In April 2006, Massachusetts governor and prospective presidential candidate Mitt Romney signed into law a health-insurance mandate requiring all state residents to be insured. A program called the Connector makes low-cost insurance available to small businesses and those without employer-sponsored coverage. Employers are able to offer their workers the option of paying premiums for insurance with pretax dollars. The mandate is intended to provide taxpayer savings by reducing the amount spent on emergency care and hospital services not covered by insurance. 

On January 11, AEI held an event at which scholars and policymakers discussed the Massachusetts health plan and ways that it might be implemented in other states. Mark V. Pauly, an AEI adjunct scholar from the Wharton School at the University of Pennsylvania, evaluated the program. Expanding on a Health Policy Outlook he authored in January, Pauly said that majorities across the political spectrum are ready to tackle the problem of the uninsured.

Pauly approved of the way the Massachusetts plan tailors benefit levels to income levels. “If you want to produce greater equality in an unequal world, you need unequal plans,” he said. A good program to help the uninsured will not attempt to offer universal health insurance, he argued.

Implementation challenges include a misplaced desire to overspecify what insurance plans should cover. Pauly said that the Massachusetts health plan succeeds in that it simply requires coverage. Another challenge is in “piercing the veil of employment-based coverage,” because payments for employer-sponsored insurance, no matter how it is arranged, come out of wages. Proposals for health-insurance reform, Pauly argued, should not require employers to pick up the bill. In this way, he said, the plan recently proposed in California by Governor Arnold Schwarzenegger is defective. With an insurance mandate targeted at employers, they will simply extract from wages the additional costs of compliance.

Pauly praised the Connector for offering coverage portability. Employees will no longer feel compelled to remain in a job because of its health benefits. However, the Connector will not lower costs through centralization. He concluded that any state which wants to create a successful health-insurance program should focus on the “three Ms: mandates, means-testing, and markets.”

The Urban Institute’s John Holahan was instrumental in developing the plan that Massachusetts eventually adopted. He emphasized that mandates on individuals are better than those on employers. He also warned that other states attempting similar programs should beware of special interests: hospitals, insurance companies, health-care providers, and advocacy groups. “Interest groups are incredibly strong,” he said. The Massachusetts plan is superior, he added, because it offers educated and structured choices.

John McClaughry of the Ethan Allen Institute spoke about personal responsibility in health insurance. He praised the Massachusetts plan because it deals with the uninsured by sending them out into the market, thus reinforcing personal responsibility. Each individual has to decide his own risk level and can purchase insurance to meet his own needs. The Connector is ingenious, he added, because through it individuals and small businesses capture the deduction for health insurance that they could never have captured on their own.

Holly Benson, Florida’s secretary of business and professional regulation, said that the Massachusetts plan offers incentives for preventive care, thus driving down health-care costs. She also noted that insurance companies are responding to mandates and the growing market of uninsured young people by developing low-cost insurance products. Benson praised the virtues of the Connector in offering portability in an era of frequent career transitions. “If you give the private sector enough room to innovate,” she concluded, “[it] will find ways to make money and reduce the overall cost of health-care systems.”

For a video and summary of this event, visit www.aei.org/event1444/. To read Mark V. Pauly’s January Health Policy Outlook, visit www.aei.org/publication25372/.