Massachusetts has become the first state in the nation to enact a law that will ensure nearly all of its residents have health insurance. It is a bipartisan achievement that passed with nearly unanimous support in the state legislature; only two Republicans voted in opposition.

The plan relies on an individual mandate -- an idea that PPI has championed for more than a decade -- as part of a new bargain between the commonwealth, employers, and Massachusetts residents: The state government will accept the responsibility of making health care coverage more affordable and widely available, using subsidies and other measures. Employers will either offer traditional coverage, or provide their employees access to a menu of private coverage options. And Massachusetts residents will be responsible for getting covered.

As PPI argued in a 1994 paper¹:

Once subsidies to needy families are fully funded, we can in good conscience require everyone to obtain coverage. An individual mandate would add more young and healthy individuals to the insurance pool, thereby lowering everyone's premiums and reducing cost shifting.

The challenge now will be for the state to ensure that there is an honest and sustainable stream of financing to make coverage affordable. It will also be more important than ever to restrain runaway health care costs. But Massachusetts starts with a solid framework that has three key provisions:

1) Subsidies to make coverage widely affordable. The state will provide subsides for health insurance based on a sliding scale for all residents with incomes up to three times the poverty level. Many poor Americans don't have coverage because Medicaid, the low-income health care program, usually doesn't cover adults without children. Another problem is families with moderate incomes who make too much to qualify for Medicaid, but still cannot afford health insurance premiums that average $11,000 each year. Massachusetts will fill these gaps in coverage in large part by redirecting public funding for hospitals that provide free care for people who do not have coverage.

2) A purchasing pool to make a choice of coverage widely available. The new purchasing pool -- the Commonwealth Health Insurance Connector -- will offer a menu of private health plan choices similar to the one available to federal workers through the Federal Employees Health Benefits (FEHB) program. Massachusetts employers that don't currently provide coverage will have a strong incentive to participate in the pool; they will be liable in some circumstances to pay a "free-rider surcharge" when uninsured employees or their dependents rack up big hospital bills. Employers will not be required to pay for their employees' coverage under this provision, but at a minimum they must play the administrative role of providing employees access to the Connector's menu of private health plan choices. Even without mandatory employer contributions, employees' out-of-pocket costs for their coverage will be considerably less than if they tried to get coverage on their own, because of all the new subsidies in the law and because employers will be required to let their employees pay for health coverage with pre-tax income.

3) Penalties for individuals without coverage. Massachusetts will require all residents to obtain coverage or face a penalty. Initially, the penalty will be the loss of a personal exemption on the resident's state income tax return. Subsequently, the penalty will be pegged to half the cost of health insurance coverage. The goal of this individual mandate is to stop people who have the financial means to obtain coverage from relying on free care. Nationally, a quarter of the uninsured have family incomes over $50,000.² But often they do not pay for their own care when a catastrophe strikes because hospital emergency rooms must provide care regardless of a patient's ability to pay.

The only part of the Massachusetts reform where bipartisanship has broken down is over a nominal, so-called "fair share contribution" that employers would have to pay if they don't contribute to the costs of their employees' health coverage. It would max out at $295 per employee per year, an amount calculated to reflect a portion of the costs that the state absorbs when it provides free hospital and physician services to uninsured people. Gov. Mitt Romney (R) made a show of labeling it "a new fee on businesses," and used his line-item veto to strike it from the law, even though the legislature is likely to override him.

Despite that bit of local political theater, Massachusetts' reform achievement is laudable. It is nonetheless important to keep in perspective. The state started from an enviable position. It ranks 8^th among all states for its level of employer-based coverage, and 14^th in overall coverage.³ The nation as a whole has much further to go to cover everyone.

That's why it's critical for the federal government to pass reforms that will bring the rest of the states up to the level of coverage currently enjoyed in Massachusetts. As an immediate step, it should provide subsidies or tax credits to make coverage widely affordable and create purchasing pools that a make a choice of coverage widely available. That's the idea behind the Small Employers Health Benefits Program Act, sponsored by Sens. Richard Durbin (D-Ill.) and Blanche Lincoln (D-Ark.), and Reps. Jim Cooper (D-Tenn.) and Ron Kind (D-Wis.).⁴

Ideally, subsidies for coverage and purchasing pools would be part of a large-scale reform that would require everyone to obtain coverage. Reform should also restrain costs by rewarding health care providers and plans that reduce waste and improve the quality of care. It should promote information technology that enables everyone to protect the privacy of their medical records and to improve their health and health care. Finally, it should include an American Center for Cures to speed medical breakthroughs, especially for the growing problem of chronic diseases.

Massachusetts has taken a bold step forward. It is time for the nation to do the same.

Endnotes

1. Kendall, David, "Breaking the Health Reform Deadlock: The Competitive Path to Universal Coverage," Progressive Policy Institute, June, 1994, p. 25-26,
http://www.ppionline.org/ppi_ci.cfm?contentid=1421&knlgAreaID=111&subsecid=137

2. Fronstin, Paul, "Sources of Health Insurance and Characteristics of the Uninsured: Analysis of the March 2005 Current Population Survey," Employee Benefit Research Institute, November, 2005,
http://www.ebri.org/publications/ib/index.cfm?fa=ibDisp&content_id=3597

3. State Health Facts, Kaiser Family Foundation,
http://www.statehealthfacts.org
(website accessed April 12, 2006.)

4.The Durbin-Lincoln/Kind-Cooper bill would allow small business in every state to participate in Federal Employee Health Benefits (FEHB), but it does not allow states to establish their own alternative. "Small Employers Health Benefits Program Act of 2005," 109th Congress, 1st sess., S. 637 and H.R. 1955. ý

David B. Kendall is PPI's senior fellow for health policy.