purchase coverage within the standard of affordability,” the authors say. However, “nothing in the Massachusetts legislation requires such a linkage, and revenue constraints could make doing so difficult.”

-- The Connector. “The most likely approach for insurers to offer lower-cost plans” through the Connector is by requiring “much higher out-of-pocket spending than is typical today,” say Holahan and Blumberg. They warn, however, that policies with high out-of-pocket spending could segment the Connector’s risk pool, attracting healthier enrollees and leaving only those with high medical costs in more-comprehensive policies, thus driving up premiums in these policies. On the other hand, “if such high-cost-sharing policies do not prove attractive, it is difficult to see how plans in the Connector would be able to hold down premiums,” since “the Connector as envisioned does not seem equipped to use other mechanisms to control increases in health care spending.”

-- Employer Response. Under the Massachusetts plan, large firms are not likely to drop coverage, but “allowing workers to purchase coverage on a pretax basis using Section 125 plans reduces the incentive for small employers to offer coverage to their workers independently,” the authors say.

Can The Massachusetts Approach To Universal Coverage
Work For Other States Or For The Nation?

“There has been much discussion nationally over whether the Massachusetts reform offers lessons for other states or perhaps even for the country as a whole,” say Holahan and Blumberg. Both these two authors and McDonough and colleagues acknowledge that the Bay State started with a low uninsurance rate and additional advantages lacked by other states in moving toward universal coverage. They say, however, that Massachusetts’ innovative approaches, such as the merging of the individual and small-group markets through the Connector, provide a new policy kit for other states, and perhaps the federal government, to use.

In the end, the most significant aspect of the Massachusetts reform plan “is its merger of right and left, Republican and Democratic, conservative and progressive approaches to building a fairer, smarter health care system,” McDonough and coauthors say. “Individual responsibility is favored by the political right and disliked by the political left, and the reverse holds for employer responsibility. The default position for politicians is to do neither. Massachusetts’ willingness to attempt both is evidence of unusual political maturity.”

Perspectives Include A Call For Combining Chapter 58 With Bush Tax Credits, And A Skeptic’s Take On The Massachusetts Reform

Lynn Etheredge, consultant, Health Insurance Reform Project, George Washington University. Etheredge calls for a demonstration program in Massachusetts that would combine the state’s health reform plan with the tax credits President George W. Bush has proposed to assist uninsured people in purchasing coverage. He says that the tax credits could help ensure that participants in Commonwealth Care would be able to afford high-quality coverage.

The combined plan would include Medicaid expansions, offer workers affordable coverage through competitive insurance markets, and provide federal, state, employer, and individual financing, Etheredge points out. He says that such a demonstration “could produce important practical lessons” for federal, state, and private actors, which could facilitate “taking similar models ‘to scale’ for national coverage of forty-five million uninsured Americans.”

Elizabeth McGlynn, associate director, RAND Health. McGlynn and her coauthor, RAND senior policy researcher Jeffrey Wasserman, point out that where a state ends up after health reform depends on where it starts out: “Massachusetts is unique in its relatively low rate of uninsured residents, its relatively long history and tradition of tightly regulating the health insurance market, the existence of a large federal subsidy, and a state Uncompensated Care Pool. So even if another state were able to pass comparable legislation, the cost and outcomes would likely be quite different.”

“A better understanding of the starting conditions and the expectations for the future in the absence of major policy change would contribute to making explicit the relative gains and losses likely to be achieved from any proposed change,” McGlynn and Wasserman say. “Today we have no such comprehensive framework for analyzing competing reform options.”

Tom Miller, resident fellow, American Enterprise Institute. Miller expresses the most skeptical view of the Massachusetts plan. He labels as “vastly overstated” the argument used by plan backers that taxpayers and privately insured Massachusetts residents would pay less “if purported free riders were forced to purchase insurance and reduce their use of uncompensated care.” In 2004, the maximum plausible cost-shift from the uninsured to the privately insured across the entire country was only about $6 billion, or less than 5 percent of total medical care costs for the uninsured, Miller says.

In the end, Miller argues, Massachusetts’ fundamental problem is that it “is a very high-cost state for health care, with a concentrated market of relatively inefficient providers already swimming in a sea of dysfunctional public subsidies and crippling overregulation.” The “cosmetic nips and tucks” in the Massachusetts plan “simply amount to too little and too late of a challenge to the existing cost structure.”

Nancy Turnbull, president, Blue Cross Blue Shield of Massachusetts Foundation. “The most difficult group to cover [under Chapter 58] will be the 30 percent of the uninsured who do not qualify for Medicaid or [Commonwealth Care] subsidies and have incomes between 300 and 500 percent of poverty, likely not high enough to easily afford health coverage at existing prices,” Turnbull notes. She also emphasizes the importance of building and sustaining public support for the individual mandate and other elements of the Massachusetts plan.

“Massachusetts is one of only a handful of states that is losing population -- particularly middle-class families. If the individual mandate is perceived, rightly or wrongly, as worsening this problem, legislative and employer support for the mandate could erode,” she warns. Turnbull urges the Connector’s board, in setting the affordability standard, to be “highly attuned to the political as well as policy implications of its decisions. A relatively low affordability standard would limit the reach of the new mandate, but it would help ease the transition to the new ‘culture of insurance’,” she suggests.

You can read the six articles at



Health Affairs, published by Project HOPE, is the leading journal of health policy. The peer-reviewed journal appears bimonthly in print with additional online-only papers published weekly as Health Affairs Web Exclusives at


©2006 Project HOPE–The People-to-People Health Foundation, Inc.