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Massachusetts Health Reform: High Costs and Expanding Expectations May Dampen Employer Support
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Higher costs from increased employee take up of employer-sponsored coverage and rising premiums may weaken employers motivation and ability to provide coverage, according to the study. And, employer frustration appears to be growing as the state increases employer responsibilities.
All Massachusetts employersexcept firms with fewer than 11 workersfaced new requirements under the law, including establishing Section 125, or cafeteria, plans to allow workers to purchase insurance with pre-tax dollars and paying a $295 annual fee if they do not make a "fair and reasonable" contribution to the cost of workers coverage.
Since the reform became law in 2006, 439,000 people have gained coverage-many more than the 372,000 people the state initially estimated as being uninsured. The majority of newly insured residents57 percentobtained either free coverage through the states Medicaid program (MassHealth) or subsidized coverage through the Commonwealth Care program, according to the state. But nearly 160,000 newly insured residents-36 percent of the total-complied with the laws individual mandate by obtaining coverage through their employer, at an estimated additional annual cost of about $540 million to employers.
"Improving access to health care coverage has been a clear emphasis of the reform, but little has been done to address rapidly rising health care costs, raising questions about the longer-term viability of the reform," said HSC Senior Fellow Debra A. Draper, coauthor of the study with HSC Health Researcher Laurie E. Felland, M.S.; Allison Liebhaber, an HSC health research analyst; and Johanna R. Lauer, an HSC health research assistant. HSC is a nonpartisan policy research organization funded in part by the Robert Wood Johnson Foundation, which funded the study.
The studys findings are detailed in a new HSC Issue BriefMassachusetts Health Reform: High Costs and Expanding Expectations May Weaken Employer Supportavailable here. The study was based on interviews with 28 stakeholders between May and August 2008, including representatives of employer groups, benefits consultants, brokers, health plans, providers, policy makers, advocates and other knowledgeable observers.
"Many respondents were concerned that unless the state seriously addresses the underlying factors driving costs that the current trajectory of the reform is financially unsustainable." Draper said.
Under the individual mandate, uninsured adults who the state has deemed able to afford coverage face a tax penalty. Although many residents complied with the mandate, approximately 62,000 taxpayers were deemed unable to afford even the lowest cost insurance in 2007; an additional 86,000 taxpayers went without insurance and were assessed the tax penalty of approximately $200.
Employer costs also are likely to increase because more residents are expected to take up employer coverage to avoid the tax penalty, which will be significantly higher in 2008 at half the annual premium of the lowest cost health plan available.
And, effective Jan. 1, 2009, individuals are required to have prescription drug coverage to meet the individual mandate and avoid the tax penalty. Although employers are not directly affected by the prescription drug requirement, respondents expected employers to be pressured to provide coverage that meets the requirements. Otherwise, employees will be required to obtain additional coverage or pay the tax penalty because their coverage does not meet the minimum standard.
Other recent developments also have frustrated employers and led to some pushback, according to the study. Effective Jan. 1, 2009, for example, the state plans to change the "fair and reasonable" contribution to employees health care costs, requiring employers with more than 50 full-time equivalent employees to meet both thresholds33 percent premium contribution and 25 percent employee take up.
Initially, the state proposed that employers with 11 or more employees be subject to the more stringent criteria but later compromised in response to employer concerns. The state also agreed to allow employers with 75 percent or greater take up among full-time employees to pass the fair share test, regardless of their rate of contribution.
The state also is changing the fair share filing requirements. Instead of an
annual filing, employers will now be required to file on a quarterly basis.
Several respondents discussed that the more frequent filings create additional
burden and has contributed to growing employer frustration.
The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nations changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded principally by the Robert Wood Johnson Foundation and is affiliated with Mathematica Policy Research, Inc.