Update and Public Statement on Continued Lack of Transparency on the Impact of the Affordable Care Act on Massachusetts

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The following is a statement from Pioneer Institute executive director Jim Stergios:

“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.”



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.