Firms cancel health coverage

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Firms cancel health coverage

With cost rising, small companies turning to state

By Kay Lazar Globe Staff / July 18, 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.

Since April 1, the date many insurance contracts are renewed for small

businesses, the owners of about 90 small companies terminated their insurance

plans with Braintree-based broker Jeff Rich and indicated in a follow-up survey

that they were relying on publicly-funded insurance for their employees.

In Sandwich, business consultant Bill Fields said he has been hired by small

businesses to enroll about 400 workers in state-subsidized care since April,

because the company owners said they could no longer afford to provide coverage.

Fields said that is by far the largest number he has handled in such a short

time.

" They are giving up out of frustration,'' Fields said of the employers. " Most of

them are very compassionate but they simply can't afford health insurance any

more.''

Precisely how many small businesses have recently given up offering insurance is

hard to pinpoint. The Office of Labor and Workforce Development said the most

recent quarterly insurance data collected from small companies has not been

compiled.

State officials said they have not seen convincing evidence that there is a

trend. There has not been an unusually large spike in enrollment in Commonwealth

Care, the subsidized insurance program, according to spokesman Powers.

And in any case, Dr. JudyAnn Bigby, secretary of health and human services, said

the administration budgeted for higher health care spending because it

anticipated that there would be growing numbers of long-term unemployed

residents who would be signing up for coverage.

The Massachusetts Division of Health Care Finance and Policy annually surveys

employers and found no significant drop in coverage as of the end of 2009, when

more than three-quarters of companies offered health insurance.

But 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.

" Those employers are trying to keep their doors open, and to the extent they can

cut expenses, they will cut health insurance because they know their people can

go to Commonwealth Care,'' said Mark Gaunya, president of the Massachusetts

Association of Health Underwriters, a trade group representing more than 1,000

brokers and other insurance professionals.

The issue is coming to a head as the administration battles insurers

over swiftly escalating rates they have been charging small employers. In

February, the governor filed sweeping legislation that proposes to give the

Division of Insurance the power to essentially cap health care price increases.

That proposal is still pending.

And on April 1, exercising authority the administration had never before used,

the division denied 235 of 274 increases proposed by insurers for plans covering

individuals and small businesses — base premiums would have increased as much as

32 percent. On July 1, it again held 137 proposed increases to 2009 rates.

The sides have been locked in negotiations for months, with the

administration recently reaching agreement with two insurance carriers on lower

rates.

" The -Murray Administration has taken decisive action to provide small

businesses and working families with immediate relief from skyrocketing health

insurance premiums,'' the governor's press secretary, ez, said in a

statement. He declined to directly address whether small businesses are

increasingly dropping health coverage and directing their workers to subsidized

care.

But analysts said the burden of double-digit insurance increases shouldered by

small businesses over the last several years is likely to become more of a

public problem.

" The more the employer insurance system unravels, the higher the cost is going

to be for the state in providing subsidies to low income workers,'' said Larry

Levitt, vice president of the Kaiser Family Foundation, a California-based think

tank. " From a state finance perspective, stabilizing employer insurance is

definitely important.''

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.

In New Bedford, the Early Learning Child Care center is now paying $1,500

quarterly in fines to the state, instead of the $30,000 it contributed quarterly

toward 13 workers' health insurance premiums. When Executive Director Judy Knox

terminated the company's health plan late last year, she asked Fields, the

consultant, to help 10 of those workers enroll in Commonwealth Care. The other

three went on spouses' plans or were eligible for Medicare.

" We had had, in the three previous years, between 17 and 18 percent increases

every year,'' Knox said. " I was so worried about the staff and their coverage,

but for most of them, Commonwealth Care seems to be working out very well.'' The

state program covers people with incomes up to 300 percent of the federal

poverty level.

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.

" Struggling business don't necessarily feel the need to offer coverage to

attract workers,'' said Kaiser's Levitt.

Massachusetts has not decided whether to adopt the federal rules for small

businesses.

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.

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