Designing Health Insurance: Evidence from Massachusetts

The Massachusetts Connector Authority has decreed that unless one has a federally qualified high-deductible plan, health insurance policies that satisfy the Massachusetts individual mandate for health insurance coverage must have deductibles no higher than $2,000 for an individual and a limit on-out-of pocket in-network spending of $5,000. For policies with a separate prescription drug deductible, it must not exceed $250. [link]

These limits are not what people choose when they buy their own health insurance. The results from the 2007 America’s Health Insurance Plans survey of individual health insurance suggest that roughly half of those who buy their own insurance prefer higher deductibles and lower out-of-pocket limits than those chosen by the Connector Authority:

  • For point of service (POS) and preferred provider organization (PPO) insurance, more than 40% choose deductibles above the Connector Authority limit of $2,000.
  • At the same time, of those with POS/PPO insurance, 65% purchased policies with out-of-pocket limits under $5,000. Almost 50% chose out-of-pocket limits below $4,000.
  • Among HMO or indemnity plans, 25% had deductibles higher than $2,000, and 78% had out-of-pocket maximums lower than $4,000.
  • Among HSA plans, 83% had deductibles higher than the Connector Authority limit of $2,000; 67% of policies had out-of-pocket loss limits below $4,000, and more than 40% had out-of-pocket loss limits below $3,000.

Differences in plan design lead to differences in premiums. AHIP reports that the average annual individual health insurance premium in Massachusetts in 2007 was $8,357, including employer sponsored plans. This is almost $6,000 a year more than the national average of $2,613 dollars a year.

As of February, 2009, there were 163,612 people in Commonwealth Care, the set of state subsidized insurance plans offered by the Connector Authority. The majority of those enrolled received free coverage; the Massachusetts 2006 health reform expanded Medicaid enrollment by 5.2 percent in 2006 alone. [link] reported that the state was spending $820 million to cover the 164,000 people in subsidized plans, about $5,000 per person per year.

The full price Connector offerings have attracted relatively few people. In February, 2009 – Only 20,893 people were enrolled in the unsubsidized Commonwealth Choice products.

The Connector Authority was supposed to reduce the cost of buying health insurance by negotiating with health plans. It had a 2009 operating budget of $39.2 million, or about $17.7 per member per month simply for designing plans and connecting people with them. For comparison, a report on administrative costs for Massachusetts HMOs and Blue Cross Blue Shield, which together represent more than 90 percent of all Massachusetts insured health coverage, estimated that average administrative expenses for private insurers, including enrollment, claims administration, risk management, product design, contracting, marketing, fraud control, utilization review, and case management, was $33.34 a month.

Comments (8)

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  1. Stephen C. says:

    All the more reason not to copy the Mass Health Plan, as some in the Obama administration apparently want to do.

  2. Joe S. says:

    Linda, this is a very interesting observation. I’ve never seen this anywhere else before.

  3. Jeremy says:

    How can Obama’s idea for universal health care work when the cost is estimated at 1.5 trillion and he has a budget of 634 billion?? Wait…could the magic word be TAXPAYERS??

    J.C. Lewis

  4. Larry C. says:

    This is why there should be no mandated insurance benefit. If government has to play a role, let it collect information and facilitate purchases, but let deductibles and total exposure be determined by the marketplace, not by politicians.

  5. Ron Greiner says:

    One of the worst disadvantages about the Commonwealth’s Connector plans is for those citizens who become sick with cancer or any other medical problem. They will lose their health insurance if they ever move out of the state. So citizens will be trapped in Mass if they are diagnosed with MS or diabetic because they are now uninsurable, just for the rest of their lifetime.

    The $8,357 premium is crazy. A 30-year-old male can get HSA insurance in most states for $60 a month that pays 100%, after the deductible, to $5,000,000. This HSA insurance also has a $0 deductible for preventative services.

    We can all thank Mitt Romney for the Connector. No wonder he didn’t brag about it when he tried to run for President.

  6. Edwin says:

    This whole system is a joke. I have been involved with Health Insurance for about 5 years and I am so disgusted with it that I’m back in school and on my way out of the industry. There are several reasons why we are paying crazy premiums like the 8357.00 mentioned above. Here are a couple reasons for you. The government (find a white collar gov official suffering from today’s economy, right) not only makes it mandatory for us to carry Health Insurance, but tell us that if we choose a plan outside of what they call Minimum Credible Coverage, you will still get hit with a fine. In case you dont know, we live in a guaranteed issue state. That means that if you are diagnosed with High blood pressure and you have had continuous coverage, any company you buy insurance from has to cover you. You CAN NOT BE DENIED coverage That gave us the flexibility to maybe carry a plan without prescriptions, maybe higher dr copays while we were healthy therefor saving a few thousand dollars per yr in premiums and switching to a more complete plan if we needed to. We are no longer free of doing that. As tax payers we are paying the bill for those less fortunate and I have no problem with that when we refer to the senior citizens or someone who incapacitated. However when you see a 30 yr old male in perfect shape or a 24 yr old female in her 3rd pregnancy and not employed at all, I have an issue with that. Dont believe me, go to an inner city hospital in the middle of the night, IE Brockton and ask that patient getting an exam what their copay is. More to come…

  7. […] Insurance policy design has been politicized, and the insiders in control of the definition of acceptable health insurance have seen fit to outlaw plans that are the biggest sellers in the rest of the country. Worse, the government replacement plans are good only in Massachusetts. […]

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