A new report from the Robert Wood Johnson Foundation of the uninsured in Massachusetts holds important lessons for federal regulators and lawmakers as they plot ways to implement the individual health insurance mandate in 2014. Massachusetts, which implemented an individual requirement to purchase health care coverage in 2006, now has the lowest uninsurance rate in the country — 4.1% in 2008 — but has yet to achieve true universal coverage. The RWJ report examines who makes up that 4% and why:

Consistent with earlier work on the characteristics of uninsured adults in Massachusetts and in the nation as a whole, we find that the adults who remained uninsured under health reform in Massachusetts in 2008 were more likely than those with insurance coverage to be:

- Male, young, and single

- Racial/ethnic minorities and non-citizens

- Unable to speak English well or very well

- Living in a household in which there was no adult able to speak English well or very well

Compared with insured respondents, uninsured adults also reported substantially lower educational attainment and less employment and had lower family income and greater financial stress.

In other words, despite the state’s far-reaching enrollment campaign, “broad-based policy initiatives and outreach under federal reform may be less effective at stimulating take-up among certain demographic groups than among the population as a whole,” the study finds. “These hard-to-reach groups will require targeted policy and outreach efforts that address their particular barriers to health insurance take-up.”

Other than the ‘Enroll America’ campaign between the health insurance industry and consumer group Families USA, health care reform regulators and lawmakers have said little publicly about the importance of enrolling everyone in health insurance once the individual mandate becomes operational in 2014. These results and Massachusetts’ experience suggest that the government should pay particular attention to lower-income communities, many of whom will become Medicaid eligible.

Yesterday, the National Association of Insurance Commissioners (NAIC) adopted relatively robust draft definitions for calculating the medical loss ratios (MLR), prohibiting “insurance companies from considering costs related to fraud prevention and detection, utilization review, and individual wellness promotion (among others) when calculating their medical loss ratios (MLRs).” The insurance industry, which has been lobbying the NAIC to include a broad range of activities as medical expenses, criticized the document and warned of “unintended consequences” if certain practices could not be classified as “quality improvement.” Under the new health care law, insurers are required to spend 80% to 85% of premiums on health care and issue rebates to consumers if they fail to meet this threshold. But consumer advocates who attended the NAIC conference tell me that the real battle will now focus on whether issuers will be able to deduct all federal taxes before calculating the MLR, an issue the NAIC punted during its conference.

Insurers have seized on a single mention of “federal taxes” in Section 2718 of the health law — the section that deals with MLR — to argue that they should be allowed to exclude all federal taxes from their revenue (the denominator in the MLR ratio), a move that would save issuers millions of dollars and allow them to meet the MLR requirements without necessarily spending more on care.

Democrats are now disputing their claim. In a letter to HHS Secretary Sebelius, the six Democratic committee heads with jurisdiction over health care argued that they did not intend for issuers to exclude all federal taxes — only those that pertain to health care:

As the NAIC works to craft proposed definitions, we are writing to clarify legislative inent as it pertains o the exclusion of Federal taxes from revenue calculations. Section 2718 sets forth the computation of MLR for the purposes of computing annual premium rebate. Section 2718(b)(1)(A) defines the denominator of the MLR for this purpose as “the total amount of premium revenue (excluding Federal and State taxes and licensing or regulatory fees…).”

“Federal taxes and fees” in this context is meant to refer only to Federal taxes and fees that relate specifically to revenue derived from the provision of health insurance coverage that were included in the PPACA. Thus, the Federal taxes and fees that fall into this category are: (1) the annual free imposed by section 9010 based on each health insurer’s market share based on net premiums written; (2) the annual fee imposed by section 6301 on each health insurance policy (based on the average number of people covered under the policy), and (3) the tax imposed by section 9001 on high-cost employer-sponsored health coverage. Federal income taxes or payroll taxes were not intended to be excluded from the denominator.

Similarly, NAIC consumer representative and Washington & Lee Law Professor Timothy Jost argues in this brief that issuers’ insistance on a very literal translation of the statute is transparently self serving and hypocritical. Throughout the definition making process, Jost argues, the NAIC “have consistently eschewed a literal approach to interpreting the statute, trying practically to effectuate the intent of Congress while accommodating the practical realities of insurance regulation.” “Time and again insurers have supported definitions that deviate from the literal language of the statute when following the literal language of the statute would be to their disadvantage.”

Ultimately, allowing insurers to deduct all federal taxes would frustrate the intent of the law — it would make the companies’ income appear to be lower than it actually is and deprive consumers of possible rebates. For now, the industry is determined to get its way and has, according to some sources, even threatened to go to court over the matter.