“Massachusetts business owners need to be able to plan, and that means they need to have some idea about the future cost of their healthcare premiums. The fact is, state officials have information about the potential economic impact of the Affordable Care Act (ACA), and they have thus far refused to disclose what they know to the public.

“While ACA will have the effect of reducing insurance premiums for some in the state, it will also cause premiums to spike for a number of individuals and businesses. In just seven months, major changes in our marketplace will take place due to the new federal law, and it is high time the state allow residents, employees, small business owners and the employer community to know what is coming.

Our state leaders should remember they work for us.

I respectfully call on the Governor to release all draft reports at the Division of Insurance on the impact of the ACA on small businesses and individuals. It is important to walk the talk on transparency – especially when the livelihoods of Massachusetts employers and employees are at risk.”

BACKGROUND

How This Became an Issue:

In a December 26, 2012 joint letter from the Commissioner of Insurance and the then Executive Director of the Massachusetts Health Connector to the Centers for Medicare & Medicaid Services (CMS), the state warned of the need for additional flexibility or a waiver from new Affordable Care Act (ACA or ObamaCare) federal requirements or a significant number of citizens in Massachusetts would experience “extreme premium increases.” (italics added) The letter referenced a Division of Insurance (DOI) special examination report.

To better understand the underlying concerns included in the state letter and its disconcerting use of such strong language, on March 21, 2013 Pioneer Institute filed a Freedom of Information Act request (FOIA) for all drafts of the March 2012 DOI-initiated special examination report that looked at the impact that certain changes required by the federal ACA will have on the small business community.

The issue being examined by the DOI has garnered significant attention with the Boston Globe penning an editorial, and many in the business community requesting more involvement from state leadership.

On April 5, 2013 Gary Cohen from the Centers of Medicare & Medicaid Services wrote to the Commissioner of Insurance in which he concocted, and then granted, a three year transition period to the Commonwealth to phase out certain rating factors currently utilized in the state. This additional change only served to heighten the need for full transparency from the DOI as companies struggled to understand the phase out.

Twenty-eight days later after filing Pioneer’s FOIA request, the DOI rejected the request for greater transparency claiming state law allows them to deny the release of any document that are related to the examination of a business. Yet, one of the sections cited clearly allows for the commissioner to release information that might be appropriate for the public to know before taking regulatory action.

M.G.L. Ch. 175, §4(8) “Nothing contained in this section shall be construed to limit the commissioner’s authority to use and if appropriate, to make public any final or preliminary examination report, any examiner or company work papers or other documents, or any other information discovered or developed during the course of any examination in the furtherance of any legal or regulatory action which the commissioner may, in his sole discretion, deem appropriate.”

On May 8, 2013, the DOI released a report entitled “Report to the Massachusetts Division of Insurance: The Projected Impact on Health Insurance Premiums in the Merged Individual/Small Group Market with the Implementation of Federal Rating Rules that Restrict the Use of Massachusetts Rating Factors.” While it is a necessary first step, and for the first time publically acknowledges in a state report that, “many individuals’ and small employers’ premiums will change in material ways as their coverage renews in 2014,” the report suffers from numerous limitations.

First, the report was out-of-date on its release data, since it only examines the “rules of the road” as of February 27, 2013, before the phase in was granted.

Second, the report does not examine the impact of unmerging the individual and small group marketplace.

This matters because Pioneer Institute has obtained tables from another draft of the report that contrasts both the impact of the new phase to another scenario of de-merging the nongroup and small group marketplaces. The results show hundreds of thousands of small-business employees experiencing double-digit increases up to 20 percent over the next three years, under the phase in, with many fewer seeing double-digit decreases.

The de-merging scenario shows a more moderate increase for those at smaller companies.

Finally, both DOI reports only examine the direct impact of the rating factor changes without considering the result of other ACA required tax increases or changes in insurance design.

Why Do These Changes Matter?

The decision by the Obama Administration to phase-in the rating factors in Massachusetts should make two points very clear; the new phase-in will cause insurance premiums for some small businesses to spike in the state- and instead of doing so in 2014, the increase will be spread out over three years.

Second, the ACA does not allow for true state flexibility or control, as Massachusetts wanted to keep all seven rating factors instead of moving down to just four.

Massachusetts small businesses already pay the highest insurance premiums on average in the entire country, so any significant increases will put pressure on their ability to stay profitable and to hire additional workers.

Background on the Rating Factors:

Rating factors are used to determine the premium cost of insurance for citizens on fully-insured plans or buying insurance on their own in the Commonwealth.

Oliver Wyman’s report to the DOI, explains the ACA’s changes:

According to the rating rules set forth in M.G.L. c. 176J and 211 CMR 66.00, carriers are permitted to develop and use the following rating factors when calculating the premiums of any individual or small employer policy’s coverage:

Factors which, in combination, may not exceed a 2-to-1 rating band:

• Ages of the covered members;

• Industry of the employer;

• Participation rate of employees in the employer’s health coverage;

• Participation in approved wellness programs; and

• Tobacco usage of the covered members.

Factors outside the permissible 2-to-1 rating band:

• Value of benefits in a health product compared to other health products;

• Family composition (also known as rate basis type of the family5);

• Geographic location of business or individual policyholder’s residence;

• Size of the employer group;

• Use of an intermediary when obtaining coverage; and

• Use of a group purchasing cooperative when obtaining coverage.

…

The ACA sets forth specific rating factors that may be used in developing individual and small group premiums for most coverage issued or renewed on and after January 1, 2014. When fully implemented, the ACA requires that premiums may differ from one eligible individual to another or from one eligible employer to another only based on the following permissible rating factors

• Family composition;

• Ages of the covered members (which may only vary within a 3-to-1 band for adults);

• Tobacco usage of the covered members (must provide wellness program to offset tobacco load for small employers); and

• Geographic location of the business or the individual policyholder’s residence.

These requirements, when applied in 2014, will require that carriers eliminate the use of the following Massachusetts rating factors:

• Factors part of Massachusetts’ 2-to-1 rating band:

• Industry of the employer;

• Participation of employees in the employer’s health coverage; and

• Participation in approved wellness programs.

Factors outside the permissible 2-to-1 rating band:

• Size of the employer group;

• Use of an intermediary when obtaining coverage; and

• Use of a group purchasing cooperative when obtaining coverage.

First it was the problem of Massachusetts being forced to switch our rating factors to new federal rules. (Read here for more background.) This led to the recent decision by federal HHS to unilaterally grant the state a phase-in for these new rating factor rules. Of course, this doesn’t fix the problem, it just spreads it over three years instead of one.

Making matters worse, the Patrick Administration has also refused to release an updated version of reports that estimate the true impact on small business.

In a Globe editorial on Sunday, we also learn for the first time that “federal Health and Human Services officials … will grant Massachusetts a two-year grace period before health plans here have to move to the new schedule for small-business rates.”

Don’t remember ever hearing about a grace period provision in the federal law!

What is the new problem now? And what is the rationale behind the grace period?

…new federal rules will require insurers to set rates on a once-a-year basis. That means health plans will have to develop rates that, in some cases, won’t take effect for 18 months. The predictable effect: Because health plans will want a cushion against the greater uncertainty of that longer period, they will seek higher rates than they otherwise would. Some estimates are that premiums will increase by an extra 1 to 2 percent as a result.

I have started to wonder when the granting of phase-ins and grace periods will become national news. Once that happens, other states are sure to come knocking on HHS’s door.

Find me on Twitter: @josharchambault

In implementing Obamacare, a lighter touch is better

MAY 12, 2013- Boston Globe

THIS STATE’S universal health care law was the model for the federal Affordable Care Act, but so far, Massachusetts’s experience with the new national law has proved frustrating. Certainly the experience here doesn’t fully comport with President Obama’s recent assertion that the new law is “working fine.”

Bureaucratic hurdles are inevitable when attempting to reconcile local rules and practices to new federal standards. But even people who strongly support Obamacare, as many people in Massachusetts do, shouldn’t hesitate to call attention to areas where the law is unnecessarily complicated, or where local practices accomplish the same purposes in simpler ways.

So far, when it comes to Massachusetts, the federal response has been to grant grace or transition periods. But those periods don’t solve the problems, they merely delay their onset. The Obama administration’s aim should be fixing, rather than finessing, those problems.

The latest issue here is federal regulations that will force insurers to change when they set rates for small businesses and individuals. Currently, health plans submit their proposed rates, which need state approval, on a quarterly basis, three months before they are scheduled to take effect. Quarterly filing, with its relatively short lag time, lets insurers consider the latest data and cost trends as they formulate rates.

But new federal rules will require insurers to set rates on a once-a-year basis. That means health plans will have to develop rates that, in some cases, won’t take effect for 18 months. The predictable effect: Because health plans will want a cushion against the greater uncertainty of that longer period, they will seek higher rates than they otherwise would. Some estimates are that premiums will increase by an extra 1 to 2 percent as a result.

Massachusetts Insurance Commissioner Joseph Murphy says federal Health and Human Services officials have told him they will grant Massachusetts a two-year grace period before health plans here have to move to the new schedule for small-business rates.

That action echoes HHS’s posture on the separate issue of which factors can be considered in setting rates for small businesses. First, regulators announced rules that meant Massachusetts insurers would no longer be able to consider things like the risks inherent in an industry or whether a company has a wellness program or how many employees it has when setting rates. Then, after a concerted state effort, HHS granted insurers here a three-year period over which to implement the new policy.

The grace or transition periods are certainly better than nothing. But in both cases, they just push back a few years the disruption the new rules will cause. As a state that already has a universal health care law, Massachusetts expected a lighter touch.

“We all had hoped that because the Affordable Care Act was built on the Massachusetts model, it would be relatively easy to reconcile the two laws,” said Andrew Dreyfus, president and CEO of Blue Cross Blue Shield of Massachusetts. “In fact, it has turned out to be a real challenge. We all need to be flexible to meet that challenge.”

These frustrations aren’t an argument for repealing the federal law. Making sure everyone has health insurance remains a top national priority. Further, every big new piece of legislation has problems that need correcting.

But the bumpy experience here does argue for more flexibility in the way the law is being implemented. It shouldn’t be hard to find a rationale for such latitude, particularly when it comes to Massachusetts. In addition to a well-regarded universal health care law, this state also has a functioning merged individual and small group market. But if the Obama administration doesn’t feel it has the power to grant such flexibility, it should seek that authority from Congress.

Massachusetts’s experience, after all, isn’t an isolated one. According to The New York Times, a number of anxious Democratic senators expressed frustration with Obamacare’s implementation at a recent meeting with White House officials.

The White House should take heed. When even supporters start raising red flags, it behooves the president and his administration to pay closer attention.

I believe the results from this study will drive many future decisions about Medicaid and how it is structured given the methodological uniqueness of the program.

While the results have largely been spun in the direction of how one views the ACA, the real debate in the Medicaid program should be how to best use public dollars in order to assist low-income families and the disabled.

From my perspective, it is not a matter solely of the amount of money being spent, I (along with Avik) would be happy to continue spending if we knew we were getting good results. However, Oregon has questioned that basic argument for Medicaid.

Even Jon Gruber seems to have reframed his opinion based on this experiment:

I would view this study as somewhat weakening the argument for universal coverage based on health improvements and greatly strengthening the argument based on financial security and mental well being.

This is like referencing a study that finds kids going to school results in
very little learning, but improves socialization and increases the diagnosis of
ADHD. Don’t get me wrong, both positive outcomes, but not the primary rationale
for schooling, and reason enough to question some of the underpinnings of the
program.

If the goal of Medicaid is improved financial security and better mental health
assessment, then we should provide a catastrophic insurance plan and improve
screening and treatment services for mental health. This program would be
significantly cheaper than the status quo, and free up additional funds to address
some of the flaws in the current system. For example, we could guarantee better
access to doctors for those on Medicaid by paying more like a “concierge medicine service,” which would better coordinate care.

This is the debate that should be happening, not reframing the results to focus on the half-full glass, while the vulnerable linger in a $450 billion a year mixed results program. Don’t they deserve better?

@josharchambault

Controversial Provision of Federal Health Law Impacts Hundreds of Companies, Will Lead to Research and Development Cuts, Layoffs, Higher Prices

BOSTON – As part of the financing for the federal Patient Protection and Affordable Care Act (PPACA), Massachusetts businesses face a 2.3 percent excise tax on medical devices that went into effect on January 1^st, 2013. According to a new Pioneer Institute policy brief, First, Do No Harm: The Impact of the Affordable Care Act on Massachusetts’ Medical Device Industry, the estimated tax liability for this year will be more than $422 million for the 19 largest companies in the state. The first payment is due to the Internal Revenue Service on April 30^th. 

First Do No Harm: The Impact of the Affordable Care Act on Massachusetts’ Medical Device Industry

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The new report, authored by Pioneer Health Care Policy Director, Josh Archambault and Xiaofei (Jackie) Zhou, examines the potential impacts on the over 400 medical device companies in Massachusetts, making the state the second highest concentration of employees in the nation, at 24,268. The law could also impact 82,000 additional jobs in related industries.

“There has been bipartisan condemnation of this particular provision, Minnesota Senator Al Franken has called it a ‘job-killing tax’, and our own Senator Elizabeth Warren campaigned against it,” said Archambault. “While the majority of the tax hike will fall on larger companies, the impact on innovation at smaller companies will be felt more heavily, since the tax is assessed regardless of profitability and these companies often lack a diversified product line.”

INFOGRAPHIC

The authors examined 19 Bay State-based companies, varying in size from 22 employees at AdvanceSource Biomaterials to 3,200 Massachusetts employees at Phillips Healthcare, with an estimated tax burden ranging from $27,000 to $122 million, respectively.

A recent survey by KPMG of local medical device executives indicates that the added costs of the tax will likely result in firms decreasing research and development budgets (50 percent), raising prices on consumers (44 percent), and reducing the size of their workforce (25%). Nationally, some industry firms have already initiated layoffs.

This brief is part of a series by Pioneer Institute examining the outcome of particular tax provisions in the ACA in Bay State residents and businesses. Last fall Pioneer released, The Impact of the Federal Health Law’s “Cadillac Insurance Tax” in Massachusetts, showing that a majority of Massachusetts employees will bear thousands of dollars in additional costs when the ACA’s so-called “Cadillac” insurance excise tax provision goes into effect in 2018.

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Pioneer Institute is an independent, non-partisan, privately funded research organization that seeks to improve the quality of life in Massachusetts through civic discourse and intellectually rigorous, data-driven public policy solutions based on free market principles, individual liberty and responsibility, and the ideal of effective, limited and accountable government.