The so-called employer assessment, proposed by Governor Baker in his fiscal 2018 budget, is in fact a far-reaching tax that is projected to cost the state’s employers more than $700 million once fully implemented. The Chamber opposes the proposal, which would require employers to cover a minimum number of employees and contribute a minimum amount towards health insurance premiums, because it does little to address the underlying problems of the increased enrollment in and costs of MassHealth, the state’s Medicaid program.
The Administration argues that the assessment is necessary to address employers shifting their employees away from employer-sponsored insurance to MassHealth, but there is little data to support that argument. Despite a recent report from Massachusetts Taxpayers Foundation demonstrating that employer shifts are not driving enrollment growth, the Administration continues to describe the assessment as “a way to keep costs under control, by stopping the migration from commercial insurance to state-subsidized insurance.” 
In fact, the proposed assessment – which would subject employers who do not meet the minimum requirements to up to a $2,000 per year assessment per full-time equivalent employee – affects a much broader range of the state’s employers across all industries, including those who provide quality health insurance benefits and have no employees on Medicaid.
The proposal’s flaws include:
- The revenue generated by this assessment is far in excess of $300 million. The fiscal 2018 budget estimates $300 million in revenue from the assessment, but that is based on only six months of implementation. Once fully implemented, the Administration’s projections show that for the four quarters composing fiscal 2019, employers would pay a total of $785 million in penalties for more than 500,000 workers in Massachusetts – approximately 15 percent of our workforce. 
- The minimum coverage threshold fails to account for employees receiving legitimate alternative coverage. In determining the number of employees covered, the proposal fails to provide exemptions to employers for any employees who are enrolled in legitimate forms of alternative coverage, such as a spouse’s employer-sponsored coverage, a parent’s plan for those younger than age 26, Medicare for those over age 65, and more. As a result, employers without any employees enrolled in MassHealth may still be penalized by this assessment.
- It mandates minimum premium contributions from employers. By setting a minimum contribution of $4,950 this assessment will penalize employers who contribute less because they are successful in managing health care costs. Furthermore, enacting a minimum dollar contribution for employer-sponsored insurance into state law means that any future adjustments, other than the indexing to inflation prescribed by the proposal, must be legislatively adopted.
Rather than relying on a broad-based revenue generator that penalizes employers providing good health care coverage, the state must address the rising enrollment and costs of MassHealth, particularly with the potential reductions in federal funding that could result from reforming the Affordable Care Act.
- The minimum contribution threshold of $4,950 penalizes those employers with younger employees and/or a greater share of employees electing individual coverage. The state has a large population of young workers, and many of these residents are enrolled in individual coverage that has lower premiums. Employers with a large share of young workers also have lower premiums because their risk pool is healthier than one with a larger share of older employees who may require more medical services. Setting a minimum contribution level means that these employers will be penalized, regardless of whether any employees are actually enrolled in MassHealth.
- There may be unintended consequences on the broader efforts to contain health care costs. High deductible and catastrophic plans with lower premiums are appealing to some consumers, particularly if they do not require many medical services, but this proposal would penalize employers for offering such plans to individuals if it results in premium contributions falling below the threshold. In addition to reducing costs for consumers through lower premiums, such plans can address consumer utilization and overall health care spending through cost sharing.
- Many residents eligible for MassHealth are covered by employer-sponsored health insurance. According to data from the Kaiser Family Foundation, in 2015 more than 140,000 Massachusetts residents below the Federal Poverty Level were covered by employer-sponsored health insurance, either as a dependent or from their own employer. 
- The state and several municipalities do not meet the minimum contribution requirement for one or more of the plans offered to employees. For state employees hired after July 1, 2003 the state contributes 75 percent towards the cost of premiums. Based on rates effective July 1, 2017, the state would not meet the $4,950 minimum contribution for individual coverage in one of the plans offered through the Group Insurance Commission (GIC). Similarly, for several municipalities in the GIC, their share for individual premiums in one or more plans will fall short of the minimum contribution. Even if the state and municipalities are not subject to the financial assessment, this proposal would create a burden on all other employers while exempting the state from the same standard.
Rather than relying on a broad-based revenue generator that penalizes employers providing good health care coverage, the state must address the rising enrollment and costs of MassHealth, particularly with the potential reductions in federal funding that could results from reforming the Affordable Care Act. The Chamber supports such efforts and will work with elected officials and stakeholders to address that issue.
Download a copy of this report here. (PDF)
 Schoenberg, Shira. “Legislative hearings kick off on $40 billion fiscal 2018 state budget.” Masslive.com, March 9, 2017.
 The administration’s estimate assumes an 80 percent collection rate. The published estimate of $585 million for fiscal 2019 also assumes only three quarters of collection because one quarter would be collected in fiscal 2020.