State business and government leaders say federal rules stemming from the national health care overhaul threaten to drive up insurance costs in Massachusetts, a state widely viewed as a model for the sweeping legislation signed by President Obama in 2010.
Under the new regulations, Massachusetts health insurers will have to set premium rates for small businesses and individuals once a year rather than quarterly, as they do now. The rates also would be issued six to 18 months prior to taking effect. Insurers say that means premiums would have to be more expensive to hedge against unforeseen events — such as an influenza outbreak — that may crop up before rates can be adjusted again.
The change, which affects about 720,000 small business employees and self-employed workers, is meant to bring Massachusetts in line with national policies governing how and when insurance is purchased.
“It’s federal bureaucrats who have no idea how the Massachusetts market works,” said Lora Pellegrini, president of the Massachusetts Association of Health Plans, a trade group for state health insurers. “There will be a major disruption in the small group market.”
For some in Massachusetts, the new US rules — handed down by the Centers for Medicare & Medicaid Services Feb. 27 — are another affront to a state that pioneered expanded access to health care and has been working to rein in costs. Last year, the federal government put in place regulations that ended a Massachusetts discount for small businesses that banded together to buy coverage.
“Massachusetts has passed a series of laws in a progression to truly address health care costs,” said David A. Shore, president-elect of the Massachusetts Association of Health Underwriters, an organization of insurance brokers. “Now the federal government, which calls Massachusetts the linchpin for their health care reform, is taking such a general approach to their rules that they’re sweeping away everything Massachusetts has done.”
In a letter to Governor Deval Patrick on Tuesday, representatives of a dozen business and professional groups complained about the new federal regulations and asked him to seek a waiver from some of the requirements. They wrote that the state “stands to be penalized for decisions” it made in shaping the Massachusetts overhaul years ago.
Federal officials believe critics who argue premiums will rise because of new rules on buying insurance are ignoring key parts of the national plan that will lower premiums for some — such as subsidized insurance for low-income residents that will be available online.
“The health care law will help bring down costs and save money for American families and businesses,” said a spokeswoman for the Centers for Medicare & Medicaid Services. “Setting rates once a year gives consumers more certainty about what their premiums will be all year long.”
The standoff over the rules has put Massachusetts supporters of the national health care law in a difficult position. They are frustrated by the lack of flexibility from Washington, but also do not want to be too critical at time when the law remains under attack from opponents.
The federal overhaul is “a good law that brings many benefits to people both here in Massachusetts and across the country,” said Barbara Anthony, the Massachusetts undersecretary of consumer affairs and business regulation.
For example, Anthony said, the state’s health care system has gained financially from the US law, receiving more than $1 billion to expand subsidized insurance to 325,000 low-income residents and tens of millions more in everything from innovative care grants to refunds from health plans that spent too much on administration and too little on claims.
Still, she said, “We’re trying to educate [federal officials] about the uniqueness of the Massachusetts marketplace and some of the unintended consequences some of their rules have here.”
Josh Archambault, director of health care policy for the Pioneer Institute, a Boston public policy research group, said the federal government’s “one-size-fits-all” approach is misguided. But he noted that Massachusetts officials have criticized representatives of other states that balked at provisions of the national law they say will boost their costs. “Those states have an equal standing to make that same argument,” Archambault suggested.
Massachusetts officials consider the campaign to control health costs as the next stage of a state overhaul that began with the 2006 law leading to near-universal access to insurance.
Under that law, Massachusetts became the first state in the country to put small businesses and individuals together in the same risk pool as a way to make coverage more affordable for self-employed residents.
Because of that merged market, small businesses will now be subject to the new rate-setting period mandated for individuals.
That means those businesses, which have borne the brunt of premium hikes over the past decade, could face a fresh round of higher rates.
Last year, Patrick signed legislation limiting the annual per-capita increase in health care costs to the state’s economic growth, projected to be 3.6 percent this year. But a number of developments — including the federal rules for small business insurance, a string of hospital mergers, and health insurer projections of rising health care use and higher prices for medical care — have called into question whether the state cap is realistic.
The federal rules are proving especially vexing to Massachusetts leaders, who had hoped the state was turning a corner in its efforts to slow the rate of premium increases.
“As more of these regulations are published, it appears as if the feds are taking a different track and creating disruption in Massachusetts,” said Richard C. Lord, president of the Associated Industries of Massachusetts, a trade group representing 5,000 employers, and a member of the new state Health Policy Commission charged with cost containment.
Under pressure from Massachusetts government and business leaders, federal officials agreed to waive another requirement included in the Feb. 27 set of rules — that all small businesses and individuals switch to a single health insurance renewal period on Jan. 1. Now, insurance renewal periods are staggered throughout the year. State officials feared a fall sign-up period would create hardships for retailers preparing for the crucial holiday shopping season.
However, federal officials aren’t backing down on the need to set rates on July 1 each year for coverage that takes effect in the following calendar year.
Joseph Murphy, Massachusetts insurance commissioner, who has been part of the state’s talks with federal policy makers, said state officials will continue to press for more flexibility from their counterparts in the nation’s capital.
“We’re on the phone with them every day,” he said.