Massachusetts Health Connector

November 2017

The Massachusetts Individual Mandate:

Design, Administration, and Results

Table of Contents

Introduction .................................................................... 2

Coverage Standards ......................................................... 3

Affordability Standards ..................................................... 5

Penalties and Exemptions ................................................. 8

Conclusions .................................................................. 10

Appendix ...................................................................... 11

About the Authors

Marissa Woltmann is the Director of Policy and Applied Research at the

Massachusetts Health Connector

Audrey Gasteier is the Chief of Policy and Strategy at the Massachusetts Health

Connector

Introduction

In 2006, Massachusetts enacted a comprehensive package of landmark health care

reforms designed to expand health coverage. Among these reforms was a

requirement that adult state residents enroll in affordable health coverage or face a

penalty. The Massachusetts Health Connector and the Department of Revenue

(DOR) have worked together since then to implement this “individual mandate.” The

individual mandate reflected the guiding principle of shared responsibility that

governed the Commonwealth’s first-in-the-nation health reform effort. It ensured that

residents bore personal responsibility to purchase coverage, introduced policies and

programs designed to help people afford coverage, and made sure that coverage

included essential benefits that could help promote health and reduce financial risk.

The individual mandate is composed of three broad sets of policies. First, it includes

coverage standards, known as Minimum Creditable Coverage, which an individual’s

health coverage must meet in order for them to avoid a penalty. Second, it requires

that the Health Connector Board of Directors define affordability standards to avoid

penalizing uninsured individuals whose available insurance options are deemed too

costly. Third, it defines penalty amounts and exemption standards. This brief outlines

how the Massachusetts individual mandate is designed and continues to be

administered, as well as data about compliance levels among state residents.

Although the Affordable Care Act (ACA) created an individual mandate nationally,

Massachusetts chose to keep its state-level mandate in place because its associated

benefit coverage standards, which varied somewhat from the national approach, had

proven to be effective in our market. A broad group of stakeholders were convened to

consider modifications to help align the two mandates in order to minimize confusion

or complexity for Massachusetts residents; the most notable of these changes was the

decision to allow residents to deduct any federal penalty paid from a state penalty

owed.

This brief seeks to highlight and explain the key components of the Massachusetts

individual mandate, its role in furthering the goals of the Commonwealth’s health

reform efforts, and data on compliance for recent tax years.

Coverage Standards

Certain plans automatically satisfy coverage standards

In order to satisfy the individual mandate requirements, state residents must enroll in

a health plan that meets the Minimum Creditable Coverage (MCC) standards. While

certain kinds of insurance are identified in state law as meeting MCC requirements

(see Figure 1), the Health Connector has also issued regulations further defining MCC.

Figure 1: Coverage Deemed MCC by Statute

• Medicare

• Medicaid (MassHealth)

• Qualified Health Plans, as certified for sale by the Health Connector

• Military and veterans’ coverage

• Federal employee health plans

• Peace Corps, VISTA, AmeriCorps, and National Civilian Community Corps

coverage

• Federally qualified high deductible health plans (HDHPs)

• Student health plans

• Tribal or Indian Health Service plans

Other plans must meet specific criteria related to benefits and

cost sharing

For plans not identified as being categorically MCC-compliant in the statute, the Health

Connector promulgated regulations to define key benefits that a plan must provide in

order to satisfy the individual mandate requirements. These benefits encompass a

broad range of services, and they apply to all members covered by the plan. (See

Figure 2.) Further, MCC regulations prohibit lifetime and annual benefit limits on core

services and set out parameters for out of pocket spending. Compliant plans must cap

deductibles at $2,000 for individual coverage and $4,000 for family coverage, with

separate prescription drug deductibles capped at $250 for individual coverage and

$500 for family coverage. The maximum out of pocket amount for a compliant plan

may not exceed the maximum defined by the U.S. Department of Health and Human

Services each year.

Figure 2: Benefits Required in an MCC-Compliant Plan

• Ambulatory services, including outpatient, day surgery and related anesthesia

• Diagnostic imaging and screening procedures, including x-rays

• Emergency services

• Hospitalization

• Maternity and newborn care, including pre- and post-natal care

• Medical/surgical care, including preventive and primary care

• Mental health and substance abuse services

• Prescription drugs

• Radiation therapy and chemotherapy

The Health Connector may exercise some discretion in

deeming plans compliant with coverage standards

If a plan does not precisely meet certain standards outlined in regulation but still

provides robust coverage overall, the Health Connector has a process by which a plan

sponsor can apply for and receive designation as an MCC-compliant plan. Certain

deviations from regulatory requirements will not – as a policy matter -- be considered,

such as failure to provide a broad range of services, imposition of lifetime limits, or

failure to provide services (such as maternity care) to all dependents. The Health

Connector generally receives several hundred such applications per year.

The responsibility to carry coverage that meets MCC standards

is borne by the individual, not by employers or other plan

sponsors

It is important to note that, while a state resident must enroll in coverage that

complies with Massachusetts’ coverage standards, no employer or other plan

sponsor is required to offer plans that meet MCC standards. There is no penalty for

an employer who offers coverage that does not meet MCC. However, carriers

conducting business in Massachusetts are, of course, aware of the MCC standards

and offer compliant coverage. Further, most Massachusetts employers want to meet

their employees’ needs and, as such, offer compliant coverage. Residents without

access to an MCC-compliant plan through employment or other means can rely on

the Health Connector to provide MCC-compliant plans. Nearly all Massachusetts

residents have MCC-compliant coverage year-round, suggesting this market

arrangement has succeeded in delivering high-quality, comprehensive benefits to the

Massachusetts population. (See Figure 3.)

Massachusetts residents overwhelmingly comply with the

state’s individual mandate

Individuals report on their health coverage status as a part of their state tax filing

process with the Massachusetts Department of Revenue. The vast majority of

Massachusetts adults filing taxes report that they are in compliance with the state’s

individual mandate. While this data differs in nature from survey-based estimates of

insurance coverage, it corroborates the findings of state and federal insurance

coverage estimates that suggest widespread and near-universal coverage in the

Commonwealth. Specifically, the Department of Revenue tax filing data indicates that

for the last decade, between 93 and 95 percent of adults report full year coverage in

an MCC-compliant plan. In the most recent year for which tax data is available (2015),

only 3 percent of adult residents reported having no MCC-compliant coverage. (See

Figure 3.)

Figure 3. Health Insurance Status Reported to DOR, 2007 – 2015

Year

Full Year Coverage

Part Year Coverage

No Coverage

2007

95%

2008

95%

2009

92%

2010

92%

2011

92%

2012

92%

2013

92%

2014

94%

2015

93%

*In 2007, taxpayers were only required to report coverage as of December 31, 2007, so no

distinction for full year or part year coverage was captured

Percentages may not add to 100% due to rounding

Affordability Standards

The law does not penalize individuals who fail to purchase

coverage considered by the Health Connector to be

unaffordable

The Health Connector’s Board of Directors is charged with developing an “affordability

schedule” each year that determines the cost at which health insurance would be

considered prohibitively expensive for an individual to purchase. If a resident were only

able to access coverage for a premium higher than the affordable amount, the state

will not assess a penalty if that person reports being uninsured.

The portion of uninsured residents who are exempt from the mandate penalty because

no affordable plans were available to them has stayed relatively steady over time, with

two exceptions. (See Figure 4.) Because the individual mandate required coverage on

December 31, 2007, a larger number individuals was uninsured. In 2014,

implementation of the Affordable Care Act offered new coverage opportunities, notably

the expansion of Medicaid coverage for low income, childless adults. The portion of

those uninsured exempt on affordability grounds rose because exemptions for other

reasons declined as residents gained coverage.

Figure 4. Residents Exempt Due to Lack of Affordable Plans, by Full Year or

Part Year Uninsurance, 2007 – 2014

Year

Full Year

Uninsured

% Full Year Uninsured

Exempt Due to No

Affordable Plan

Part Year

Uninsured

% Part Year Uninsured

Exempt Due to No

Affordable Plan

2007

204,000

37%

2008

150,000

15%

71,000

2009

170,000

13%

150,000

12%

2010

170,000

16%

150,000

11%

2011

180,000

16%

160,000

14%

2012

180,000

16%

160,000

16%

2013

190,000

22%

160,000

14%

2014

170,000

28%

130,000

*In 2007, taxpayers were only required to report coverage as of December 31, 2007, so no

distinction for full year or part year coverage was captured

Defining what is “affordable” is complex

There are several methods for determining how much a household would be able to

pay for health insurance. Two of the most prominent are by looking at what the market

charges and by determining the income available after other essential expenses. After

reviewing a number of options calculated by different methodologies during the

formative chapter of the state’s health reform implementation, the Board ultimately

set affordability standards for higher income individuals based on a blend of premiums

for employer-sponsored and non-group coverage, set standards based on Medicaid

eligibility for the lowest income individuals, and then progressively bridged the gap

between for others under 300% of the Federal Poverty Level. The result could generally

be described as deferring to market norms for spending on premiums. Also of note,

the Board of Directors chose to deem subsidized Health Connector premiums as, de

facto, affordable. This meant that individuals eligible for the pre-ACA Commonwealth

Care and current ConnectorCare programs could not forgo coverage without penalty.

iii

The affordability schedule has maintained its progressive approach over time, based

on the reasoning that households with higher incomes can afford to spend more on

coverage, and those with lower incomes are less able to devote substantial portions of

their household budgets to coverage. The current affordability schedule defines a

percentage of income to be spent on health coverage that is deemed affordable at

different multiples of the federal poverty level for families of one, two, and three or

more. These amounts are then used to establish baseline enrollee premiums for

ConnectorCare coverage.

As with MCC, the affordability schedule is narrowly applied as a tool by which

individuals can determine if they are exempt from owing a penalty for not enrolling in

coverage. It does not compel employers or carriers to offer plans that are considered

affordable according to the schedule.

Unlike the federal mandate, the Massachusetts mandate does not rely on a particular

indexing methodology for automatic updates. The Board of Directors explored such an

approach, but timely and complete state-level data were not available to do so. For the

last several years, the Board has adopted an approach whereby the percentage of

income deemed affordable is applied to the next year’s federal poverty standards,

allowing for modest growth in the actual dollar amount considered affordable.

While out of pocket cost sharing is a growing burden for many

people with insurance, it is not addressed by the affordability

schedule

In advance of setting the 2016 affordability schedule, the Health Connector

considered ways to incorporate enrollee cost sharing into the schedule, in recognition

of the growing burden of out of pocket costs for the insured, despite the deductible

and out of pocket spending limits embedded in the individual mandate’s Minimum

Creditable Coverage standards. However, the Health Connector ultimately was not able

to identify a methodology that did not result in problematic policy trade-offs or

operational impracticalities. Although many struggle with out of pocket costs, the

purpose of the affordability schedule is to help residents determine whether a forgone

health plan was too expensive to purchase. Two individuals offered the same plan at

the same premium might have had very different out of pocket costs depending on the

services they needed. A sound approach for accurately assessing one’s out of pocket

burden in the decision to go without coverage was not immediately evident, though the

Health Connector continues to be open to exploration of appropriately nuanced

methodologies. The Health Connector also recognizes that continued focus on overall

cost containment and value promotion remain critical to ensuring that out of pocket

cost growth does not present untenable burdens for the Massachusetts population or

to the overall stability of the Commonwealth’s continued commitment to universal

coverage.

Penalties and Exemptions

State residents determine if they owe a penalty when they file

their state income tax return

When Massachusetts residents file their state income tax returns, they are required to

provide information about their compliance with the mandate on the “Schedule HC,” a

form that captures information about health coverage and access to affordable

coverage options and is a required component of the tax return. The Schedule HC asks

covered individuals for the name of their carrier and subscriber identification number.

If they did not have full year coverage, the Schedule HC asks about any months they

did have coverage, and then helps them to assess whether they are subject to a

penalty. Taxpayers complete worksheets to determine if they had access to an

affordable plan through a job, through the state’s ConnectorCare program, or through

unsubsidized non-group coverage available through the Health Connector. If the

individual could have enrolled in affordable coverage through any one of these

channels, they will be assessed a penalty. Those who determine that they are subject

to a penalty can indicate whether they wish to appeal based on a financial hardship. If

so, they will receive a follow-up mailing with appeal forms after they file. Per statute,

DOR will not assess any penalty until the appeal process is complete.

Massachusetts allows for exemptions in recognition of the

complexities of each household’s circumstances

State law allows for a gap of 63 days as individuals transition between spans of

insurance coverage. The Health Connector has interpreted this as three calendar

months for purposes of mandate administration. Anyone with a gap in coverage of

three or fewer months is not subject to a penalty.

Individuals with income up to 150% FPL are not subject to a penalty, representing

roughly half of uninsured individuals in any given year. Individuals are provided a

worksheet with their Schedule HC to determine if their income is below 150% FPL. If it

is, they are directed to not complete the rest of the form and to proceed with their

return.

Exemptions are available for individuals who claim a sincerely held religious belief as

the reason for remaining uninsured. If this were the reason for failing to obtain

coverage, they would indicate this on their Schedule HC. Massachusetts statute

instructs DOR to work with state agencies that oversee uncompensated medical care

claims to confirm that individuals claiming a religious exemption are not accessing

medical services at taxpayer expense.

Additionally, the Health Connector has issued regulations outlining the types of

financial hardships that may be grounds for an exemption from the individual mandate

penalty.

(See Figure 5.) Appeal forms are reviewed by the Health Connector and may

be adjudicated by an independent hearing officer engaged by the Health Connector if

additional information is required. On average, the Health Connector has reviewed

2,400 hardship appeals each year since 2007. However, an average of 4,671

individuals each year have indicated a wish to appeal but then never returned the

appeal paperwork to complete the process. They are assessed a penalty as a result.

Figure 5: Financial Hardships

The Health Connector considers whether the appellant

• Was homeless, was more than 30 days in arrears in rent or mortgage payments,

or received an eviction or foreclosure notice

• Received a shut-off notice, or was shut off, or was refused the delivery of

essential utilities (gas, electric, oil, water, or telephone)

• Incurred a significant, unexpected increase in essential expenses resulting

directly from:

• Domestic violence

• The death of a spouse, family member, or partner with primary

responsibility for child care where that individual had shared household

expenses

• The sudden responsibility for providing full care for an aging parent or

other family member, including a major, extended illness of a child that

required a working parent to hire a full-time caretaker

• A fire, flood, natural disaster, or other unexpected natural or human-

caused event causing substantial household or personal damage for the

individual

• Experienced financial circumstances such that purchasing compliant coverage

would have caused a serious deprivation of food, shelter, clothing, or other

necessities

• Had any other grounds the appellant claims demonstrate that he or she could not

pay for coverage

Penalties are one-half of the lowest cost Health Connector

premium available

Since 2008, penalties for non-compliance with the state’s individual mandate have

been set at half of the lowest cost Health Connector plan available to the individual,

pursuant to the formula set by statute. (Because the individual mandate went into

effect on December 31, 2007, the penalty for not having coverage in 2007 was not

half of a Health Connector premium; instead, the penalty for 2007 was the loss of the

individual’s personal income tax exemption, roughly $219.) The Health Connector and

DOR publish penalty amounts each year that reflect half of the lowest subsidized

enrollee premiums for individuals under 300% FPL. For individuals above 300% FPL,

penalty amounts reflect unsubsidized non-group premiums, though they also take into

consideration the availability of lower cost plans for young adults. Before the ACA,

these were called “young adult plans” and were for individuals up to age 26; since

2014, catastrophic plans have been available for individuals up to age 30. (See Figure

6.) Overall, the individual mandate penalizes roughly 50,000 taxpayers per year and

generates around $18M per year in revenue for the trust fund used to subsidize Health

Connector programs.

Figure 6. Monthly Penalties for Non-Compliance with the Massachusetts

Individual Mandate, 2007 – 2017

Year

150.1 – 200%

FPL

200.1 – 250%

FPL

250.1 – 300%

FPL

>300% FPL,

Young Adults

>300% FPL,

Older Adults

2008

$17.50

$35

$52.50

$56

$76

2009

$17

$35

$52

$89

2010

$19

$38

$58

$66

$93

2011

$19

$38

$58

$72

$101

2012

$19

$38

$58

$83

$105

2013

$20

$39

$59

$84

$106

2014

$20

$39

$59

$58

$92

2015

$20

$39

$59

$60

$91

2016

$21

$41

$61

$71

$97

2017

$21

$41

$62

$74

$96

Conclusions

The individual mandate in the Massachusetts market has

effectively supported a nation-leading health coverage

expansion effort

Over the last ten years, the Massachusetts health care market has undergone

monumental changes, designed to expand coverage to as many of the state’s

residents as possible. The state’s pioneering health reform law, passed in 2006, was

guided by the principle of shared responsibility, which included an expectation that

residents would, when they could afford to, be responsible for obtaining

comprehensive health coverage. This tool has been at the center of the state’s success

in expanding coverage and in keeping our health insurance market stable, providing

an important incentive to all adult residents to obtain coverage, regardless of health

status or health needs. A health insurance market that has broad participation from

residents across the range of health needs, ages, and expected utilization is the critical

foundation upon which our state’s coverage rate has been built. At present, an

estimated 97.5% of state residents have insurance—the highest rate in the nation—

and the state remains well positioned to use state-based policy tools, like its individual

mandate, to continue to ensure broad coverage, meaningful health care access, and

a continued commitment to the health and wellbeing of its residents.

Appendix

Relevant Law

Massachusetts General Laws, Chapter 111M

 Defines Minimum Creditable Coverage

 Outlines requirements for administration and enforcement of mandate

through tax law

Massachusetts General Laws, Chapter 176Q

 Outlines powers and duties of the Health Connector Board of Directors with

regard to mandate related policy development

Relevant Regulations

956 CMR 5.00

 Health Connector regulation, “Minimum Creditable Coverage”

956 CMR 6.00

 Health Connector regulation, “Determining Affordability for the Individual

Mandate”

830 CMR 111M.2.1

 Department of Revenue regulation, “Health Insurance Individual Mandate”