DiMasi to revise health plan after business outcry

Faced with an uproar from businesses, House Speaker Salvatore F. DiMasi said late yesterday that he would revise his healthcare plan so that companies that insure their workers would not be subject to a new payroll tax.

DiMasi pledged to alter the measure after a preliminary analysis by the Massachusetts Taxpayers Foundation showed that more than half of the roughly $650 million expected to be generated by the new tax would come from businesses that already provide at least some coverage to their employees. The finding undermined a key selling point of the legislation: that it would reward firms that already provide insurance, while imposing the tax on those that don't.

But in an interview with the Globe, DiMasi stuck by the principle that employers either provide coverage or be forced to pay the state. DiMasi also suggested that the Senate as a whole is in favor of such a requirement and that there are enough votes in both chambers to override a veto by Governor Mitt Romney.

''It's an important leg of the stool, because I think all employers should be part of the solution," DiMasi said. ''I think they should be invested in this, especially the ones that don't provide health insurance to their employees, because we're paying for it now, and it's not fair that we are."

DiMasi's decision to revise his bill to shield those who already insure at least some of their workers was made after complaints from Romney, Senate President Robert E. Travaglini, and other critics continued to label the employer requirement a ''jobs tax." The plan DiMasi unveiled Monday would levy a 5 percent payroll tax on companies with 11 to 100 employees, and a 7 percent tax on businesses with 101 or more workers. Companies with 10 or fewer workers would be exempt.

When he explained the plan Monday, DiMasi insisted that employers that provide health coverage for their workers would pay less under his proposal than they are paying now. Yesterday, he said that he did not intend to harm businesses that currently cover their workers and that his staff would correct the legislation to shield them from the tax.

Currently, businesses that provide coverage to their workers pay a surcharge, which is built into their insurance premiums, to help the state cover the cost of care for the uninsured, but employers that don't cover their workers don't have to contribute. To create an incentive for employers to offer coverage, the House plan would allow businesses to deduct what they spend on healthcare for their employees from the state levy.

Because healthcare costs for the average firm range between 12 percent and 15 percent of their payroll, DiMasi said Monday, many employers that offer coverage would not have to pay any tax, since their current expenses exceed the 5 to 7 percent levy.

But yesterday, an analysis by the Massachusetts Taxpayers Foundation, a nonprofit group funded by businesses, said that some companies with highly paid employees or many part-time workers without insurance pay healthcare costs that are less than 5 or 7 percent of their overall payroll, thereby exposing them to DiMasi's tax.

Michael J. Widmer, who heads the foundation, said that many of the firms that pay high salaries are in financial services, high technology, and other areas that ''form the backbone of the Massachusetts economy and that are the key job creators of the future." Because such companies tend to have a highly paid workforce, their healthcare expenses constitute a smaller percentage of their payroll and therefore could be taxed under the bill as originally presented.

Other businesses, such as grocery stores, employ many part-time workers without health insurance. Their salaries drive up payroll costs, but don't add to healthcare costs, so those companies could be exposed to the tax levy as well.

The Massachusetts Taxpayers Foundation based its analysis on statistics from the US Census, the state Division of Health Care Finance and Policy, the Kaiser Family Foundation, and other sources.

Yesterday, DiMasi said he doubted the Taxpayers Foundation's contention that employers offering coverage would account for more than half of the $650 million. In any case, he expressed confidence that he could find money elsewhere to make up for their contributions. He said he was interested in creating incentives to encourage businesses to offer insurance to their part-time workers, but he did not elaborate. Nor did he specify exactly how he would alter his bill to exempt companies that already offer some coverage. The bill is expected to reach the House floor tomorrow.

Before DiMasi said he would change his plan, Christopher R. Anderson of the Massachusetts High Technology Council called it ''a Trojan Horse."

''I don't think there is any substantive evidence to show that the types of companies that populate our diverse technology economy will save anything," Anderson said. ''I think it's just the opposite."

Eileen McAnneny of Associated Industries of Massachusetts said the proposed levy would chase businesses out of the state. ''We have the highest healthcare costs in the country," McAnneny said. ''To ask businesses that already pay to pay more is ridiculous."

During the course of the day, DiMasi and Travaglini said, they were bombarded by phone calls from business leaders who pointed out that some employers providing insurance would be hurt by the payroll tax. Travaglini said yesterday that the payroll levy in DiMasi's plan ''runs a little bit counter" to the Legislature's efforts to lure businesses to the Bay State.

''This is a tax, and this changes the whole complexion of the discussion," Travaglini said in an interview.

DiMasi said the business leaders who called him vowed to continue to oppose the tax, even after he told them he would exempt employers who cover their workers.

Some business leaders are backing DiMasi. Philip Edmundson, chairman and chief executive of the insurance brokerage William Gallagher Associates, was among business people who showed up at the State House to support the House plan, even before DiMasi pledged to alter it.

Edmundson said his group had already realized that the new payroll tax would hit some employers offering coverage. He supported DiMasi's contention that the situation was unintentional.

''Companies that provide comprehensive health insurance and simply due to the nature of their very high salaries don't meet the 5 percent or 7 percent test are not, and never were, the target of any of [the] plans," he said, referring to DiMasi's plan and others being discussed on Beacon Hill.

Scott Greenberger can be reached at greenberger@globe.com.