September 5, 2008
Sarah Iselin, Commissioner
Massachusetts Division of Health Care Finance and Policy
Two Boylston Street, 5th Floor
Boston, MA 02116
Dear Commissioner Iselin:
The Retailers Association of Massachusetts (RAM) is a statewide trade association of over 3,000 member companies. Our membership ranges from independent “mom and pop” stores and restaurants to larger national chains. The retail industry's contributions to the Commonwealth include $109 billion in annual sales; $4 billion in annual sales and meals taxes; 18% of Massachusetts jobs; and operation in at least 40,000 locations across the state.
On behalf of RAM, I offer the following comments in strong opposition to the proposed amendments to 114.5 CMR 16.00: Determination of Employer Fair Share Contribution. In short, these proposed amendments are unfair, costly and bureaucratic for small businesses and will prove to be counterproductive to the long term goals of health care reform. Furthermore the regulations may very well prove to be the straw that breaks the camel's back marking the beginning of the end of employer support for Chapter 58. What some may view as a simple word change of “or” to “and” actually has very complicated implications, which changes the “fair share assessment” into an unfair small business tax.
Some context and history is appropriate for these deliberations. The health care reform law was a compromise between very different proposals considered and voted on by the Legislature. The version that was to pass the House of Representatives in the fall of 2005 contained an employer payroll tax as an alternative to certain levels of coverage. During the debate the House made it perfectly clear through amendments that they did not want a situation in which employers would be taxed for employees who turned down the offer of insurance because they were insured elsewhere. Make no mistake about it--employers who offer insurance to all their full-timers, who pay for insurance for those employees that opt in, but have employees who turn down the offer due to being insured elsewhere--will be taxed under these regulations.
Under Chapter 58 the Acts of 2006, the Employer Fair Share Contribution required “non-providing employers” that do not “make a fair and reasonable premium contribution” to pay an assessment or tax of up to $295 per employee annually to fund health care costs of uninsured workers. The intent of the assessment was to capture those employers which did not contribute anything to the cost of providing free care in the Commonwealth through the Uncompensated Care Pool (UCP). Any employer providing health care coverage contributed to the UCP through existing surcharges. The law held harmless those employers which did offer coverage to their eligible employees and thus contributed to the UCP. Employer support of the costs of the uninsured was said to be equalized through the fair share assessment. Is it now the intent of the Division to utilize the fair share assessment simply as a tool to raise revenue?
When you consider the impacts of the triggers under the Fair Share assessment, you must understand that not all employers or employment sectors are the same, and that fact requires state regulation to be flexible. Over two years ago, RAM urged the Division to use a multi prong test as a way of acknowledging differences between employers and differences between workforces. Retail, restaurants, tourism, services, non-profits, and many other small business sectors often have workforces primarily made up of secondary wage earners. Those employees may have parents or spouses in higher paid or more permanent positions. They may move around quite often from employer to employer. They may be “moonlighters” and have other jobs. They may choose to be part-time in order to balance family responsibilities. They may be retirees on Medicare looking for additional income. The previous Administration understood this fact and designed triggers which recognized that meeting a 25% threshold may be difficult or impossible for some small employers because many of their full-timers are quite simply insured elsewhere and will turn down their offer. Likewise the 33% contribution trigger was one that some employers with high employee turnover could not meet due to the 90 day waiting period requirement. For those employers, the 25% participation rate was their failsafe. The intent of the dual tests was to have flexibility for different types of employers so that those that are doing the right thing and offering and providing insurance should also not be taxed on top of paying insurance premiums.
Unfortunately, the proposed regulatory changes come at a time when the benefits of health care reform have not yet been realized by small employers. There was great hope two years ago that provider transparency through the Quality and Cost Council would give all payers of health care dollars more information and ultimately lower costs. Two years later we are still waiting for this unfulfilled promise. Two years ago small businesses looked forward to a July 1, 2007 deadline for the Connector to offer affordable small group plans to them through the state pooling agency. Yet today we are still waiting for those plans, and small businesses remain fully aware that they are unfairly discriminated against under the law on health insurance pricing versus big business and big government. Small businesses subsidize big employers and government payers due to prohibitions on group buying and discounts under the small group law. Insurance rates for big purchasers not only are unregulated, they are not even filed with the state or are in anyway transparent to prevent unfair rate disparities. Group buying was achieved a year ago for cities and towns; nothing but empty promises have been given to small businesses.
The Administration has proposed quarterly filings for determining the fair share assessment. This represents an incredible increase in red tape, likely a need for more state bureaucracy, and it will most certainly represent higher costs for small businesses. The cost of complying with the quarterly filings will be bad enough, but the impact upon certain businesses with fluctuating employment could be dramatic. Tourism industries may be facing fair share taxation simply because they have more employment during their high season.
Much has been made that the fair share assessment has not produced the revenue originally projected. There is a reason why the assessment is raising less than originally anticipated—because the law is working and small businesses have been doing the right thing at a very high cost. Now with this new regulation, small businesses are saying that it appears that “no good deed goes unpunished.” The proposed regulatory change may very well raise $45 million in new taxes, but it will prove to be counterproductive because in exchange for higher taxes, there will be fewer people insured. After two years of enduring continued double digit increases in premiums and far higher take up rates among employees, small businesses have paid far more than their fair share. And now after these unprecedented new costs, they are now being told that they will also be taxed for employees that don't even accept the offer of insurance. Indeed, most of those employees are actually insured elsewhere—by their parents, spouses, or Medicare. Yet despite all that, the Administration is proposing to slap an unfair tax on these struggling employers. What alternative will these small businesses have but to throw up their hands, drop their offers of coverage, and simply pay the state the tax. So in the end, what truly has been accomplished? It raises the question as to whether it is more important to our state government to raise more dollars in taxes, or to have more people insured.
In RAM's comments to the Division in June, 2006 when the original regulations were being drafted I stated the following: “The long term effectiveness and viability of this new law will be measured by our organization and others in the small business community by the answers to two important questions. Will the law lower premiums for small businesses and their employees and give them insurance pricing that is fair and comparable to their larger competitors in the marketplace?” (Ask any small business this question and the answer after two years of reform is a resounding “NO”). “And secondly, will it allow small employers to still effectively compete in the marketplace by preventing undue new costs, bureaucracy and red tape - all of which would disproportionately hurt them versus larger employers?” Given the proposed regulatory amendment, the answer to that question will soon be “NO” as well.
On behalf of RAM and small businesses of all types across the Commonwealth, I urge the Division to withdraw these changes. The economy is bad, and small employers are closing their doors or are barely staying afloat. Unless there is a course change on health care costs in Massachusetts, I am quite confident that support from employers for the law will evaporate rapidly, because the current track cannot be allowed to continue for economic reasons. I fear that these changes may also trigger a legal challenge which would jeopardize the important progress we have made. It is time for a sea-change by our public policy leadership for real cost reform which puts consumers, employers and taxpayers first instead of the current beneficiaries: big health care and advocates of big health care spending.
Thank you for the opportunity to comment and RAM looks forward to working with the Division and the Administration in seeking true cost reductions and economic fairness for employers.
Sincerely,
Jon B. Hurst
President