Two years ago, the MA Healthcare Reform Law went into effect with the admirable goal of insuring the uninsured – and it asks everyone to participate – the government, insurers, providers, employers and individuals.
Is it working?
According to the latest press release by the Commonwealth Connector – the government authority responsible for administering the new law – there are 340,000 newly insure MA residents, giving the Commonwealth one of the lowest uninsured rates across the nation – and some say a universal healthcare model for the rest of the country.
What’s wrong?
With all the newly insured people coming into the system so rapidly, we are having trouble finding enough doctors to treat them and – we are having trouble finding the money to pay for it. In fact, some estimates show that the new law is under-funded by as much as $150-$200 million.
What does the Governor propose?
Last week, Governor Patrick issued a proposal asking businesses, insurers and hospitals to contribute about $100 million to fund the shortfall – and according to some new polls, consumers are supportive of his idea because they think “others” need to step up and pay “their share” – suggesting that recent increases in co-payments and deductibles prove consumers are already doing “their part.”
What are the specifics for the Governor’s proposal?
The Governor proposes raising $100 million in three ways:
1. Changing the “or” test for employers to “and” ($33 million) – if employers fail, they must pay a $295 annual assessment for each employer
Specifically: employers with more than 10 employees must pay at least 33% of worker’s premiums within their first 90 days “or” have at least 25% of their worker’s covered by an employer plan
2. Tax health insurance company reserves ($33 million) – these monies are used to pay claims and a certain amount must be kept on hand by each insurer to make sure those claims can be paid
3. Tax hospitals ($28 million)
What’s wrong with this plan?
The problem with the Governor’s plan is it’s a HIDDEN TAX on consumers – and it doesn’t fix a thing! Why?
The government, insurers, providers, employers and consumers all play an important role in the healthcare equation…let’s take a closer look.
The MA state government collects a big check from the federal government every year (last year, almost $4 billion) to pay for Medicare and Medicaid healthcare expenses. The problem – the government does not pay its fair share – they pay about $.80 for what costs $1.00 for doctors and hospitals to deliver in the form of care for me and you.
The big insurers in MA (BCBS, Harvard Pilgrim, Tufts and Fallon) are all non-profit. They make about 1-2% profit margin on every premium dollar they collect from us (employers and employees) and put those profits into the bank (reserves) to pay claims. Insurers negotiate contracts with the government, doctors and hospitals to deliver care to you and me (their members). Because the government only pays 80% of what it should, doctors and hospitals charge insurers about $1.20 to make up for the government’s shortfall.
The doctors and hospitals also negotiate contracts with the government and insurers. As we already discussed, they charge insurers more than the actual cost of care to make up for what the government isn’t paying (see estimated figures above).
Employers sponsor health insurance for their employees. Most work with brokers and consultants to find the best plan for the least amount of money and on average – employers pay about 75% – 80% of the cost for their workers.
Employees (consumers) pay for about 20% – 25% of the health insurance premium and when they use their health plan – they pay co-payments and deductibles as well.
How can it be a hidden tax when the Governor’s plan calls for everyone else to pay?
When you understand who is involved in healthcare and the role everyone plays – it becomes clearer to see the impact:
1. Insurers – taxing reserve accounts will lower “money in the bank” (reserves) and require the insurers to increase health insurance premiums to replace them
2. Hospitals – faced with already tight budgets, hospitals will be forced to demand more money from insurers to deliver care and insurers will have to give it to them or risk not being able to offer their members access to “my doctor” “my hospital”
3. Employers – changing the test from “or” to “and” will increase assessments (fines) which means employers will have less money to hire, give raises, pay for benefits, etc.
4. Consumers – will pay higher insurance premiums because employers can’t afford to pay the premium increases insurers will demand
Where do we go from here?
We need to ask the EVERYONE to be more prudent with the way they spend their money – let’s see what that looks like:
1. Government – we need the government to pay its fair share and manage OUR money more wisely…why is that such a foreign concept? Spend less than they take in to give us a balanced budget and money to fund greater access to care and to help lower what doctors and hospitals need to ask insurers for
2. Insurers – we need insurers to continue to find ways to reduce their administrative expenses (now about $.10 on every $1) and help members get the right care, at the right time and in the right place and teach them how to live a healthier lifestyle so they need less care
3. Hospitals/Doctors – we need our providers to also find ways to reduce their administrative expenses (now about $.25 on every $1) and helps their patients get the right care, at the right time and in the right place and teach them how to live a healthier lifestyle so they need less care (sound familiar? the word partnership comes to mind)
4. Consumers – WE need to understand that healthcare is expensive and that relative to the rest of the country, we are NOT paying more. In fact, the Boston area has the best healthcare in the country and WE really don’t pay as much as others do. WE need to demand accountability from everyone in this “food chain” as well as ourselves…it’s simply the right thing to do!
In the end, asking employers, insurers and hospitals/doctors to pay more taxes to pay for our new healthcare law is just another way of taxing us – it’s “bad” politics and a hidden tax…so hold onto your wallets!
Mark S. Gaunya
Principal
Borislow Insurance
Board Member of MassAHU
Health care reform in Massachusetts represents a commitment by the people of Massachusetts to first, make health care coverage more affordable for everyone, and second, find the resources to help low-income people get coverage they otherwise could not afford.
The reform plan is premised on the economic benefit of moving people out of episodic acute care and into managed primary care. Our economy depends on a healthy workforce, and the old system left too many low income people with no source of regular primary care. There’s also the moral case, articulated by Governor Romney and affirmed by Governor Patrick, that we should aspire to cover as many as possible.
The Governor’s revenue plan reflects the short-term funding needs for the current year, and shares that cost among a broad group – employers who provide sub-standard coverage, hospitals and insurers. Another substantial part of that cost, around $25-$30 million, is coming from low-income participants in the CommCare program, through higher copays and premiums.
You are correct that, in the end, all costs get passed on. But at the margin, short term costs may get absorbed. For example, assessing excess reserves of insurers may not cause all insurers to raise rates to replenish those reserves. Some have much higher reserves than others. With the increased scrutiny of rates, an insurer may choose to just live with slightly lower reserves. The proposed increased hospital assessment is a tiny fraction of hospital revenues. Hospital margins are the highest they’ve been in 4 years. The increase may get absorbed in many instances.
The proposal to broaden the employer assessment is particularly appropriate, since those firms benefit the most from the state’s provision of coverage to their workers. This assessment is totally avoidable. The vast majority of companies will meet the standard, and only those with very chintzy benefits will have to pay.
You’re right that we must also move to control waste, inefficiency and inappropriate care. The administration and legislature are starting in this direction, proposing far-reaching reforms, like not paying for preventable hospitalizations.
But if we want to extend coverage to those low-income Bay Staters who can’t fully afford it themselves, then someone’s going to have dig a bit deeper and pay a bit more to the state. We think the Governor’s plan is a fair allocation of the burden.
Brian Rosman
Health Care For All
Brian said:
“For example, assessing excess reserves of insurers may not cause all insurers to raise rates to replenish those reserves. Some have much higher reserves than others. With the increased scrutiny of rates, an insurer may choose to just live with slightly lower reserves.”
This is not true.
No matter what we want to achieve, pretending that we can get money out of business without it being replaced by price increases is an illusion. A pleasant, happy illusion. If you want to be taken seriously, do not pretend this is an option. Insurers will never spend down their reserves willingly. Those monies are there for the protection of all policy holders, state regulations require those holdings, and a company is rated by the size and stability of those reserves.
The article makes very sure that people can follow where the money will come from and see how this back-door tax will be passed on in the form of higher prices. Not only that, but the current plan calls for an un-equal distribution of the cost, so the people who are enrolled with some insurers will pay more than others. This un-equal assessment is not, as you claim, “a fair allocation of the burden.”
~~ Arabesque
Mark and Arabesque,
No one is proposing taking away necessary reserves from insurers. The governor’s proposal is for a one-time $33 million assessment on insurer net worth/surplus that exceeds the levels needed for solvency protection. Health insurers are well able financially to absorb this assessment with no need to pass it along to employers or consumers in order to maintain sound solvency positions. This is particularly true if the assessment is designed to ask more from the health plans who are in the best position financially (a concept, I note, that is consistent with the sliding scale affordability schedule that has been adopted for consumers for the individual mandate).
First, a couple of accounting points: net worth/surplus is what remains after insurers have taken into account all of their liabilities, including creating adequate reserves for unpaid claims. Second, regulators use a conservative method of accounting, statutory accounting, that doesn’t allow insurers to count certain assets on their balance sheets that would be included under generally accepted accounting principles (GAAP). This has the effect of reducing reported net worth.
Of course insurers need net worth/surplus to ensure adequate solvency to protect against unanticipated expenses and to make needed investments. But if you look at the current net worth of health plans in Massachusetts, most have surplus above the levels needed for adequate solvency protection. In total, the major health plans based in Massachusetts have $2.8 billion of net worth, calculated using statutory accounting (or about $3.6 billion using generally accepted accounting). So a $33 million assessment is only about 1% of the total statutory net worth of the plans (and less than 1% of GAAP net worth).
The assessment is also modest compared to net worth above needed levels. One common, easy-to-compute measure of solvency is the amount of net worth that exceeds 60 days of operating expenses (medical expenses and administrative costs). Using this measure, the major health plans based in Massachusetts have about $1 billion of surplus above 60 days of operating expenses. A $33 million assessment is about 3% of this amount. An assessment of this size will in no way impair solvency or undermine protection of policyholders. The major health plans in Massachusetts are not-for-profit, so they don’t need to impress Wall Street or shareholders or rating agencies.
It’s smart and prudent, not unfair, to calibrate the assessment to the financial position of helath plans. The financial position of health plans varies; some are much better off financially than others. So it makes sense that the Governor’s proposal asks the Division of Insurance and the Division of Health Care Finance and Policy to design the actual assessment method, so that the different financial condition of insurers can be taken into account.
An insurer assessment is a reasonable and fair way to ask health plans to contribute to the financing of health reform. Health plans have benefited enormously from the coverage expansions created by the law (more than 300,000 new members in Commonwealth Care and private insurance plans). They have also benefited from the MassHealth payment increases (designed to raise hospital and physician rates more than $500 million in the first three years of the law). Health insurers supported these MassHealth provider payment increases, which were designed, in part, to reduce cost-shifting by providers to private insurers.
Health plans can afford a $33 million assessment with no risk to their financial health. And the state can and should ensure that any assessment paid by the health plans doesn’t raise premiums. In the case of the major Massachusetts health plans, all of which are not-for-profit, public charities, their net worth has been created solely from the profits and investment income that health plans have made from the premium payments of employers and consumers. So, we’ve already paid. It’s time for insurers to join us.
Nancy
I have an idea.
Why don’t we have a one time one percent tax on all the endowments of all the non-profit colleges in the Commonwealth?
Bill Randell
Broker Operative
[...] answered the objections of the insurers and employers. In her response to a comment on the WBUR Commonhealth blog, Nancy explains why the proposed assessment is fair and can be easily absorbed by the insurers. Her [...]
Nancy said here:
“One common, easy-to-compute measure of solvency is the amount of net worth that exceeds 60 days of operating expenses (medical expenses and administrative costs). Using this measure, the major health plans based in Massachusetts have about $1 billion of surplus above 60 days of operating expenses. A $33 million assessment is about 3% of this amount.”
On July 8 in a Commonhealth article Nancy said:
“Net Worth/surplus >60 days of medical and administrative expenses = $756 million”
These two numbers do not match. Which number is accurate?
While it is easy to point out magically expanding numbers, it is more difficult to see the best way to fund what we all hope will be a universal system of health care. We began this process with estimated costs, we are now seeing actual costs. To hand-wave this difference away, claiming a one time tax on reserves and a change in the negotiated language of employer mandates will fix things, is to ignore our shared responsibility. While we might have a politician’s promise that this is a one time assessment, what will cover this 100 million dollar bill in FY 2010?
Brian:
Let me make one suggestion. Before we do any of these things lets take a closer look at the people who have enrolled in CommonwealthCare to see if these are the people that we intended to insure.
There are many enrolled in CommonwealthCare, who qualify since there stated income falls within the guidelines, but have adequate assets. We need to add an asset test, in order to be eligible for CommonwealthCare.
Thanks
Bill Randell
Broker Operative
Hi Bill,
I appreciate that you recognize some Commonwealth Care enrollees are not as desperate as their income may make them seem. My (former) employers and their wives are on Mass Health. They own their homes (one is a one million dollar home). Last year business was slow and they were unable to take paychecks regularly. Thus, though not intentional, qualifying for subsidized healthcare. This year, now that they know the ins and outs of the “Healthcare Reform”, they’ll see to it that they only earn a certain amount.
And let’s also realize that many of these enrollees are working in cash businesses and therefore may only show a certain income for tax purposes while in actuality they may be financially fine.
Why are some of these people not a red flag to the DOR, Health Connector board, etc?
Thanks for listening.
PJ
PJ
I would think that the people, who work for the Health Connector had a vested interest, to see a high subscriber count to justify their existence. Are they really going to point out people that our taking advanatge of their system?
Many many of the enrollees in CommonwealthCare own cash businesses, whereby they qualify for CommonwealthCare. Why is this not like Medicaid when you an elderly person tries to have their nursing hoe bills? Do we merely ask for their income? Of course not!!
The crazy thing about this is that a person in a cash business may be tempted to declare less in income thus paying less in taxes to qualify for CommonwealthCare, costing the Commonwealth even more monies. We are in essence are create an incentive for people to cheat?
In retrospect more monies should have been invested into the Insurance Partnership and removing the exclusion that an employee can not have been offered health insurance the past 6 months. As more people, who can control their stated income, realize the eligibility requirements, you will see more people becoming eligible for CommonwealthCare.
Bill Randell
Broker Operative
Arabesque,
Thanks for pointing out the difference in the two numbers. For yesterday’s comment, I included one health plan that was omitted from the earlier post in July (didn’t have the net worth number when I wrote that one) and I did not omit subordinated surplus notes from net worth, which I excluded in the earlier post. (The DoI permits the plans to include surplus notes that are appropriately subordinated in their net worth so it counts for solvency purposes. I tried to be conservative in my earlier post so I excluded them.)
There is nothing “magical” about the numbers. In fact, these are conservative estimates, since they include only major health plans based in Massachusetts. If I included the net worth of health plans based elsewhere but licensed and operating here, the net worth figures would be much larger. If an assessment on insurers is passed, I assume the DoI and DHCFP would include all licensed health insurers in its methodology.
Nancy
Brian Rosman posted:
“Excess insurer reserves means the insurers have overcharged us in the past. A modest assessment just reclaims our premiums for a public purpose. It’s our money.”
On behalf of Associated Industries of Massachusetts and the employers we represent, I find it ironic that Brian Rosman is claiming that insurers’ reserves are the insured’s’ money. Not that I disagree with him, in fact, I agree wholeheartedly. But let me put a finer point on it. The money in question is mostly employer money. Employers pay between 75-80% of the insurance premium on average, contributing billions of dollars to our health care system annually. I am happy Mr. Rosman appreciates that insurer reserve assessments will ultimately be borne by employers, as will additional assessments on hospitals. That is the point employers have been making all along. Our contributions are already sizeable.
Further, I disagree with the notion that an insurer assessment is a reasonable and fair way to ask health plans to contribute to financing of health care reform, and that the money should be reclaimed for a public purpose. As we ascertained, it is not really the insurers that will be paying the assessment. In addition, the Medical Security Trust Fund is being raided to provide more money for health reform. It is a fund that is capitalized solely by employers by a surcharge on their unemployment insurance bills to pay for health insurance for laid off workers. This is in addition to our contributions to MassHealth and Commonwealth Care through our significant tax contributions that just got a whole lot more sizeable as a result of a recently enacted tax law.
The underlying premise for Mr. Rosman and HCFA is that employers haven’t paid their fair share. I find that outrageous given the additional costs and contributions we have made under health reform. Employers have stepped up to the plate in way no other stakeholder has. Providers got increased reimbursement rates under health care reform. Insurers got more enrollees. Consumers got subsidized care. Employers got the bill.
For now, employers remain committed to making health care reform a success, but the burden should not be borne by us alone. Health care reform and increased access to health care is a societal benefit that should be borne by all the citizens of the Commonwealth (who overwhelmingly support reform) rather than disproportionately by employers who are buckling under the financial weight of health care costs.
This thread is getting long, but the arguments are real and the discussion valuable.
Some brief responses to Eileen McAnneny’s post:
Excess insurer reserves do mainly come from employers who were charged too much in previous years. That’s why in PA and other states, it was employers who strongly supported reallocating reserves for public programs. But using some of those reserves now would not impose any new costs on employers. They’ve already been paid, and now the insurers have our money.
The only lose would be the very slight decline in investment income earned by insurers. If insurers were making 5% on their money, the $33 million to be assessed means a net loss of $1.65 million. Compare this to total insurer revenues in the tens of billions. But the new cost to employers would be zero. So we’re outraged, I guess, as to why the business community is so intent on defending insurers right to keep their overcharges.
Secondly, employers have obfuscated by repeating over and over how much employers are already paying (“buckling under”) for health coverage. But the proposal to broaden the Fair Share assessment would only hit those firms that are not buckling under, since they offer minimal benefits to their workers. So my other outrage is why AIM, whose members universally offer decent coverage to their workers, would be so intent on defending employers who are evading their responsibility.
Changing the fair share contribution criteria would not impact responsible firms. It would even the playing field a tiny bit, by imposing a slight cost (way, way less than the cost of insurance) on those firms that are benefiting the most from the new health programs.
We agree, Eileen – most employers have stepped up to the plate. The issue here is the few of them that have remained in the dugout, refusing to join the rest of their team out on the field. Shouldn’t they have to take an at bat, too?
Brian:
Your arguements simply miss some basic business 101 concepts; for example, if place excessive cigarette taxes are placed on taxes, people will stop buying them and buy them somewhere else.
As well if you tax the reserves of the insurance companies, it will result in higher premiums to the employers which mean higher weekly deductions for the employees.
I agree with Mark in his original post, but there is nothing hidden about this. Taxing the reserves of insurance companies will result in higher premium just like increase cigarette taxes increase the cost of a pack of cigs.
Bill Randell
Broker Operative
Nancy-
Thanks for the explination. Does the funding proposal go after the reserves of all those out of state plans? I guess I was more interested in hearing a response to the second, larger, question of wether there was any way to know if this shortfall will happen again. Besides the $33mil from employer and/or word changes (which can easily be skirted by offering health insurance on the 89th day of employment rather than the 90th) and a promised one time tax on hospitals and insurers, what is the substantive change that will make this go away next year? The issue is the continued success of this program, what can we do to make this change perminante?
[...] The stories are relevant again as state funding for health reform must be resolved by the end the legislative session Thursday. For a lively discussion of some of the issues, check out the comments in long thread at the WBUR Commonhealth blog. [...]
Brian Rosman posted:
“Excess insurer reserves means the insurers have overcharged us in the past. A modest assessment just reclaims our premiums for a public purpose. It’s our money.”
On behalf of Associated Industries of Massachusetts and the employers we represent, I find it ironic that Brian Rosman is claiming that insurers’ reserves are the insured’s’ money. Not that I disagree with him, in fact, I agree wholeheartedly. But let me put a finer point on it. The money in question is mostly employer money. Employers pay between 75-80% of the insurance premium on average, contributing billions of dollars to our health care system annually. I am happy Mr. Rosman appreciates that insurer reserve assessments will ultimately be borne by employers, as will additional assessments on hospitals. That is the point employers have been making all along. Our contributions are already sizeable.
Further, I disagree with the notion that an insurer assessment is a reasonable and fair way to ask health plans to contribute to financing of health care reform, and that the money should be reclaimed for a public purpose. As we ascertained, it is not really the insurers that will be paying the assessment. In addition, the Medical Security Trust Fund is being raided to provide more money for health reform. It is a fund that is capitalized solely by employers by a surcharge on their unemployment insurance bills to pay for health insurance for laid off workers. This is in addition to our contributions to MassHealth and Commonwealth Care through our significant tax contributions that just got a whole lot more sizeable as a result of a recently enacted tax law.
The underlying premise for Mr. Rosman and HCFA is that employers haven’t paid their fair share. I find that outrageous given the additional costs and contributions we have made under health reform. Employers have stepped up to the plate in way no other stakeholder has. Providers got increased reimbursement rates under health care reform. Insurers got more enrollees. Consumers got subsidized care. Employers got the bill.
For now, employers remain committed to making health care reform a success, but the burden should not be borne by us alone. Health care reform and increased access to health care is a societal benefit that should be borne by all the citizens of the Commonwealth (who overwhelmingly support reform) rather than disproportionately by employers who are buckling under the financial weight of health care costs.