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Burning Question 1: Will Employers Pay $295 and Drop Coverage?

Burning Question 1: Will Employers Pay $295 and Drop Coverage?

April 18, 2006

We're hearing it from many quarters. Judy Meredith asked me to address it. Under health reform, employers who cover their workers and have 11 or more full-time equivalent
workers must pay a $295 per worker annual assessment to the state -- a charge estimated to accrue $45 million in FY07. Why, many ask, won't employers stop offering coverage and pay the $295. The individual mandate puts the onus on individuals, giving even more excuse for employer escape.

Reasonable, good question. We don't think so. Why? Let's conceptualize three employer types who now provide coverage:

Type A: employers who provide coverage because it's the right thing to do and they feel responsibility to their workers.

Type B: employers who provide coverage because they can't attract the caliber of workers they need without offering coverage.

Type C: employers in lower wage sectors where coverage is marginal.

Let's consider each in turn.

Type A employers provide coverage because they think it's the right thing. If they drop coverage, their workers will have to find coverage on their own, many may not be able to afford it, and many workers will be angry and upset. They are not likely to drop coverage. By the way, how large is this group? Beats me.

Type B employers provide coverage because they can't attract the caliber of workers they need if they don't offer. Under health reform, workers with family incomes over 300 percent of the poverty line will be ineligible for financial help. Employers who drop coverage will leave these valuable workers needing to find coverage on their own. And royally pissed off. Granted, that coverage may be more affordable, but those workers will start looking for other employment opportunities that provide coverage.

Type C employers are in sectors where marginal coverage is the norm -- retail, restaurant, construction, other service sector. As we saw in January in the case of Friendly's Ice Cream -- discontinuing full coverage in favor of "mini-medical" benefits -- this erosion in coverage has been going on for some time, and these employers do not need the $295 excuse to move in this direction. (And if you hear of employers dropping coverage post-reform, keep in mind that the employer retreat in this category started long ago.)

It's not the $295 that's an incentive -- it's the establishment of generous subsidized coverage for workers with incomes under 300%fpl that's the carrot. As the February 2006 Massachusetts report on employers with 50+ workers using MassHealth or the Uncompensated Care Pool makes clears, workers will gravitate away from marginal coverage and toward better and more affordable forms of subsidized, government-sponsored coverage.

Not that there's anything wrong with it. (By the way, single payer fans should cheer this.)

Here's the rub. And here's the future fight. We need companies in Type C sectors whose workers are drifting toward public coverage to contribute to the cost of that coverage. That's you -- WalMart, McDonald's, Stop & Shop, Unicco, Shaws/Star Market, Friendly's. You know who you are.

And the $295? Small potatoes. Not a factor.

Have I got it right or wrong? You tell me.