In January, the Baker Administration introduced a number of healthcare market reform proposals in its fiscal 2018 budget. The public face of these proposals is found in a slide presentation on the website of the Executive Office of Health and Human Services (EOHHS). There have also been news stories written about the proposals and certain stakeholder groups have been briefed. Beyond the EOHHS document, however, there is not much transparency or explanation about any of these proposals. Two of them are especially important as each has potentially far-reaching impacts: a new annual $2,000 penalty per employee on businesses who do not attain 80 percent enrollment in their employer-sponsored health plans and a proposal to limit what insurance companies may pay providers. This blog is about the first of these important proposals, the penalty on businesses, and we will write again shortly about the Governor’s rate cap proposal.
$2,000 Penalty on Employers
In an effort ostensibly to slow down the growth of the state’s Medicaid budget, the Governor is proposing to impose a $2,000 penalty on any company that does not enroll at least 80 percent of its full-time-equivalent employees in its health insurance offering. The state’s Medicaid budget has seen steady growth, especially since the implementation of the Affordable care Act (ACA or Obamacare) which lowered the threshold for employed people to enroll in MassHealth, the state’s Medicaid program. (Massachusetts participated in expanding its Medicaid program under Obamacare, and under an approved waiver from the federal government, the state receives significant federal funds for its Medicaid program.)
The state’s annual Medicaid budget is more than $15 billion and amounts to 40 percent of the Commonwealth’s budget. Enrollment is currently 1.9 million people, an increase of 500,000 since 2013, and the cost of Medicaid is expected to continue growing.[i] There is no question that MassHealth presents very significant budgetary challenges for the Commonwealth.
In a recent letter to Congress, Governor Baker explained that since 2012, the number of residents insured through commercial coverage has declined by 7 percent, while MassHealth enrollment has increased by 7 percent. The Governor’s letter stated: “Since 2011, the Commonwealth has seen a costly shift of approximately half a million lives from the commercial, employer-sponsored market into public coverage.”[ii] According to news reports, administration officials claim the increase is due not only to expanded eligibility under the ACA, but also to the absence of penalties on companies that do not offer insurance and to employees choosing MassHealth plans with richer benefits over their employer-sponsored plans.[iii]
Presumably, the rationale behind the $2,000 penalty is that there are perhaps thousands of employers who are getting a “free-ride” because their employees are on publicly-subsidized plans. The assumption is that working people on MassHealth have employers whose plans are either worse than MassHealth’s or do not exist. It then follows that under the threat of an annual $2,000 penalty per employee, such free-riding employers will offer insurance to their employees with benefits rich enough to enroll 80 percent of their workers. Or, those employers who already offer insurance, but who do not enroll 80 percent of their employees, will be motivated to offer richer plans to achieve the 80 percent threshold. The result would be that people will come off the Medicaid rolls and the state will save millions of dollars. One would think that this is the rationale and the anticipated outcome, but a closer look indicates that a nexus between the penalty and the outcome seems to be lacking.
What Will the Penalty Actually Do?
First, the Administration has not publicly provided, to our knowledge, any data supporting the rationale above. It would be interesting to know, for example, how many people on MassHealth are actually working and how many choose MassHealth over their employers’ plans. (If someone is not working, it doesn’t matter whether or not employers are offering coverage.)
We were able to learn informally from the state that of the 1.9 million people on MassHealth, about 350,000, or 18.4 percent, have some kind of employment. But data underlying the 350,000 number is not readily available and it is not a number that we have seen the administration cite publicly. We can assume that not all these people are working full-time. Further, we do not know how many are working for companies that offer insurance, nor do we know how many are working for companies that do not offer coverage at all. At a minimum, it appears there is no reliable publicly available data about employed people enrolling in MassHealth and whether or not these employed people have or do not have access to employer-sponsored insurance.
Second, MassHealth regulations allow the agency to perform an investigation to determine whether individuals receiving MassHealth have access to employer-sponsored health insurance that meets the affordability and minimum value requirements under the law. In such cases, depending upon the employee’s income, MassHealth can require the individual to enroll in employer-sponsored insurance and provide him/her with Premium Assistance Payments to help make the employee’s premium contribution affordable. By utilizing this, MassHealth would save some money by assuming responsibility for only a portion of the total health insurance premium cost, with the employer and employee sharing the balance, rather than by MassHealth bearing all of the cost. We do not know the amount of money such savings would amount to.
Third, is there a list of companies that do not offer any coverage to employees, or an estimate of the number of such companies and the size of their workforce? Is there a list of companies which do not enroll at least 80 percent of their workforce in insurance? The administration says that since 2012, there has been a 7 percent drop in the number of residents covered through commercial coverage. Do we know anything about the companies who are dropping commercial coverage? Does this data point include companies who have eschewed purchasing insurance and who are now self-funded?
We do not know the answer to any of the questions above. However, it is important to note that the administration’s proposal is specifically aimed at businesses with 11 or more employees. Most large businesses – and that could include businesses with as few as 100 to 150 or more employees – are self-insured, meaning they self-fund their employees’ health insurance as opposed to purchasing it from an insurance company. Although there are exceptions, typically larger companies that self-fund offer richer healthcare benefits with smaller deductibles than do smaller companies. In addition, when a company self-funds its health insurance, the state is limited by the federal ERISA law which restricts attempts to interfere with a company’s employee benefits packages. It is possible that large self-funded companies that may not enroll at least 80 percent of their employees could challenge this penalty under ERISA.
For these reasons, the burden of the administration’s $2,000 penalty will likely fall disproportionately on small businesses with 11 or more employees. Such businesses typically purchase health insurance from an insurance company and are not self-funded. Generally, their plans may include high deductibles and their employees may enroll in a spouse’s plan if it has richer benefits.
In addition, the 80 percent threshold is being made especially challenging as it excludes employees who choose their spouse’s insurance or are on Medicare themselves from counting towards that figure. One concern is the fallout could be potential discrimination in hiring. This would be a pretty punitive policy and seems only aimed at making it difficult for companies to meet the requisite 80 percent insured level. If a company falls below the 80 percent threshold, it would have to pay $2,000 per full-time employee for the difference between the 80 percent threshold and the percentage of employees on its plan.
If the administration’s plan is genuine, it looks like it is trying to force small employers to offer richer benefit plans to employees so that they will prefer the employer-sponsored plan over MassHealth.
What seems to be lacking in the administration’s proposal is a nexus between small businesses of 11 or more employees that do not offer health insurance or who are not at the 80 percent level and an increase in MassHealth rolls of working people. The administration has not provided data to support the contention that small business employers are responsible for the increase in MassHealth’s working population, and further, that that population is not eligible for state-sponsored care.
The state has said that it anticipates collecting $300 million as a result of this penalty, an amount that would be used to defray Medicaid budget shortfalls. We do not know how the state arrived at its $300 million estimate, nor do we know if this amount is anticipated to be a one-time penalty or for collection in subsequent years as well. It is just not clear. The state has provided no basis for this estimate, and it is unclear that such a policy would actually produce this level of revenue.
This is a policy proposal with far too many unanswered questions and without the proper data backup. Without further definition or data to support the administration’s position, there is no reason to have confidence that the assessment approach will address either its stated goal, which is to drive down MassHealth enrollment, or its unstated goal, which is to close an FY18 budget gap. As noted above, it will hit primarily and unfairly small businesses. But again, because of the lack of specificity and supporting data around the proposal, it is impossible to know how hard it will impact small businesses.
This proposal is not ready for prime time and it is good news that the administration has announced that it is going back to the drawing board, this time with business representatives sitting at the table. Our suggestion is to start from the data.
[i] See, Boston Globe, February 19,2017, “MassHealth, Massive Headache, “ by Jon Chesto.
[iii] See State House News Service, “Baker Plans Employer Assessment, Price Caps, Benefit Cuts to Address Health Costs,” Matt Murphy, Jan. 17, 2017 online.