In April 2006, Massachusetts enacted a dramatic health care reform package. Dubbed “Romneycare” after Massachusetts Governor Mitt Romney, this plan calls for reforms in the health insurance market, a mandate for individuals to purchase health insurance combined with taxpayer subsidies, and mandates on employers.
Already, Pennsylvania lawmakers are looking to “Romneycare” as the model for health care reform needed in the Commonwealth. In May, representatives Tony DeLuca (D-Verona) and Nick Micozzie (R-Clifton Heights) announced they would introduce legislation similar to the Massachusetts plan in the Pennsylvania General Assembly. Unfortunately, this ambitious plan has numerous flaws which undermine its potential benefits.
One of the unique features of “Romneycare” is something called “The Connector.” The Connector is akin to a clearinghouse for health insurance. Insurance companies offer health insurance plans through the Connector, and individuals and small businesses (50 or fewer employees) can pool their resources to purchase insurance, essentially getting a group rate. Advantages of the Connector are that individuals choose among competing plans, plans follow an individual even as they change jobs, small businesses can offer cash contributions for employees without having to contract an insurance plan, and two-income households (or individuals with two part-time jobs) can combine their resources and employer contributions in the Connector.
Of concern is the level of options available to employers and individuals through the plan. Currently, Massachusetts has one of the most heavily regulated health care markets (as does Pennsylvania). The Massachusetts legislation lessens some of the regulations on health insurance offered through the Connector and allows HMOs to provide Health Savings Accounts (HSAs). However, the Connector will determine what plans will be acceptable under its guidelines. This could result in “managed competition” and limit the options for purchasers of health care, even squeezing out options offered outside the Connector. If the Connector is limited in its regulatory powers and merely provides options for cost-sharing and portability in health coverage, this could represent a real step towards reducing health care costs.
The employer mandate of the Massachusetts plan is not overly onerous for businesses. Any employer with ten or more employees can be fined up to $295 per uninsured employee per year and be responsible for costs of uninsured employees’ care above a certain threshold. However, these penalties are avoided if employers offer a simple “cafeteria plan,” which allows workers to take pre-tax deductions from their paycheck for health coverage. Thus employers are not required to contribute to employees’ health care plans.
The most onerous aspect of the Romneycare plan is a mandate that every individual must have health insurance in Massachusetts. Anyone not able to show proof of health insurance when filing state income tax returns will be assessed a tax penalty, to be set equal to half the cost of buying insurance. Massachusetts will provide taxpayer subsidies for individuals and families earning up to three times the federal poverty rate (which would subsidize a family of four earning up to $60,000 in 2006) to purchase health insurance.
This mandate and subsidy proposal is a misguided reform that Pennsylvania policymakers should reject. First, the cost of “free-riders” (those who receive health care but don’t pay for it) is a miniscule portion of overall healthcare spending, and the mandate to reduce this expense would be more costly. Second, the mandate is difficult to enforce, given the large percentage of individuals who don’t file state tax returns (which will increase under this plan). Third, the combination of mandates to purchase and subsidies from taxpayers will drive up the cost of health care dramatically. Health insurance providers will have an incentive to increase costs, given everyone must buy their products.
Furthermore, many individuals who don’t use much health care will choose to pay the penalty and save money, rather than buy insurance. Essentially, this “mandate” becomes nothing more than a tax on the healthy to subsidize the health care industry. Most importantly, this mandate and subsidy mechanism encourages businesses to eliminate health care benefits for employees and fully shift the costs to individuals and taxpayers.
While “Romneycare” enables small businesses and individuals to pool resources to purchase health coverage and creates portability through its Connector programs—two reforms Pennsylvania lawmakers should embrace—the overall effect of the plan is counterproductive for health care consumers and taxpayers. Health care reformers in Pennsylvania must focus on increasing options for individuals and businesses, deregulating the health care market, and reducing taxpayer subsidies, not passing more state mandates that only service to exacerbate, rather than solve, the cost problem.
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Nathan A. Benefield is a policy analyst with the Commonwealth Foundation (www.CommonwealthFoundation.org), an independent, nonprofit public policy research and educational institute based in Harrisburg.