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October 31, 2005

Employers are NOT universally opposed to "pay or play"

Don't be fooled.  To read the Globe articles discussing the House's health care bill, you would think that the "business community" is universally opposed to including a "pay or play" employer assessment in whatever health care legislation emerges from the State House.  But it just ain't so.

I spoke at some length this morning with Phil Edmundson, CEO of William Gallagher Associates in Boston, and the co-founder of a group called Massachusetts Business Leaders for Quality Affordable Health Care (MBLQAHC).  MBLQAHC is listed as a sponsor of Health Care For All's "Affordable Care Today" campaign, which is backing the Health Access and Affordability Act.  And, importantly, MBLQAHC is squarely behind the idea of a "pay or play" type of assessment on businesses, whereby businesses over a certain size either provide health insurance to their employees or pay an assessment into a state fund that is used to subsidize free or low-cost health insurance (I'm oversimplifying, but that's basically the idea).  While there are differences between the House bill and the HAAA, Edmundson describes the House bill generally - and its inclusion of an employer "pay or play" assessment in particular - as "a big step forward."  Much more below.

Why would a coalition of business leaders (Edmundson won't say just yet who is in his coalition - he will announce his membership as part of his State House press conference at noon tomorrow) support an assessment on business?

Edmundson explains that the current system is terribly unfair to businesses who do the right thing by providing health insurance to their employees.  These businesses pay not once but twice - once to cover their own employees, and again in the form of assessments to the state's Uncompensated Care Pool that reimburses hospitals for caring for uninsured patients.  On the other hand, businesses that don't provide health care get off scot-free.  A system better set up to encourage businesses not to provide health care seems difficult to imagine.

Edmundson also pointed out that most businesses with what he called "mobile jobs" (jobs that can be relocated outside of Massachusetts) - such as banks, insurance companies, manufacturers, and the like - already offer their employees health insurance (presumably because qualified employees expect it and will go elsewhere if they don't get it).  Many of the employers that don't pay health insurance are retailers and construction contractors - and those employers can't easily relocate their jobs (as Edmundson says, if you want to pave roads or sell doughnuts in Stoughton, you've got to have people working in Stoughton).  So Edmundson sees the prospect of job loss as a result of a "pay or play" assessment as minimal - the assessment will actually benefit employers who already pay for health insurance; many businesses who don't pay for health care now cannot relocate; and this plan will spread the cost of health care more equitably among all Massachusetts businesses.

I asked why the "business community" is perceived as opposed to a "pay or play" provision when it would seem to actually benefit a substantial percentage of businesses.  Edmundson saw three possible reasons.  First, he says, some employers who provide health insurance simply are not educated about the current system - for example, they don't understand that they pay not only for their own employees but also for the free care pool, thereby subsidizing their competitors who don't provide health insurance.  Second, the business community can generally be expected to react instinctively against government regulation.  Edmundson said that, being a businessman himself, he understands that instinct, but he says that it's important to take the health insurance issue in context.  After all, he says, business has been dealing with worker's compensation laws and unemployment insurance laws for years, and those laws are now seen as a reasonable way of dealing with social problems that, if left unaddressed, would have morally unacceptable consequences (in the form of workers losing their jobs and facing financial ruin for reasons beyond their control).  Edmundson sees health insurance as a similar situation - this sort of threshold, he says, has been crossed before.  Third, Edmundson points out that employers who are now (in his words) "scamming the system" by not providing health insurance and relying on the contributions of other businesses to fund the free care pool can be expected to protest a "pay or play" provision very loudly, and it is often the loudest voices that set the terms of the debate.  The point of MBLQAHC is to add some loud voices on the other side.

I asked Edmundson about the possibility of an individual mandate, and whether he thought that might make "pay or play" more palatable to business.  Edmundson said he was open to the idea, though it is not part of the HAAA that MBLQAHC has formally endorsed.  But he insists that an individual mandate makes no sense without ensuring that truly affordable plans are available to the individuals being forced to carry coverage - failing that, he said, an individual mandate is "a non-starter."

The support of at least some significant portion of the business community is crucial to making "pay or play" stick - a State House source told me last week (before the House announced its plan) that there was no appetite in the Senate for "pay or play" because there was no perception of any support from business.  Phil Edmundson hopes to change that perception, starting tomorrow at noon when he announces who is in his coalition and what they stand for.  Let's hope he succeeds.

Posted by David at 11:43 AM in Health Care, Massachusetts | Permalink


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I've been thinking about "pay or play" in a game theory/economics context, and I'm wondering about the following:

* If small businesses are exempt, is the cutoff "hard" or "soft"? That is, if the cutoff is 10 persons and you have 12 employees, do you have to pay (12 * penalty) or ((12-10) * penalty). The latter makes far more sense, since otherwise the cost of adding the 11th employee is incredibly huge, since it is 11's salary and benefits, plus (11*penalty) instead of (1*penalty).

* Is it possible to make the cutoff quite high (say, 200 people) and lower it by 5 persons per year to give businesses time to adjust? This would allow the government time to ramp the program up, the market time to adapt to the increasingly insured, employers time to decide if they want to pay or play, and employees the opportunity to decide which employer is right for them. Does the prospect of starting with a high threshold and lowering it each year exist? Any traction?

Posted by: stomv | Oct 31, 2005 11:56:03 AM

David, I know that you've written against the individual mandate as a policy question. Do you think that it could be unconstitutional as well. That's my big worry. A plan will get passed, it will look good, but then somebody will challenge it in court, and the whole thing will be thrown out.

Posted by: Abby | Oct 31, 2005 12:31:22 PM

As a small business owner that pays 100% of my employees health costs I have a few thoughts/questions about this bill.

* Each year, I see the fees for insurance going up 18-25% across the board. We have been around 8-11 employess depending on how business is doing. One thought that comes to mind is how competition amoung providers will change. When you fill in an audit to get a quote for new benefits, we are always asked about salaries and how much the employee will contribute. With that information in hand, the providers "could" "adjust" their rates so that your quote puts fees right at your 3% or 5% (depending on size), because they know you are going to have to pay that extra % anyway, might as well pay it to them right?

* Maybe I am oversimplifying it, but I just see this as a way to double dip. Health care providers are still going to raise their fees each year some large % as well as get help from this fund. Is there any provision in this bill for providers to back out the "uncovered" % from their fee structure seeing as they are getting aid from the common fund?

Just a few thoughts. I am not opposed to the idea but think there are a few more issues that have to be dealt with. As with many programs like this I am skeptical the the consumer (businesses) will ever see lowered health care costs s this takes affect over time.

Posted by: dreed | Nov 1, 2005 12:08:31 PM

It sure is unfortunate for business owners as health care costs are rising. Although health insurance is a major aspect to many.

Posted by: Blue Cross of California | Nov 23, 2005 2:41:11 PM

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