About 500 Massachusetts companies - out of tens of thousands covered by the state's new health insurance law - will pay a penalty rather than offer insurance to some of their workers, the state said yesterday.
State officials and business leaders said the relatively small number shows that companies are doing their part to help ensure that every state resident has coverage. But healthcare advocates said it means too many businesses were let off the hook.
Either way, the state will collect only about $5 million in penalties, far less than the $24 million budgeted, which could result in another financial shortfall for healthcare reform. The state based its budget estimate on a survey of employers from 2005.
Lawmakers authorized the penalty - $295 per employee this year - to help subsidize state insurance for low-income residents and to spread finan cial responsibility for the coverage initiative among individuals, government, and businesses. Under the health insurance law, passed last year, individuals are required to obtain coverage or pay a fine.
Companies with 11 or more full-time-equivalent employees face the penalty unless 25 percent of their employees buy company-subsidized insurance or the company offers to pay at least one-third of employees' individual premiums. Advocates say employers should be required to cover at least half their workforce and to contribute more toward the premiums.
To enforce the law, the state required about 62,000 companies with eight or more employees to report by Nov. 15 whether they met the insurance standard. Nearly 44,000 filed, but more than half were too small to face the coverage requirement and almost all of the rest said they already provided insurance. So far, 518 have agreed to pay the penalty.
"This is unequivocally good news," Senate President Therese Murray, one of the architects of the law, said in a statement. "Employers are obviously doing their part, and individuals are also taking their responsibility seriously."
House Speaker Salvatore F. DiMasi, who had originally pushed for a payroll tax on employers who do not provide insurance, said the filings showed businesses were taking the idea of shared responsibility to heart.
But advocates said the small number of companies paying the penalty showed that businesses were not carrying a fair share of the burden, because of weak rules established by the Romney administration. The Legislature set the penalty, and then overrode Romney's veto of it, but subsequently allowed the administration to determine how it would be applied.
"The Romney administration definition . . . has permitted many employers providing little or no coverage to their workers to escape fair share responsibility," said John McDonough, executive director of Health Care for All, a Boston-based advocacy group. "For example, if I offer to pay one-third of the premium and none of my employees take up the offer, I escape liability under the law even if I'm not covering anybody.
"This means that taxpayers are carrying and will carry a larger-than-anticipated burden," he added.
When the bill was signed, the Legislature had estimated that the "fair share" penalty on businesses would bring in $45 million last year and another $36 million this fiscal year. But the state did not collect any money last year, and the administration of Governor Deval Patrick had already downgraded the revenue estimate to $24 million for this year.
That money is a small part of the expected $1.8 billion annual cost of the insurance initiative, but there are already signs of other strains on the budget. Enrollment in the state-subsidized insurance plan is outstripping expectations and could cost $147 million more this year than expected, the Globe reported on Sunday. In addition, the federal government has proposed rules that could cut more than $100 million from the state Medicaid program, another important component of financing the insurance initiative.
The Patrick administration yesterday declined to discuss how it might make up the shortfall.
"It's still early," said Sarah Iselin, state commissioner of healthcare finance and policy. "This is all preliminary."
The state still needs to find more than 18,000 employers who have not reported their insurance status. Iselin said the state will send them reminder notices and, if they still don't reply, fine them as if they were not providing any insurance. She said she expects that many will be exempt from the requirement because they have fewer than 11 employees.
Iselin said the state was pleased to learn that more than 18,000 employers already offer coverage, but acknowledged that the state does not know whether that number includes any who started offering insurance because of the law.
A survey of businesses released last week suggested that 73 percent of employers offer health insurance, and found that a small percent planned to drop coverage. A state survey in 2005 found that at least 88 percent of businesses with 10 or more employees provided insurance. Ninety-seven percent of those filing to date said they provided coverage.
"I don't think the fair share penalty has a significant bearing either in encouraging more employers to offer coverage or other employers to drop coverage," said Michael Widmer, president of the Massachusetts Taxpayers Foundation, a business-funded budget watchdog. Most employers offer insurance to attract and retain employees and the penalty is far less than the cost of insurance, he said.
A spokeswoman for the state's largest business trade group warned against reading too much into the penalty figures. "It's the first year and many companies are late filing or unaware of their obligations," said Eileen McAnneny, senior vice president of Associated Industries of Massachusetts. McAnneny also said businesses that already offer insurance are contributing to the healthcare initiative in a far greater way by paying for employees who are newly signing up for coverage because of the insurance requirement.
But some healthcare advocates said that's not enough.
"The fair share requirement is too weak," said Wilnelia Rivera, health policy director for Neighbor to Neighbor, a nonprofit community organizing group that supported the healthcare law. "Individuals are going to pay [more] than employers will. How is that fair?"
Alice Dembner can be reached at email@example.com