HMOs: State plan too easy on firms

Businesses cheered when the Romney administration this year set modest insurance-contribution standards for companies to be exempt from a $295 per employee assessment written into Massachusetts' healthcare overhaul law.

But Massachusetts health insurers are not impressed. They say they won't sell insurance to firms that comply only with the minimum requirements because the state set them too low. The law exempts employers from the annual assessment if one-quarter of their workers participate in a health plan, or they contribute 33 percent of an employee's individual premium. Insurers say higher participation rates and bigger employer contributions are needed for them to accurately predict medical costs and set rates.

"Blue Cross Blue Shield of Massachusetts expects employer contributions to premiums to be 50 percent," said spokesman Chris Murphy . "That level of employer contribution creates the largest, most stable pool of employees to share risk." Blue Cross is the state's largest health insurance provider with 3 million members.

Charles Baker , chief executive of Harvard Pilgrim Health Care, the second largest health insurer with about 1 million members, said his firm requires that "significantly" more than 50 percent of a firm's employees participate in a health plan. And employers that make meager contributions to premiums won't be able to get enough workers to sign up, he said.

Among Massachusetts employers, the median contribution level to employee healthcare premiums in 2005 was 77 percent for individual policies and 75 percent for family plans, according to a state study.

Typically, a small number of seriously ill employees account for most medical expenses in a company health plan, insurers said. The higher the rate of participation, the easier it is to estimate annual expenses and to minimize premium costs.

"Plans typically look for at least 75 percent participation among those employees who don't get coverage from a spouse's insurance," said Kevin Counihan , a health insurer consultant. "If you don't require some type of minimum participation, only the walking wounded will sign up, and the utilization of medical services will go through the roof."

Phil Edmundson , chairman of Affordable Healthcare Today, a nonprofit group that pushed for the overhaul law, said that insurers are balking at offering low-cost plans to businesses is another indication that the state set compliance standards too low. He believes companies that do not now offer insurance to employees will sign on to plans with minimal coverage and make modest contributions to premiums, leaving middle-class employees to foot much of their healthcare costs.

"This will put an excessive burden on moderate-income workers," Edmundson said.

The state standards for employers have also reignited debate over the intent of the $295 assessment.

By setting low standards, Governor Mitt Romney "is undermining the legislative intent of the healthcare law," said House Speaker Salvatore F. DiMasi , Democrat of Boston and one of the key architects of the legislation, which takes full effect next year and seeks to extend healthcare coverage to all state residents.

The $295 assessment only applies to businesses with at least 11 employees that do not offer insurance. Firms that "self-insure," meaning they set up their own plans, are exempt.

Amy Lischko , commissioner of the Division of Health Care Finance and Administration, said the assessment is aimed at forcing companies that don't offer any healthcare to make a minimal contribution to pay for free care for the uninsured.

Healthcare advocates say the threshold for compliance doesn't ask enough of employers, while business leaders agree with Lischko.

Richard C. Lord , chief executive of Associated Industries of Massachusetts, the state's largest business lobby, said the assessment isn't a prod to get companies to offer healthcare. That will come next year, he said, when individuals must purchase healthcare insurance or face penalties including the loss of income tax deductions. Then, he said, "employers will feel the competitive pressures to attract quality employees."

Jeffrey Krasner can be reached at krasner@globe.com.