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Mass. health overhaul offers lessons for US program

Employees not being dumped on public plan

Senator Olympia J. Snowe of Maine said she is concerned about additional costs being placed on employers. Senator Olympia J. Snowe of Maine said she is concerned about additional costs being placed on employers.
By Lisa Wangsness
Globe Staff / July 10, 2009
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WASHINGTON - A fear that employers will drop private coverage and dump their workers onto federally subsidized health plans is a major concern among lawmakers crafting healthcare legislation on Capitol Hill, leading House Democrats to propose stiff financial penalties for businesses that don’t contribute to employee premiums.

But the experience with the healthcare overhaul in Massachusetts suggests those worries may be overblown.

The Bay State’s 2006 landmark healthcare law, often seen as a model around the country, allowed businesses who chose not to cover their employees to get by with just a minimal fee. Yet even without the threat of a serious penalty, employee dumping has not been a problem, said architects of the Massachusetts plan.

Three years after the state passed its requirements, Massachusetts businesses have not canceled insurance plans at all. In fact,150,000 more residents are privately insured through their employers.

“Certainly this suggests that you don’t need a strong employer mandate to fight erosion’’ of employer-sponsored insurance, said Jonathan Gruber, an MIT economist who is advising both Congress and the Obama administration on healthcare.

The Massachusetts example could defuse a serious ideological divide in Congress, where many Republicans and centrist Democrats abhor the idea of forcing employers to continue health insurance - or else.

Democrats believe an employer mandate is critical. House Democrats have proposed requiring all but the smallest businesses to make a substantial contribution toward basic insurance for their employees or pay an annual assessment equivalent to 8 percent of payroll. The Senate health committee has proposed a lighter penalty of $750 per full-time employee. The nonpartisan Congressional Budget Office has indicated the Senate provision is important in preventing the erosion of employer-based insurance.

But opponents see it as a possible economic burden for businesses. Senator Olympia J. Snowe of Maine, a moderate Republican on the Finance Committee, told reporters this week that she is particularly cautious because of the recession.

“That certainly gives me cause for concern - how much you can add to the costs for the employer,’’ she said.

Massachusetts appears to have found a way to balance those concerns. Its law requires businesses with more than 11 employees that do not make “fair and reasonable’’ contributions toward their full-time employees’ premiums to instead contribute $295 per employee annually toward a fund for the uninsured. That’s a tiny fraction of what it would cost a business to help purchase a private plan, which in Massachusetts typically costs more than $5,000 for individuals and $14,000 for families. Yet the number of employers who chose to pay the fine dropped from 1,023 in 2007 to 738 in 2008, according to the state.

Why didn’t more employers choose the cheaper route?

One reason, Massachusetts officials say, is the state’s requirement that almost all residents obtain insurance. Jon Kingsdale, director of the Massachusetts Health Insurance Connector Authority, which administers the healthcare law, said that while some workers signed up for insurance their employers were already offering, others probably persuaded their employers to offer insurance for the first time - an example of what he called “trickle-up economics.’’

“One of the impacts of the individual requirement to have insurance is that it makes the already-strong demand by employees for employer-sponsored insurance even stronger,’’ he said.

Massachusetts also erected other “firewalls’’ to prevent a mass migration to publicly subsidized coverage.

Workers whose employers helped them pay for decent insurance were disqualified from purchasing government-subsidized plans. And for low-income people who qualify but earn twice the poverty level or more, the government-subsidized insurance costs roughly the same as a typical worker’s share of an employer-subsidized private plan, providing little financial incentive for employees to seek a change.

“If you put up those strong firewalls, you probably can reduce the level of the employer penalty and still substantially maintain or increase employer-sponsored insurance,’’ Kingsdale said.

But some warn against using the Massachusetts experience as a template for the federal legislation. Even before the 2006 law, Massachusetts had fewer uninsured than the nation as a whole, and most employers offered better insurance than their counterparts in other states, said Eileen McAnneny, senior vice president of Associated Industries of Massachusetts, a group representing the state’s business community.

Sentiment among some employers, who have long opposed a mandate, may be changing somewhat.

In a letter to President Obama last week, Wal-Mart, which has made notable progress toward insuring its low-wage workers in recent years, came out last week in favor of a broad mandate.

But there is strong opposition from groups such as the National Federation of Independent Businesses, the small business lobby, and the National Business Group on Health, even though its members are some of the nation’s largest employers and nearly all provide insurance for their employees already.

Helen Darling, chief executive officer of the National Business Group on Health, said some corporate executives oppose a mandate on principle. Others worry it could be unaffordable if it is applied to part-timers or seasonal workers, or that it could penalize businesses if they successfully rein in their costs.

But Darling said the debate is a distraction from a far more important issue: how to keep costs from growing at a rate that is devouring employees’ wages and employers’ profits and hurting US companies’ ability to compete globally.

“That really is the key,’’ she said.