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Massachusetts Mandatory Health Insurance Purchase Law is No Model for California

SANTA MONICA, Calif., Oct. 12 /PRNewswire-USNewswire/ -- Massachusetts is not a model for California health reform, according to an analysis of that state's law requiring all residents to buy private health coverage. Coverage in Massachusetts is already much more expensive than promised and insurers, whose premiums are not capped or regulated, have indicated rates will increase again next year.

Download the full analysis of the Massachusetts law, which provides an overview of the cost and status of the Massachusetts' mandatory purchase requirement, released today by the Foundation for Taxpayer and Consumer Rights (FTCR) at:

A proposal modeled on the Massachusetts law announced on Wednesday by Governor Schwarzenegger fails to account for the affordability crisis faced by Massachusetts residents. In fact, a provision of Schwarzenegger's proposal encourages insurance companies to raise rates. Under that proposal, insurers will be allowed to keep 15% of premium revenue for overhead and profit. With no tested regulatory review of where the money is going and whether rate increases are necessary, the cap will encourage insurers to give hospitals and doctors whatever they ask for -- at the expense of individuals and the state.

"Insurers, who will keep 15% of premiums no matter what they pay doctors and hospitals, will be all too happy to pay more--and charge policy holders more--in order to keep more," said Jerry Flanagan of FTCR.

Under the new Massachusetts law, by April 15, 2008, -- tax day -- residents must prove on their tax returns that they have private health insurance or face financial penalties.

Massachusetts' law would require citizens to spend up to 10% or more of their incomes on health insurance. Co-pays and deductibles are not included in the 10%. Even at that stiff upper limit, the state estimates that 18% of the uninsured cannot afford insurance at all, including everyone making just over the subsidy cutoff of 300% of the federal poverty level.

"In just over two months, Massachusetts consumers must have health insurance or pay a penalty under the law. They will end up paying more for less health care -- an inevitable outcome when individuals are forced to purchase private health insurance and costs are not regulated," said Carmen Balber of FTCR. "Families with children, older consumers and middle class families are some of the most likely to be lacking health care. They're also the first to fall through the cracks under Massachusetts' mandatory private insurance plan because insurers won't provide an affordable product unless the state controls costs."

Few middle-income Massachusetts consumers have enrolled in the new mandatory coverage. Only 6% of new enrollees are buying private plans with no subsidy. Most of the remaining 94% of new enrollees are under 150% of the federal poverty level and receiving full subsidies.

"While it is beneficial to provide health care to the working poor, the Massachusetts plan is far from solving the un-affordability of private insurance for middle-income workers," said Balber. "The plan, with its very small employer penalties, also may encourage employers to steeply reduce or eliminate work-based coverage."

Key points

1.Massachusetts faces a simpler problem than California does: The state has 500,000 to 650,000 uninsured versus six to seven million in California. Unlike California, Massachusetts health insurers are primarily non-profit and the state had guaranteed issue and community rating before the mandate. Massachusetts' median annual income is also $15,000 higher than California's. Even so, it is not reaching the middle class.

Newly enrolled in Massachusetts' health insurance: 122,582 (approx. 20% of MA uninsured)

> 94% taxpayer subsidized

Full Subsidy: 92,884 76%

Some Subsidy: 22,534 18%

Unsubsidized: 7,164 6%

2.The cheapest "affordable" plans aren't affordable: Massachusetts assumes that insurance is "affordable" if consumers can pay the premiums, disregarding deductibles, co-pays and other co-insurance. The cheapest plans offered come with $2000 deductibles, co-pays of up to 35% for most health services, separate medication deductibles with up to 50% co-pays, and they cap only some out-of-pocket costs.

Families could be required to spend 10% or more of their income on the health insurance premium alone. The cheapest "affordable" plans would require each of the following to purchase insurance:

-- A 55-year-old in Boston. Cost: $4510 premium/yr, 9% of a $50,000 income

-- A small-town couple in their late-forties. Cost: $9,121 premium/yr, 11.4% of an $80,000 income

-- Parents in their mid-fifties with two kids in rural Greenfield. Cost: $13,752 premium/yr, 12 % of $110,000 income

3.Many cannot afford coverage even under this high affordability standard: Massachusetts estimates that 18% of the uninsured will be unable to afford to pay even the premiums of any insurance plan. This includes:

-- Everyone, of any age, making just above 300% of the federal poverty level (the cutoff point for state subsidies)

-- Singles over 55 making less than $50,000 a year

-- Couples over 50 making less than $80,000 a year

-- Families, with parents over 30, making less than $90,000 a year

4.Few have enrolled in full-price health plans: As of September 1, 2007, more than 115,000 new enrollees signed up for a subsidized health plan; 80% of these qualified for fully subsidized insurance. Just 7,164 have enrolled in unsubsidized plans. With a practical deadline to enroll in a health plan just a month away, few are purchasing full-price private health insurance.

"The Massachusetts experiment shows that mandatory purchase of health insurance just doesn't add up, for families or taxpayers. If inefficient, high-overhead private insurers are allowed to charge whatever they choose, consumers pay more in the form of higher premiums and less coverage," said Balber.

FTCR is California's leading public interest watchdog. For more information, visit us on the web at

SOURCE Foundation for Taxpayer and Consumer Rights
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