Jumpers and Dumpers

Massachusetts’ healthcare plan was phased in four years ago and patched together much the same way as the quilt that covers the new national program. Like the U.S. plan, Massachusetts tried to get everyone to take health insurance—with incentives if you do and penalties if you don’t. It has a set of high- and low-end options to encourage everyone to find something that fits.

The Bay State also has “The Connector,” a model for other statewide insurance exchanges. And Massachusetts recently introduced its new “Business Express” component, which mimics the proposed “SHOP” exchanges that will be set up under the new federal law in 2017, providing small businesses with exchange-based insurance.

“It’s like when you come out of the shower and you look at yourself in the mirror,” says Vinnie Daboul, who oversees the employee benefits practice at TD Insurance—including Massachusetts. “You get a foggy image of what the future looks like.” The problem is shaving in that mirror. There will be a lot of cuts before the image clears.

Massachusetts is proud of its success in getting the uninsured under the universal healthcare tent. “There are now more than 400,000 newly insured…since the outset of healthcare reform,” trumpets the state’s website, cutting the uninsured to 2.7% from 13% when the program started. Spokesman Richard Powers says the website was getting 25,000 hits per week and now gets nearly twice as much after it introduced the “Business Express” program in March.

But coverage comes at a price. According to the news website The Daily Caller, which follows government and politics, “Since 2006 the cost of the state’s insurance program has increased by 42%,” and its “long-term viability is in doubt.”

Private insurers are also suffering. The chief executive of Blue Cross, the state’s largest private health insurer, resigned just weeks after the company reported a $149 million loss and the loss of 89,000 subscribers. The cost of insurance premiums in Massachusetts is the highest in the nation.

Brokers said Massachusetts, in an effort to get people under the tent, made the plan too attractive. Penalties that maxed out at $95 a month or 1% of salary did not encourage healthy college graduates to enroll until, say, they blew out a knee. Then they become “jumpers and dumpers,” enrolling in September, having outpatient surgery in October and dropping coverage in November. Women who found out that their plans didn’t cover items such as in vitro fertilization would join a Connector plan, become pregnant and then revert back to their previous coverage.

Other people found other ways to game the system. Since no proof of residency is required, out-of-staters rented post office boxes in Massachusetts so they could join the plans, brokers said.

That’s the bad news. “The good news is that the state law didn’t kick the brokers out of business,” says TD’s Daboul. “Not one customer dropped.” There has been no exodus of employees from his group plans to the Connector’s options, he adds.

For one thing, the plans offered by the Connector are very complicated, says Chris Nadeau, a principal at William Gallagher Associates in Massachusetts. “People don’t really understand all the options and pricing,” he says, “and if they do leave their employer’s plan, the costs for them are now ‘after tax.’ Most don’t bother to do the math.”

Even small businesses serviced by companies like Digital Insurance haven’t moved. “Only a fraction of small businesses have gone through the Connector,” says Michael Sullivan, Digital’s chief marketing officer.

Clearly, most of the people using the Connector are not candidates for a broker. Of the 200,000 who get insurance through the program, Powers says, 88% are in the subsidized program.

Brokers see “The Connector” mostly as a nuisance. They register with the website, so it has generated lots of queries but not necessarily the kind they want. Nadeau complains about getting calls from karate studios and flower shops with two employees—not his ideal customer.

Of course, there’s always the threat of “mission creep,” which is the way some brokers view the state’s new Business Express program, which is designed for small business. With the state program now running at a loss, they think Massachusetts may be trying to enhance its risk pool with a better clientele.

For economists and politicians concerned about national healthcare, Massachusetts is a microcosm of what will be. For harassed brokers, it’s a question of dealing with their clients’ ever-burgeoning administrative burden and making sure they’re in compliance with the complex laws. “The need for a broker has never been greater,” Nadeau says. “But there’s not an upside for us. You just become more valuable for the same commission dollar.”