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Devil is in the details of Mass. health care law

An experiment is cooking in Massachusetts: universal health insurance. On July 1, the Bay State became the first in the nation to require nearly everyone to have an insurance card.'s Bill Dedman reports on how businesses and individuals are grappling with the implications as the Dec. 31 deadline approaches.
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Grill cook David Smith is feeling pretty healthy, thank you, and he isn't happy that the government is forcing him to sign up for health insurance — even if it may be good for him. But cook Scott Carter wishes he'd had insurance last year, when he got socked with $9,000 in medical bills.

An experiment is cooking in Massachusetts, which invented everything, or so its residents will tell you. And they can stake an honest claim for basketball, chocolate chip cookies and Technicolor, not to mention the American Revolution. Now Massachusetts is tinkering with universal health insurance. By Dec. 31, nearly everyone in the state will be required to have an insurance card.

The Massachusetts plan is a political experiment, a policy experiment, and a social experiment. It imposes a system of shared responsibility, with new burdens on individuals, on employers, and on the government. The state taxpayer association calls it "a truly noble experiment."

In broad strokes, it works like this:

  • Nearly everyone has to have insurance, or else face a penalty at tax time.
  • Businesses with 11 or more employees have to pay a "fair share" of the cost, or they face a penalty, too.
  • The state has signed up more than 150,000 poor people for free or subsidized health insurance, negotiated lower-cost plans for everyone else, helped the self-employed and employees of small businesses qualify for group coverage, and required that, starting in 2009, everyone have prescription drug coverage and low deductibles so their health insurance actually helps when they get sick.

For a glimpse at the plan's effects on employers and employees, we took a drive out on Cape Cod, that spit of sand stretching into the Atlantic like a flexed arm (one bejeweled with pirate-themed miniature golf courses).

We visited two restaurants to meet the owners, cooks and waitresses, who are struggling to adapt to the Massachusetts Health Reform Law.

What's a good employer?First stop, the town of Dennis on Nantucket Sound, where an old restaurant family has opened a new restaurant. The McCormicks have been serving seafood for 49 years at the Ebb Tide, and now have opened a larger, less-formal restaurant just two doors away. Out on the deck, the Sea View serves pan-seared crab cakes, broiled swordfish brochette and lobster quesadillas.

Massachusetts health insurance story, Gut Check, August 2007
Gail McCormick Knwell, owner of The Sea View restaurant in Dennisport, Mass. (David Friedman / Friedman

By the usual reckoning, the McCormicks are good employers. The same workers come back year after year for the summer season, which the new restaurant is stretching from April to December. Many of their 60 workers at the two restaurants have been with the family a decade or more. When a 21-year-old Russian dishwasher had a recurrence of cancer, the family helped him arrange a bone marrow transplant in Boston, and he lived with the family for a full year while he recovered.

But perhaps there's a new reckoning. With a seasonal business, the family has never offered health insurance.

"Most of our employees look at us to having flexible hours and the ability to make some good money while they're here," said owner Gail McCormick Knell. And most of the employees already have insurance, either through parents or a spouse or a second job.

The Massachusetts plan is a social experiment, with the potential to change how Americans think about personal responsibility. Is a good employer who doesn't offer health insurance still a good employer? Is a person living without health insurance to be regarded as selfish, like a driver without auto insurance?

Single mom works three jobsOne of the servers at the Sea View, Maureen Linehan, 49, is a single mom working three jobs — one job because it provides health insurance for her and her 16-year-old daughter, and the other two jobs so she can pay the bills, including her share of the insurance.

Massachusetts health insurance story, Gut Check, August 2007
Maureen Linehan manages catering at The Sea View restaurant in Dennisport, Mass. (David Friedman / Friedman

"I work three nights a week at the Ebb Tide, and then I do weekends catering at the Sea View, and then I have a full-time job for a nonprofit." Altogether, she earns about $35,000.

Linehan's day job is in social services, as a case manager helping families find housing and deal with other problems, such as substance abuse. She said she regularly sees poor families adapting to the health insurance law.

The Massachusetts plan is a policy experiment, too. Will the state be able to enroll enough young, healthy people — the kind who pay premiums but don't get sick very often — to reach the goal of universal, or near-universal, coverage without needing a tax increase to pay for it? And even if everyone signs up, can the system be sustained if it doesn't address the rising cost of health care?

Since the law took effect on July 1, about 170,000 of the uninsured have signed up — but most of them are the poor. Just 17,500 or so have signed up for the unsubsidized health insurance plans through July, but those plans just became available May 1. That leaves the tougher nut: about 200,000 to 300,000 people who earn enough money so they aren't eligible for subsidized care. They may not see the need to spend part of their disposable income on health insurance.

The state has already backed off of "universal." About 160,000 uninsured people in the state have incomes that are too high to qualify for subsidized health insurance — but too low to afford the lowest-cost unsubsidized plans. About 60,000 of these working poor won't face a penalty for not getting insurance, but the 100,000 others are in a bind.

"What I'm starting to see," Linehan said, "is the people have to pay for their health care, and now they can't afford to pay their rent."

Linehan has insurance through the nonprofit agency but said she worries that her part of the cost will rise. "If the board decides tomorrow that they're not going to pay the big chunk of it, I would really have to get another job. And I don't have much more room left — I'm out of time. There is no more time left in my day to work."

Every cost is rising, she said, but insurance costs are the ones that she fears could knock her into insolvency. Every doctor visit is $20, and prescriptions are $50 a month — on top of her share of the premiums, nearly $300 a month. "My daughter just had an operation, so my insurance covered it. I don't know what we would have done if that didn't happen. And I had to borrow the money for the deductible."

"I'm one of the working-class poor on the Cape. I lucked out — I bought my condo just before the prices went up — but if anything changes, I will be one of my clients."

Medical bills clobbered cookBack in the kitchen, 23-year-old Scott Carter is preparing for the dinner rush. This is his 10th summer with the McCormicks, and he has worked his way up to cook.

Last winter, he came down with a stomach ailment that left him with $9,000 in bills from the resulting surgery. The hospital worked out a payment plan — $100 a month for 90 months — but that was little comfort to Carter, who was taking home only about $15,000 a year.

"I was like, I don't know what I'm going to do," he said. "I need help.

"And that's when all this talk about health insurance for everyone came into play. And I was like, ‘Well, what about me? I'm everyone. Let me get health insurance.’ I'm sure to be the first person. I'm ready, pen in hand."

One premise of the state plan is the state's costs for health care will fall if people get preventive care. Carter said that's certainly true in his case. "I would have gone to see the doctor, and they would have told me, 'You've got to start eating right.' I just wouldn't have been in the predicament. I hadn't been to a doctor’s in like six years for a checkup or a physical."

"When I had health insurance, as a kid, I went every half a year, like clockwork. And after I didn't have health insurance, I never went. ... I feel healthy, so I imagine I am."

Massachusetts health insurance story, Gut Check, August 2007
Scott Carter, a chef at The Sea View restaurant in Dennisport, Mass. (David Friedman / Friedman

He'll soon have insurance. Businesses with 11 or more full-time employees must offer it -- though it's more complicated than that. The Sea View employees who sign up for the new insurance plans will pay most of the cost. The McCormicks expect to set up a so-called Section 125 plan (named after a part of federal law), and the employees can pick out the insurance plan they want from the state's menu. The premiums are paid with an employee's pre-tax dollars — that saves money on withholding taxes for the employer and for the employee. If employers don't either pay at least one-third of the premiums, or get 25 percent of the employees to sign up, they'll have to pay a penalty (the state calls it a "fair share contribution") of $295 per employee per year.

Owner Gail Knell has spent hours at seminars on the new law, and it didn't help much. "I became more confused with the seminars, because there were so many regulations." (And she's a professor of business at Cape Cod Community College.)

"If you're a small business, your profit margin is very small, and it keeps getting smaller and smaller," she said. "You know, I'm all for people having insurance. ... And if we can help get it to our employees, that's a good thing."

But how are the employees going to pay for that insurance — if not from their salaries? In other words, won't some employees expect higher wages, now that they have another bill to pay?

"You're betwixt and between," Knell said. "Do you extend your season, so that they can work more so they can have it longer and afford more? And how does that affect our business and our business decisions?"

A reluctant participantThe quiet dining room of the Sea View was a distant memory after the half-hour drive to the raucous precincts of Arnold's Lobster and Clam Bar, a New England seafood shack near the beach in Eastham. The joint started with a "Happy Days" theme (thus the name, Arnold's, just like on the TV show). Now the roller skates are long gone, but the clams are fresh and the onion rings piled high.

Massachusetts health insurance story, Gut Check, August 2007
Nathan \"Nick\" Nickerson, owner of Arnold's Lobster & Clam Bar in Eastham, Mass., shows off a 50-year-old, 17-pound live lobster. (David Friedman / Friedman

The owner answers when tourists call him Arnold, but his name is really Nathan Nickerson III, and most everyone calls him Nick. He admits to being a P.T. Barnum of the seafood shack set — he loves to carry around a 50-year-old, 17-pound live lobster "pet," about the size of a second-grader, draping it over small children, whose eyes get big in a hurry.

Nickerson has long offered health insurance at Arnold's, but not everyone has taken it.

Cook David Smith, 35, is one of those exceptions, and he's not happy that the state is coercing him into signing up.

"I was moderately outraged," Smith said while grilling burgers and assembling lobster rolls. He called health insurance "something for your own good that you're being required to do."

Persuading the young and healthy to join the health plan is key to its success. That's why the state is spending $1.3 million to advertise on Red Sox cable broadcasts. "Their audience is ours," said the spokesman for the state program, Richard R. Powers. "Most of the people in the state who haven't gotten insurance are young, and most of those are men."

So far, only a few thousand people a month have signed up, but the deadline is still four months away, and even then the penalty for noncompliance is weak. Those who can't show proof of insurance by the end of 2007 lose their state tax exemption when they file their income taxes in 2008, or about $219.

The penalty increases in January 2008. For every month in 2008 that they don't have insurance, residents will have to pay a penalty of up to half the cost of the lowest-cost plan. That could be as much as $150 a month, or $1,800 a year, due at tax time in 2009.

The definition of personal responsibility may be expanding. As the Boston Globe's liberal editorial page said of the penalties, "That's tough, but it's necessary to change the behavior of people who are used to going without insurance, either because they are healthy or are accustomed to relying on the Uncompensated Care Pool to pay for their care."

‘A stiff requirement’
Smith sounds like he'll go ahead and sign up.

"I'm required to shell out an additional 6 grand a year now," he said, guessing at what it might cost him. "I mean — that's a stiff requirement when you're only making 30 grand a year or under, you know?"

Out front at Arnold's, owner Nickerson shows off the new mini-golf course he installed at a cost of nearly $1 million. ("Renting golf balls," he said with a mixture of disgust and rapture.) While he is glad to offer health insurance and to help pay for it, he said, he doesn't like the government’s forcing him to do it.

Massachusetts health insurance story, Gut Check, August 2007
David Smith works the grill at Arnold's Lobster & Clam Bar in Eastham, Mass. (David Friedman / Friedman

"I think that's basically how liberal government works — liberals in the government work," he said. "They force-feed you things that they feel are good for you, like it or not. And that's the way it is. ... There's so many regulations on every level now, to try to run a business, it's very, very difficult. Having said that, I'd like to see everyone with health insurance."

Even employers who already offer insurance will face higher costs under the new law, because more employees will be pressed to sign up for the company health plan. Nickerson said just a little more cost could tip over some small businesses.

"The way I figure my cost is not the cost of the actual item, but what it costs me to keep Arnold's running year to year," Nickerson said. "And it's having less and less to do with the cost of the fish or the cost of the seafood, as it does the cost of insurance and lawyers and taxes. So that's why the continued push to place more burden on the small-business man is going to eliminate more small businesses, and we are the core of the economy down here."

Hoping for failure?
The Massachusetts plan is a political experiment, too.

Will the political left accept a reform that leaves insurance companies in the central role, instead of a Canadian-style system run by the government?

Will the political right accept a reform that coerces employees and employers into buying a particular product?

What effect will its success or failure have on reform efforts in other states and in Congress?

And what impact will it have on the 2008 presidential campaign, particularly for Mitt Romney, the former Massachusetts governor who proposed much of the program?

So far, the coalition that birthed the new law is holding: Consumer groups, employer groups and state officials all said that the plan is fair and has a chance to succeed, at least if the growth in health care costs can be stemmed.

"It's a truly noble experiment," said Michael J. Widmer, the president of the Massachusetts Taxpayer Foundation, a research group run by employers and associations. "I'm hardly naive, but I have to say the complexity of this as it has unfolded has awed me. I think where we are today is remarkable, given the complexity of all this."

As for Romney, the taxpayer group has been critical of his claims that he turned around the state's economy — "there's been no turnaround," Widmer said. But on health care, "he and his team were very skillful in how they handled months and months of wrangling. This is the signal achievement of his administration."

Consumer groups also support the new law, but would like to see the demands on employers greatly increased. They wanted a Canadian-style program but saw that it had no chance here.

"We love single-payer, but it's not politically viable in this state," said Lindsey Tucker, health care reform coordinator for the consumer group Health Care for All. "There are too many interests, the government, the providers. That wasn't an option. This idea of shared responsibility — it's amazing how well it has worked. It's very exciting."

That doesn't mean the law is without its detractors.

Jon Kingsdale
Jon Kingsdale

"I would like to say this," said Jon Kingsdale, a former insurance company executive who is executive director of the state's new health care agency. "Frankly, there are a lot of people outside of Massachusetts who, I think for ideological reasons, want this to fail."

"On the far left, there are people who are single-payer enthusiasts. On the far right, there are market enthusiasts. ... Nobody in America wants to be told what to do," Kingsdale said.

"But for the vast majority of people who are already buying health insurance, 90 to 95 percent, they're going to benefit from having that last 5 or 10 percent to buy in."