RAM Responds to Health Care Tax Proposal – Focus First on Reducing Health Care Costs
Governor Charlie Baker released his FY18 state budget plan in late January, including in that filing a proposal to bring back a program similar to the old Fair Share Contribution, an assessment on employers that was part of the original MA health care reform law from 2006.
Baker’s new proposal was met with immediate opposition from RAM and others in the employer community who saw it as a health care tax on employers. Vast differences were highlighted in comparing the new tax to the old Fair Share program, and Baker’s proposal was quickly renamed the Unfair Share Health Care Tax. The new tax is said to be needed to help close a $600 million budget gap in the state’s Medicaid program, MassHealth.
Expected to generate upwards of $300 million in the first six months, the “Employer Contribution to Health Care” is a proposed annual $2000 per employee tax that, to some extent, will likely hit most employers with 11 or more full-time equivalent employees (FTEs). When fully annualized, the projected fiscal impact on employers is estimated to be in excess of $700 million. To put that in perspective, in its first year the original Fair Share regulation brought in about $7.5 million, based on a $295 per employee assessment.
Under the Administration’s proposal, employers with 11 or more full-time equivalent employees must make a "Minimum qualified offer" to employees working over 35 hours per week, essentially $4,950 per year to an employer sponsored group health insurance plan. All employee payroll hours are included in the calculation to determine an employer’s FTE count, including part-time, seasonal, etc.
The test is on a quarterly basis. For each quarter, if an employer does not make any contribution or makes a contribution less than the “minimum qualified offer” toward their employee’s health insurance costs, then the employer is hit with the full assessment - $500 times the employer’s FTE count for that quarter.
If an employer passes the minimum qualified offer test, the second test is a participation test, with a very high threshold of 80%. If an employer fails to hit the 80%, they will pay a penalty based on their FTE count multiplied by $500, and then multiplied by the percentage difference between their actual participate rate and 80%. Under this scenario, many employers that offer quality health insurance to all of their employees will still be penalized for failing to reach the 80% threshold.
In reaction to the proposal, RAM and others in the business community have argued that employers are being asked to solve a problem that they did not create. The Commonwealth elected to expand Medicaid under the Affordable Care Act (ACA) and removed the prohibition on employees accessing state subsidized plans if they had been offered employer sponsored coverage. Employers cannot force employees to take up their offer of health insurance and we all get our insurance from different sources – employers, parents’ plan, spousal coverage, TriCare, etc.
An alternative proposal that has been discussed involves temporarily increasing the existing tax, known as the Employer Medical Assistance Contribution (EMAC), that most employers now pay as part of their unemployment insurance taxes. EMAC funds are used to pay for subsidized health care for low-income residents of the Commonwealth. All employers of six or more employees contribute to EMAC. This proposal is said to generate lesser revenue and spread the cost more evenly across all employers. While this approach may be viewed by many as the preferable choice if there were only these two options on the table, we cannot forget that employers alone did not create this problem, and they should not be asked to carry the cost load.
The Commonwealth, to date, has failed to address in a real manner the ever increasing problem of health care costs growth. The state has a cost growth benchmark which it has exceeded in both of the past two years, yet there are no consequences. The Health Policy Commission (HPC) has been working to address the cost issue and just recently released a Roadmap of Opportunities for Improving Care and Reducing Costs. The state should aggressively pursue the seven scenarios highlighted in the Roadmap, which include reducing readmissions, shifting care to the appropriate community setting, and reducing the rate of growth in prescription drug spending. The HPC estimates that the projected savings of the opportunities presented in the Roadmap could fall between $300 and $800 million, with an unknown portion of that savings benefiting the MassHealth program.
Employers should not be asked to pay more until the state takes meaningful steps to reduce health care costs, to lower small business premiums, to address issues of provider price variation, and to reign in unnecessary provider and hospital spending.