NCPA - National Center for Policy Analysis


July 19, 2010

The relentlessly rising cost of health insurance is prompting some small Massachusetts companies to drop coverage for their workers and encourage them to sign up for state-subsidized care instead, a trend that, some analysts say, could eventually weigh heavily on the state's already-stressed budget, says the Boston Globe. 

Insurance brokers say the pace of terminations has picked up considerably since then among small companies, of which there are thousands in Massachusetts.  Many of these companies -- restaurants, day-care centers, hair salons, and retail shops -- typically pay such low wages that their workers qualify for state-subsidized health insurance when their employers drop their plans. 

The state's landmark 2006 health insurance overhaul included regulations designed to discourage low-wage employees from opting for state health insurance over their companies' often more pricey coverage.  It denied eligibility to any one whose employer had offered him or her coverage in the past six months and paid at least 33 percent toward the individual's plan: 

  • Most health care advocates and brokers had widely interpreted that to include even workers whose companies had dropped coverage.
  • But recently, some companies that have terminated their group plans have tested those waters and found that their employees were accepted for state-subsidized coverage.
  • Additionally, company owners say, it has become far cheaper to pay the state penalty for not covering their workers -- roughly $295 annually per employee -- than to pay thousands more in premiums. 

Come 2014, when the bulk of the federal health care law goes into effect, the penalties for small companies that do not provide health insurance coverage will be less onerous than those in Massachusetts.  That could tempt more small companies to opt out nationally, sending more workers to the public rolls -- if health care costs can't be restrained, some analysts said. 

The federal law does not impose any penalty on companies with fewer than 50 employees that do not offer coverage, whereas in Massachusetts, employers with more than the equivalent of 11 full-time employees face fines for not offering a health plan and contributing at least 20 percent toward that coverage.  But for companies with more than 50 workers, the federal law comes down a lot harder than does the state law, says the Globe. 

Source: Kay Lazar, "Firms cancel health coverage; With cost rising, small companies turning to state," Boston Globe, July 18, 2010. 

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