April 12, 2006 – “Romneycare” launches in Massachusetts and, whether intended or not, becomes the blueprint for the Patient Protection and Affordable Care Act (PPACA) , affectionately (or not) known as Obamacare. I was reminded of the similarities – and the challenges – in a recent article by James Cronin in his piece, Exporting Romneycare, in The Boston Globe.
On the challenges to making the national version of Massachusetts’ model work, he said, “Reform in Massachusetts worked because of three main initiatives: the individual mandate, which requires people to buy insurance or risk fines; the subsidies that help low- and middle-income people pay for their plans; and the expansion of Medicaid coverage for the state’s poorest citizens. Reform wouldn’t have been as effective without all three parts working together.” Why are all three elements necessary? Because without almost universal coverage, the financial underpinnings of this model are unstable. And, the Supreme Court decision has made the roadmap to universal coverage tactically more difficult.
Medicaid Expansion – Medicaid expansion is a fundamental piece of the PPACA. But, the Supreme Court decision made state participation in expansion optional. About 45% of the United States population lives in the 23 states and the District of Columbia that are planning to expand Medicaid eligibility under the PPACA (as of July 2013 – this doesn’t include Indiana, Ohio, and Pennsylvania who have recent decisions with caveats to opt in). This leaves 55% of the population covered not by Medicaid but by the individual mandate – and with an unintended “donut hole” style penalty (see How Many Consumers With An SMI Or Addiction Fall In The New Medicaid ‘Donut Hole’? all members and How Many Consumers With An SMI Or Addiction Will Be Covered Under Medicaid Expansion? all members).
Subsidies – The PPACA provides subsidies to individuals and families with income at 100% to 400% of the FPL who are unable to obtain health coverage through an employer or through a Medicaid reference plan for the expansion population. The premium tax credit subsidies are based on the annual premium cost of the second lowest cost Silver QHP (the Silver level covers 70% of claims) available on the Marketplace in the individual’s state. Consumers eligible for subsidies can select any plan coverage level. Young adults up to age 30 will also have the option of purchasing a plan that offers only catastrophic coverage, but these plans are not eligible for premium tax credit subsidies (see Median 2014 Monthly Premium Price For Health Insurance On Exchanges Is $328). For example, a 27-year-old man making $25,000, and buying the second lowest Silver QHP plan would pay on average $145 – an average premium of $214 with a subsidy of $69.
Individual Mandate – The Individual mandate is a legal compulsion that all citizens need to purchase health insurance, and was upheld by the Supreme Court as constitutional because it is a tax (see Individual Mandate Stays – SCOTUS Puts State Medicaid Expansion In Play all members). Failing to purchase insurance will earn consumers a “fine”, and the fine will go into effect in 2016. The fines will total at most $695 or 2.5% of an individual’s income, whichever is higher (see How Does The Insurance Mandate Work? all members). The challenge for the plan is two-fold. First, will younger individuals buy insurance or opt to pay the fine? Second, will the population bumping into the Medicaid donut hole actually buy insurance? How about without a subsidy?
The coverage calculus is simple. If not enough individuals sign up, health care providers will continue to have demand for uncompensated care and the rates for the plans offered on the exchange will likely go up. We’ll know more about the status of enrollment at the end of the first quarter of 2014. In the meantime, the U.S. delivery system is making changes similar to the developments in the Massachusetts system over the past seven years – value-based payment models, consolidation of health systems, and more. For a look at the Massachusetts system as it evolved over the last seven years, check out:
Whatever the ultimate shape of the implementation of the PPACA, the landscape in Massachusetts is a glimpse of the future.
For another free resource, see: ‘Obamacare’ Starts In 91 Days all members