What a Health Insurance Exchange Could Look Like in Washington State
2006-14
Since Massachusetts enacted its comprehensive health care legislation in April 2006, other states have been looking closely at the Bay State to determine what, if anything, their state can learn from Massachusetts’ endeavor. The purpose of “An Act Providing Access to Affordable, Quality, Accountable Health Care,” is to expand access to health care for Massachusetts residents.[1] While the Act is expansive, this Policy Note focuses on one noteworthy conceptual element - the creation of the Commonwealth Health Insurance Connector. In Washington, many proposals submitted to the Blue Ribbon Commission on Health Care Costs and Access identified an interest in further examining the Connector.[2] This document identifies those elements of the Connector that could be adapted to improve access to health insurance for Washingtonians and possibly correct some of our current market deficiencies.[3]
Fundamental Components of the Massachusetts Connector:
The Connector is intended to link individuals without employer-sponsored health insurance and small businesses with health insurance products.[4] The key components of the Connector, discussed below, are:
The Connector is an independent public entity whose purpose “is to facilitate the availability, choice and adoption of private health insurance plans to eligible individuals and groups.”[5] An 11 member board of private and public representatives governs the Connector which is scheduled to begin offering health benefit plans as of April 1, 2007.[6]
The Connector may only offer health insurance plans to eligible individuals and groups. An eligible individual “is a resident of the commonwealth; provided however, that the individual is not offered subsidized health insurance by an employer with more than 50 employees.” Thus, the Connector can not be used by an individual if he or she is offered subsidized health insurance by a firm with 51 or more employees, regardless of whether the individual accepts the offer of insurance. Eligible small groups are “groups, any sole proprietorship, labor union, educational, professional, civic, trade, church, not-for-profit or social organization or firms, corporations, partnerships or associations actively engaged in business that on at least 50 per cent of its working days during the preceding year employed at least one but not more than 50 employees.”[7]
The Connector provides small businesses with another tool for purchasing health insurance. Small businesses may use the Connector to purchase health insurance, purchase health insurance on their own, or choose not to purchase health insurance. If an eligible small group wants to purchase health insurance plans through the Connector, it must comply with certain requirements. These requirements include the employer agreeing not to offer individuals eligible to participate in the Connector any separate group health plan offering the same, or substantially the same, benefits provided through the Connector. The employer reserves the right, subject to applicable law, to determine the criteria for eligibility, enrollment and participation in the Connector and the amounts of employer contributions, if any, to such health plan. And, the employer agrees to participate in a payroll deduction program so that employees may benefit from tax-free premium contributions.[8]
The Connector permits individuals to choose among plans, own their plan, and continue their plan even if they are no longer employed or change jobs. Based on the definition of an eligible individual, a change in an individual’s employment status will not necessarily result in an individual losing their insurance. It is possible that former employees can continue to purchase their plan through the Connector. Moreover, if an individual has multiple employers, those employers can each contribute to the employee’s premium payments, if they so choose.
Additionally, a separate chapter of the Massachusetts law requires all employers with 11 or more employees to create and maintain a cafeteria plan that satisfies federal requirements.[9] This cafeteria plan permits employees to use pre-tax dollars to pay for their health insurance premiums.
Washington could choose to adapt some elements of the Massachusetts Connector in creating a health insurance exchange. The state could:
The Massachusetts Connector establishes an entity that creates a marketplace through which individuals and small businesses can purchase health care insurance from competing plans. Theoretically, it is a simple way for consumers to purchase health insurance through an organized market. It was based on The Heritage Foundation’s voluntary health insurance exchange whose role would be to facilitate health insurance transactions.[10] Although the Connector is a state entity, Washington could use private sector entities to administer the functions of a health insurance exchange. Moreover, Washington could open the exchange to all Washington residents and employers regardless of firm size. Participation in the exchange would be voluntary.
Washington, like all states, has some portion of its population that is uninsured. While the precise number of uninsured Washingtonians differs depending on the data source,[11] there are different categories of uninsured. These include: individuals that are eligible for government programs; individuals earning a relatively high salary but who choose not to purchase insurance; those that are uninsured for a short period of time, presumably due to changes in employment; and, those that are uninsured for a long period of time.[12] By enabling individuals to personally own their insurance policy, a health insurance exchange could help provide continuous coverage for those individuals who move in and out of the insured category because of their employment status.
Finally, Washington could permit employers to opt into participation in the health insurance exchange. Once an employer did so, it would have the discretion to choose how much, if any, it was willing to contribute toward the employees’ premiums. This defined contribution would give more flexibility to employers. And, by using a 26 U.S.C. Section 125 cafeteria plan, employers could facilitate employees’ ability to purchase health insurance with pre-tax dollars. With such a cafeteria plan, employees could use pre-tax dollars to pay for health insurance premiums even if their employer chooses not to contribute any funds.
The Massachusetts health care reform plan is complex, with numerous interconnected pieces. As with any legislation, it will take time to implement and fully evaluate. The Connector is not scheduled to begin offering health insurance plans until the spring of 2007. Thus, it is too early to know how successful it will be in connecting consumers with insurance products and whether products are developed and marketed to meet the needs of these consumers. It is also too early to know if employers who currently offer health insurance coverage to their employees will stop offering coverage and instead direct employees to the Connector.
Washington and other states can wait until implementation of the Massachusetts health care reform is complete before considering similar options. Or, states can analyze and consider some of the concepts underlying the Massachusetts health care reform. The concept of a voluntary, private-sector health insurance exchange is certainly one of the ideas that Washington may want to analyze further. It has the possibility of: improving access to health insurance; providing choice, ownership, and portability of health insurance for consumers; and making health insurance more affordable because individuals can use pre-tax dollars to pay for their health insurance premiums.
[1] Commonwealth of Massachusetts, “Chapter 58 of the Acts of 2006,” 12 April 2006, http://www.mass.gov/legis/laws/seslaw06/sl060058.htm (accessed October 11, 2006).
[2] These proposals were submitted by Office of the Insurance Commissioner, Roger Collier, Group Health Cooperative, and Washington Policy Center. Proposals to the Blue Ribbon Commission on Health Care Costs and Access Listed by Strategy. http://www1.leg.wa.gov/documents/joint/HCCA/ProposalsbyStrategyrev.pdf (accessed October 12, 2006).
[3] This document is selective in the elements of the Connector that it addresses; it is not intended to be a complete review of the Connector.
[4] “ Massachusetts Health Care Reform: A Look At The Issues,” John Holahan and Linda Blumberg, Health Affairs 25 (2006): w432-w443.
[5] Commonwealth of Massachusetts, “Chapter 58 of the Acts of 2006,” Chapter 176Q, Section 2(a), 12 April 2006.
[6] Id. Chapter 176Q, Section 2(b), (f), 12 April 2006
[7] Id. Chapter 176Q, section 1, 12 April 2006.
[8] Id. Chapter 176Q, section 6 (a), (b), (c), 12 April 2006.
[9] 26 U.S.C. Section 125.
[10] See “The Massachusetts Health Plan: Lessons for the States,” Nina Owcharenko and Robert E. Moffit, July 18, 2006, footnote 4.
[11] See “Income, Poverty, and Health Insurance Coverage in the United States: 2005,” U.S. Census Bureau, available at http://www.census.gov/prod/2006pubs/p60-231.pdf (last viewed October 13, 2006), 14.1% of Washingtonians were uninsured over a 3-year average for 2003-2005; “Talking Points About Washington’s Uninsured,” Washington State Planning Grant on Access to Health Insurance (August 2005) available at http://www.ofm.wa.gov/healthcare/spg/profiles/0805talkingpoints.pdf (last viewed October 13, 2006), in 2004, 9.8% of Washingtonians were uninsured; “The Uninsured in America,” Washington Association of Health Underwriters, 2.74% of Washingtonians are classified as final uninsured.
[12] See “The Uninsured in America,” Washington Association of Health Underwriters for a breakdown of the uninsured in Washington and the rest of the nation.