• Massachusetts mandates at work

    The following has been cross-posted at The New Republic’s Citizen Cohn.

    During debate over and since passage of the Affordable Care Act (ACA), there has been some concern over whether the individual and employer mandate provisions will work.  Will employers drop coverage in large numbers once their workers can purchase insurance through exchanges? Will enough individuals game the system–purchasing insurance only when sick–to destabilize those exchanges? If the Massachusetts experience is any guide, the answer to both questions is “no.”

    At first glance one might think the ACA’s and Massachusetts’ mandates wouldn’t work because the penalties for noncompliance are low. For example, the employer mandate in Massachusetts has a very weak penalty, just $295 per employee per year, far below health insurance premiums and the ACA’s penalty. But employers have not been dropping coverage in Massachusetts. In their recent NBER paper, Colla, Dow, and Dube summarize the relevant empirical findings:

    Based on a pre-post comparison from a Massachusetts household survey, Long and Masi (2008) found no evidence of dropped coverage or restricted eligibility, and no major changes in the scope of benefits, network of providers, cost to employees or quality of available care under health plans. They also found that employer sponsored coverage had expanded due to increased take up among employees. Gabel and colleagues surveyed Massachusetts employers, finding that the percentage of firms with 3 or more employees offering health benefits increased from 73 to 79 percent, that there was an increase in firms offering Section 125 plans, and that Massachusetts employers were less likely than other US firms to terminate coverage or restrict eligibility (Gabel et al. 2008, Gabel, Whitmore, Pickreign 2007). Furthermore, evidence from Massachusetts indicates that despite concerns about potential crowd out from new public options (Cutler and Gruber 1996, Gruber and Simon 2008), there was actually an expansion in private coverage. (© 2010 by Carrie Hoverman Colla, William H. Dow, and Arindrajit Dube.)

    Despite apparent incentives to the contrary, employer-based coverage is alive and well in the Bay State.

    Turns out the individual mandate is working fine too. Although there are individuals gaming the system in Massachusetts—by waiting to purchase insurance until they need it–the overall coverage rate is high (about 96% insured) and the associated degree of adverse selection is very low (meaning insurers are able to cover medical costs with premium dollars, a necessary condition for a stable market).

    In a recent report released by the Massachusetts Division of Insurance, actuaries estimated that part-year insurance purchasing in Massachusetts’ combined individual and small group market increased premiums by 0.5 percent to 1.5 percent. Based on an average individual premium in Massachusetts of about $5,000 per year, that translates into an annual premium increase of $25 to $75, far too low to have a major impact on the market. Insurance companies can pass that level of premium increase on to consumers without many of them dropping coverage.

    Thus, there is reason to think gaming won’t be an issue with the national individual mandate. First, the ACA’s penalties for lack of compliance with the mandate are actually higher than Massachusetts‘. Second, exchanges will have open enrollment periods, which don’t exist for the Massachusetts version of an exchange right now. Restricting the enrollment decision to a once-per-year event reduces the ability for individuals to time coverage to coincide with illness. There are, of course, differences between Massachusetts and other states that may cause results to vary.

    Note that I am not saying that everything about the health care system in Massachusetts is wonderful. The Bay State still has a health care cost problem and no agreed upon solution to it, for example. Nevertheless, the individual and employer mandates are functioning as designed in Massachusetts, even with lower penalties than will exist under the ACA. That should give us hope that they can work well elsewhere, though it doesn’t guarantee that they will.

    • It’s nice to see some empirical evidence cited instead of the usual panicky assertions about adverse selection. Community rating can work, even without a mandate – see for example http://www.actuaries.org/LIBRARY/ASTIN/vol39no2/403.pdf

    • There was a recent Boston Globe article (sorry I don’t have the link) that discussed smaller employers dropping insurance plans in recent years.

      I would also note that the articles cited are from 2007 and 2008, early in the MA’s system’s implementation and also before the “Great Recession”, so it does not take into consideration what difficult business decisions have been made since Sept. 2008.

      Additionally, the cost issues have not been addressed in MA or nationally, which doesn’t help the most deeply needed aspect of reform. Also, emergency room visits in MA have been rising because individuals are not able to secure a PCP, which will be a growing national problem as well. There are growing and complex problems that coverage-based solutions cannot address. Yes, these people are insured but given how much of our elderly population is insured, clearly having coverage isn’t what is needed for the best results, greatest level of efficiency or decreases in per capita costs.

    • “Also, emergency room visits in MA have been rising because individuals are not able to secure a PCP”

      This seems like a problem with an inadequate number of primary care docs, independent of ACA.


    • This is only technically a problem that is independent of the ACA. If health reform is supposed to improve access to care, if there are insufficient PCPs to meet the increased demand for PCP services, shouldn’t that be a greater focus of the plan? The ACA focuses on coverage, which is a problem in our current health care system. However, the other remaining problems will be magnified when the additional users begin placing demands on the existing system. PCP shortages, rising costs, increasing malpractice premiums, deficient HIT implementation and preventative medicine are all major problems in our current healthcare system. There are some funds dedicated to HIT implementation, however, these funds are not sufficient to adequately address the scale and scope of the problem. From my estimations anyway.

    • The one statistic the blog’s author is correct and consistent in using is the fact that, unlike most of the rest of the U.S., Massachusetts residents have always been pretty well insured (the 94% he mentions). All Romneycare did was move the needle from 94 to 97 and apparently back to 96 percent insured. These statistics are normally produced quarterly by the Department of Healthcare Finance and Policy of the State of Massachusetts in a report called Key Trends (see the web site). That was done from 2006 through February 2010.

      The state government’s own data show how the healthcare delivery system is collapsing in Massachusetts in terms of number of uninsured rapidly increasing (not a typo), costs, lack of solvency of the insurers (the leaders being non-profits by the way), the ER visit info, etc.

      Note that I said quarterly, normally and apparently above. The last report came out in February 2010. Apparently the deterioration continues because the latest data is now 90 days overdue. More playing politics by the Governor and his administration.

    • “S., Massachusetts residents have always been pretty well insured”

      How does one reconcile the high percentage of Mass. insured with the fact that nationwide, employers are dropping insurance?

      Query- How does Mass. compare with the rest of the country in terms of people losing insurance? Numbers are down in ORs in our area.


    • Wow!!! I can’t believe how badly this blog misrepresents the Massachusetts Division of Insurance report it links to. Among its findings:

      1. The percentage of individuals terminating coverage within the first year grew from 13.8% in 2006 to 24.2% in 2008

      2. Oliver Wyman (not the report itself) estimates the cost of additional adverse selction in the Merged Market is in the range of 0.5% to 1.5%. Consideration should be given to creating pre-existing condition provisions, waiting periods, or open enrrollment periods for individuals to reduce the adverse selction in the Merged Market/ In addition, strengthening the individual mandate would help to alleviate the adverse selction in the merged market.

      3 There were 1,272 high-cost individual subscribers terminating coverage within six months in 2008 compared to 364 in 2006; this is an increase of 249%.

      4. In 2006, individuals and small groups who terminated within a year had loss ratios 2.2% lower than the average for the combined markets. However, in the Merged Market, the loss ratio of those terminating within a year is 8.8% higher than the average. This indicates adverse selction may be occurring.

    • Over and over again, the MA Division of Insurance report recommends consideration of strengthening the individual mandate and possibly instituting a pre-existing conditions clause to deal with the increased costs associated with early termination of insurance. Hardly a glowing review of the MA plan.