Potential Adverse Consequences to Proposed Changes in FSC regulations

| September 25, 2009 | Comments (0)

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MassAHU is concerned about potential adverse consequences of the proposed changes to the Fair Share Contribution regulations to take effect on October 1, 2009 (114.5 CMR 16:00: Determination of Employer Fair Share Contribution).  We understand the changes are designed to help employers who have applied for relief from the FSC responsibility as part of the annual (and now quarterly) filing with the DUA.  We sympathize with businesses who are struggling to pay their liabilities in this difficult economy.  However, changing the regulations benefits exactly the businesses who, in the spirit of health care reform, are not living up to their ‘fair share’ while upsetting the group insurance market for the majority of businesses who are offering group health plans to their employees. 



Businesses in Massachusetts are required to contribute at least 50% of a single health plan cost in order to secure a group health insurance policy according to current health plan underwriting requirements.  In fact, studies show that businesses who do provide health insurance to their employees are actually contributing about 70% of the cost.  In other words, they are doing more than their ‘fair share.’


The health care reform legislation regarding FSC is intentionally more lenient than standard group insurance requirements because it sets the minimum employer contribution at 33% of the lowest cost health plan offered by the employer.  When some of the MA health plans indicated they were going to drop their minimum contribution requirements to match the HCR requirement, they were ASKED by the Governor’s office NOT to do this.  The reason is simple:  our administration recognized what would happen as a result – businesses would seek the lowest level of commitment to avoid the FSC and reduce their financial support towards insurance protection for their employees.


At Issue

With the increasing cost of health care and health insurance in the state, we are concerned that this change will invite some employers to discontinue their group plan and replace it with a 33% PRA for their employees, fully knowing that the lower paid employees will in most cases not elect it due to affordability.  With no group health plan, this will also ‘free up’ some lower paid employees to obtain subsidized coverage through Commonwealth Care, increasing the burden on the state. 


The employers will still be able to meet their FSC requirements by a) offering the 33% PRA, and b) by ‘taking care’ of their management employees to help them purchase individual coverage, increasing their pay to offset the increase in personal insurance costs, and meeting the 25% FSC participation requirement.  In effect, the unintended affect of this policy change will result in fewer people being covered in commercial plans, more people covered under the state, and less employer funding into either insurance or the state FSC.


The further we move away from group insurance in our state, the higher the cost to those who remain insured in the commercial market.  With a 33% contribution to individual health insurance, where the standard 75% group health plan participation is no longer a concern, uptake in such a plan will be lower.  People will do the math.  If they have health issues, they will buy the insurance.  If they don’t, they will opt out, even if it means a state income tax liability (because it is lower than the cost of insurance).  This raises the claims cost to the insurance pool, because once again, we will be losing the healthier individuals from the insurance risk pool.


Increasing commercial insurance costs directly impacts the employers who are in the commercial market, primarily those very employers who are offering group health plans to all their employees at substantially higher contributions and participation.



Dropping the standards of FSC to allow employers to use the PRA will have an adverse effect on the group health insurance market in Massachusetts.  It will decrease the number of insureds in the state, increase the state’s costs to fund the uninsured through Commonwealth Care, decrease the state’s FSC funds, and increase the commercial insurance market rates.  This is not to say it will all happen overnight, but it will happen as an unintended but damaging consequence to Health Care Reform.


In summary, FSC rules already exempt businesses with less than 11 FTE from the requirement.  FSC rules already give employers with 11-50 FTE the leniency to comply with either the 25% participation or 33% contribution.  The $295 assessment is by all standards a very low contribution compared to what Massachusetts businesses who provide group health insurance are contributing to insurance.  Adopting regulations to further exempt employers from the FSC rules in this manner is counterproductive to the objectives of HCR.

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