Massachusetts Governor Wants Bosses to Pay More to Fund Universal Health Plan

The governor of Massachusetts says employers should pay more to help fund the burgeoning cost of moving the state closer to universal health insurance coverage.

Employer groups are troubled by the proposed change, which will impose a hefty financial assessment on employers, such as many retailers, that have long waiting periods before new employees are eligible for health coverage. Under current rules, many such companies are exempt from the penalty.

Gov. Deval Patrick last week proposed that state regulators tighten an existing rule that requires employers with at least 11 full-time employees in the state to pass one of two tests to prove they are making a “fair and reasonable” health insurance premium contribution to avoid an annual assessment of $295 per employee.

Revenue from the assessments, which is running much lower than earlier projections, is used to subsidize premiums in a state program—one of the linchpins of Massachusetts’ 2006 landmark health care reform law—that provides coverage for eligible low-income uninsured residents.

Under the current rule adopted in 2007 by the Massachusetts Division of Health Care Finance and Policy, an employer is exempt from the annual assessment if at least 25 percent of full-time employees are enrolled in its group health insurance plans.

If that primary test is not met, employers that pass a secondary test—by paying at least 33 percent of the premium for individual coverage for employees within 90 days of their beginning work—are exempt from the assessment.

Nearly all employers in the state offering coverage have been able to pass one test or the other.

Under Patrick’s proposal, though, employers would have to pass both tests to be exempt from the $295 assessment, a change that would result in many more employers being forced to pay, state business groups say.

The tightening of the so-called Fair Share Contribution rule is intended to raise $33 million in new revenue, up from the roughly $7 million that was generated during the first fiscal year that the tests were imposed.

If, however, revenue produced from the Fair Share tests falls short of $38 million, the governor is proposing that the Division of Health Care Finance and Policy should have the authority to raise the assessment to a level it projects would meet the revenue target. Such a change, though, would require legislative approval.

Tightening the Fair Share rules is one of several proposals Patrick presented last week to state legislators to generate more than $100 million in new revenue to pay for increasing costs of subsidizing health insurance coverage for the uninsured. Those costs are projected at $869 million for fiscal 2009, up from $647 million in fiscal 2008. Other proposals would impose new assessments on health insurers and hospitals.

Those increased contributions—which Patrick described in remarks he made at a budget signing ceremony as “modest”—from employers, insurers and providers are in the “same spirit of shared responsibility” in which premiums and co-payments for enrollees in the state-subsidized health insurance program were boosted. Business groups, though, say the changes are anything but modest.

While slightly more than 1 percent of employers with at least 11 full-time employees paid the assessment during the first year the assessment was in effect, business lobbyists say that percentage will climb, though it isn’t known by exactly how much.

“Some employers are really going to be hit,” said Rich Stover, a principal with Buck Consultants.

The industries most likely to be affected are retailers and restaurants, which because of high turnover often impose waiting periods well in excess of three months for new employees, said J.D. Piro, an attorney with Hewitt Associates.

Some business groups view the Fair Share test tightening as a betrayal in which the rules are being changed in midstream.

“This is bait and switch,” said Bill Vernon, state director of the National Federation of Independent Business in Boston. “We’re stunned that this would be proposed a couple of years down the road.”

Other business leaders say employers have done more than their fair share in helping Massachusetts achieve its goal of near-universal health insurance coverage.

For example, of the roughly 350,000 people who were uninsured before the law’s enactment and now have coverage, about 85,000 are in employer-sponsored plans. That increase, observers say, is largely the result of employees opting for coverage to avoid a state penalty as high as $900. The penalty is imposed on people who are not enrolled in a health plan.

“Employers definitely are doing their part,” said Richard Lord, president and CEO of the Associated Industries of Massachusetts in Boston.

While employers are upset about the proposals, they will continue to support the health care reform law, some state observers say.

“Business understands that the law is a good thing for Massachusetts,” said Phil Edmundson, CEO of Boston-based William Gallagher Associates Insurance Brokers.

State officials attribute revenue shortfalls to underestimating the number of lower-income uninsured. As a result, more people than originally projected received state-subsidized coverage. For example, about 175,000 state residents currently receive coverage through Commonwealth Care, the state-subsidized program for the low-income uninsured. That compares with earlier projections of about 136,000 by September 30. Patrick’s proposed budget for fiscal 2009 anticipates enrollment hitting 225,000, and some state observers say the number could go even higher.

“If you offer a financial incentive for people to get coverage, don’t be surprised if they take you up on it,” Hewitt’s Piro said.

The price of reform

How Massachusetts employers would pay more under Patrick’s proposal:

• To avoid a $295 per-employee assessment, employers would have to enroll at least 25 percent of full-time employees in their health plans and pay at least 33 percent of premiums for individual coverage.

• If revenue from Fair Share assessments does not generate $38 million a year, the per-employee assessment would be increased.

• Fair Share assessments would be paid quarterly.

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.