One of the biggest disappointments for the business community concerning the health care debate currently taking place in Washington is the near total lack of attention to cost containment. We all know that in Massachusetts we deliberately chose to address access first, and in that regard, we have been very successful — over 97% of our residents have health insurance, with over 400,000 becoming newly insured since the law passed in 2006. But not addressing the cost of health care now presents enormous challenges for both our state health care reform efforts as well as for consumers and businesses who are struggling to afford ever increasing premiums. So I was hopeful that federal reform would at least begin to tackle the cost problem.

Unfortunately, the pending federal bills barely address costs, and indeed are financed by huge cuts in Medicare payment rates (shifting costs to private insurers) or new taxes on health plans, pharmaceutical companies and other providers, which will be passed on to consumers in the form of higher premiums.

Maybe Massachusetts will have to lead the way on the cost issue after all, just as we did with access. I am heartened by the near total consensus here that we need to move away from our current “fee for service” payment system, which rewards providers for volume, toward global payments that would providing greater incentives for efficiency and quality care. Obviously there would be significant advantages to a national approach to reshaping our health care payment system: apart from competitiveness and consistency issues, federal action would avoid Medicaid and ERISA constraints. But if Washington lacks the political determination to confront this issue head on, I am hopeful that Massachusetts will once again lead the way on cost containment – without which all of our great accomplishments will not be sustainable.

The proponents for a public plan have argued that such a plan is necessary to promote competition and to keep the private plans “honest”. They seem to ignore the fact that we already have 1500 private plans being offered in the country – I fail to see how one additional plan will change the competitive landscape. Furthermore, such a plan could threaten the viability of employer sponsored coverage which is currently enjoyed by over 170 million Americans.

In Massachusetts, we chose correctly to build upon our employer sponsored system by simply filling in the gaps, most importantly by providing subsidies to low-income residents to purchase private plans offered through the Connector. This has worked extremely well. We also addressed coverage needs for another large segment of the uninsured, i.e. young adults, by offering them more affordable plans through the Connector or allowing them to stay on their parents’ plans for an additional two years after losing their dependent status.

A public plan could destabilize the insurance market as the government will be both the payer and the regulator. We all know about the massive cost shifting that currently occurs with our largest government payers, Medicare and Medicaid. These two programs which account for 50% of health care spending, simply do not reimburse providers for their full costs, resulting in much higher costs to all of the private payers. Another public payer will simply exacerbate that situation. Health care premiums for both employers and individuals would be more affordable if the government payers would simply pay their fair share.

Government health care programs have demonstrated no ability to be innovative in addressing either quality or cost issues so it is hard to imagine why we think a new public plan would be any different. I am hopeful that the discussion in Washington will shift away from this needless distraction and focus on how our nation can meaningfully address the access issues for millions of our citizens as well as creative ways to make health care more affordable.

Richard C. Lord
President & CEO, Associated Industries of Massachusetts

The Council’s proposal, like our reform, builds upon the existing employer-based system through which the majority of working Americans receive health insurance coverage. It requires all individuals to obtain at least a basic level of care (individual mandate) accompanied by income-based premium subsidies for lower-income workers (sounds a lot like Commonwealth Care). The plan calls for the establishment of a broad multi-stakeholder advisory panel (kind of like a Connector) which would establish a minimum standard for quality, affordable health coverage (we call this minimum creditable coverage). All of this sounds awfully familiar to those of us in Massachusetts who have been living and breathing health care reform for the past several years.

The Council does go further than we have in attempting to tackle a range of cost and quality issues in addition to expanding access. It calls for the creation of an interoperable health information network, medical liability reform, the development of consensus-based cost and quality measures, and the creation of better information tools for consumers to use in making more informed health care decisions. (In Massachusetts, some of these tasks were delegated to the Quality and Cost Council which was created in our health care law while others, such as health care information technology, have been under the purview of other organizations.) Additionally, the Council recommends transforming the current payment system from a procedure-based, fee-for-service system to a value- based system. (Our newly formed payment reform commission is holding its first meeting as I am typing this blog!)

When our law was enacted in 2006, our public officials chose to address the issue of health care access first, knowing full well that we would be confronting the cost and quality issues in the near future. That near future is now our present. Double digit increases in health care premiums must be addressed if our nationally recognized success in achieving close to universal coverage is to be sustained. I applaud the American Benefits Council for its ambitious attempt to confront all three health care issues in its comprehensive plan. Although the nation may have to settle, as we did, for increasing coverage before addressing the very difficult cost challenges, an initiative at the federal level could and should, at a minimum, build in the latter phases from the start.

It is exciting that national reform is very likely to borrow heavily from our very positive experience in Massachusetts. I am pleased, too, to see the business community take a leadership role in the national debate – our experience in Massachusetts has shown us that the participation and support of employers is critical to success.

Richard C. Lord, President and CEO, Associated Industries of Massachusetts

Common threads, some unexpected, ran through all of the sessions. Here are a few impressions from employers representing companies of diverse size, industry, and geographic location:

• Participants are impressed by how much has been accomplished in a year and a half of health care reform. The reaction was apparent when Connector officials shared news about the 439,000 previously uninsured people who now have coverage. The nodding heads of employers conveyed pride in learning that they live and/or work in the state with the lowest uninsured rate in the country.

• Employers were also impressed to learn that, of the 191,000 newly-insured people who have private insurance, 159,000 have obtained that coverage through their employers. Many of the employers have seen increased enrollments and resulting cost increases in their own businesses, but were unaware of the statewide numbers.

• Employers remain frustrated about rhetoric suggesting that they are not doing their share. Comment after comment documented employer efforts to offer good coverage, to contribute as generously as possible toward the premium, and to do so within the context of the difficult business conditions that existed in Massachusetts even before the recent financial situation.

• Smaller employers expressed frustration with the administrative burdens created by health care reform – even for provisions they view as positive. Compliance is often more difficult for small employers than large ones who have more staff and resources.

• Reaction to the new requirement for quarterly versus annual compliance filings for the Fair-Share Contribution ranged from audible groans and shaking of heads in earlier sessions to smiles, sighs of relief, and even a few fist-pumps in the later ones. The shift was due to modifications that make the final rules more logical and less burdensome than the original version. While about 37,000 employers must file for the quarter ending December 31, only those who fail to comply or who are deemed to be “near-fails,” estimated by the state to be only about 1,200, will be required to continue filing and paying applicable penalties on a quarterly basis.

• Employers are somewhat concerned about the indirect effect on their companies of Minimum Creditable Coverage (MCC) requirements effective January 1, 2009, but they are, surprisingly, more concerned about how the public in general will be educated about the new requirements and how they will react when they learn that the state is mandating not only that they purchase insurance coverage, but that they are also required to pay for coverage they truly may not need or cannot afford.

• Employers acknowledge that getting people covered is a noble goal. They recognize that progress has been made. But they agree with AIM and the Connector that the next step must be bold action directed toward dealing with the underlying systemic issues that drive the escalating cost of health care.

Sandy Reynolds is an executive vice president of Associated Industries of Massachusetts (AIM), the largest employer association in the commonwealth.

Now, however, the employer community faces a new reporting requirement, effective next year, that serves no useful purpose yet imposes a needless administrative burden on thousands of Massachusetts companies and organizations. Last year, every employer with 11 or more employees was required to complete a “fair share contribution filing” with the state’s Division of Unemployment Assistance (DUA). In this filing, an employer needed to demonstrate that 25 percent of its full-time employees were enrolled in their company’s health insurance plan or that it paid 33% of the premium with the first 90 days of hire. The most recent data indicates that 855 employers failed both of these tests and were required to pay an assessment of $295 per employee to the state, while more than 59,000 employers passed at least one of the tests and had no additional financial liability. (The Administration recently changed the test for employers with more than 50 employees, but that is not the concern I wish to focus on in this blog).

Beginning in 2009, all employers will be required to complete the fair share filing on a quarterly rather than an annual basis. The rationale for this change was to enable the state to collect the $295 assessment on a quarterly basis because of a perceived budget shortfall for the Commonwealth Care program and the need to generate additional funding in Fiscal Year 2009. Not only has the funding shortfall not materialized, but the state will be requiring 60,000 employers to comply with this new reporting mandate four times next year even though it estimates that only 1164 employers will not pass the test and therefore owe the fair share assessment. That means that some 59,000 employers who are likely to pass the test will be forced to devote precious resources to complete this meaningless filing – resources which could be far better used to help the company stay afloat in these difficult economic times.

This administrative burden becomes even more absurd when you consider the actual filing process itself. Employers must file according to their “employer identification number” (EIN) which is assigned to them by DUA. Many employers in Massachusetts have multiple EINs because of multiple locations and/or divisions. One AIM member contacted me last week explaining that, although it has one corporate health insurance plan for its Massachusetts employees, it has 12 EINs. So in 2009, this employer will be required to complete the fair share filing 56 times! And to no purpose – the company has a generous health insurance plan that passes the fair share test! I am already hearing the legitimate frustration of Massachusetts employers, whom up to now have been so supportive of health care reform, with regard to this ridiculous new requirement.

A reasonable compromise is to require the relatively small number of employers who fail the test on an annual basis to file quarterly, and allow the vast majority of employers who pass the test to continue to do so once per year. This seems like a wonderful opportunity for our public officials to correct an impending problem before it becomes a real nightmare for Massachusetts employers.

Richard C. Lord
President and CEO, Associated Industries of Massachusetts

The state’s FY 09 budget includes $869 million for the Commonwealth Care program, a key component of health care reform providing subsidized insurance for low-income residents. This level of funding would support 225,000 enrollees. Currently Commonwealth Care serves 174,000 Massachusetts residents, an enrollment level that has been virtually flat since February when the state began reviewing eligibility for individuals who had been on the program for at least a year. There is no evidence that enrollment is going to increase dramatically and create a funding gap by the end of this fiscal year. So there is no need to impose new financial burdens on beleaguered Massachusetts companies.

Look at the details of the recommendation from the Administration, and you realize that almost all of the new costs will be borne by the business community. There are new assessments on insurers ($33 million) and hospitals ($20 million) which, unless those groups are now printing money in their basements, will be passed along to employers and their workers in the form of higher health insurance premiums. There is a transfer of $35 million of surplus revenues from the state’s Medical Security Trust Fund, which pays for health insurance for the unemployed. Continuing the myth of shared responsibility, the Administration claims that this is the government’s contribution to the funding shortfall. The reality is that the Medical Security Trust is funded completely by employers in the form of a $16.80 per employee assessment tacked onto their unemployment insurance (UI) tax bills each year. Those UI tax bills are already the second highest in the country.

One of the most troubling recommendations is the proposed change to the method by which the state will determine if an employer makes a “fair and reasonable” contribution to employee health insurance or must pay the annual $295 per employee “fair share” assessment. Currently an employer must demonstrate that 25 percent of its full-time workers are enrolled in the company’s health insurance plan OR that it pays 33 percent of the premium within the first 90 days of hire. The Administration wants to require employers to pass both tests, raising an estimated $33 million. This new burden will fall heavily on employers, such as retailers, who typically have waiting periods in excess of 90 days – which makes perfect sense given the high rates of employee turnover in that industry. We are thus going to penalize certain categories of employers who legitimately have lengthy waiting periods, but otherwise provide generous health care benefits.

One of the reasons that health care reform has been so successful to date has been the strong support of the state’s business community. I am disappointed that this support has been rewarded by increasing the burdens on employers who themselves are struggling with double-digit premium rate increases and other cost pressures, such as exorbitant energy prices, which are hurting their competiveness. This ill-conceived and poorly timed plan needs to be reconsidered.

Richard C. Lord, President and CEO
Associated Industries of Massachusetts

Two months ago, the Massachusetts Association of Health Plans released a survey of its members which more fairly documented the true financial commitment by employers in health reform. The survey of 11 health plans doing business in Massachusetts revealed that during 2007, the number of employees enrolled in their employers’ health insurance plans increased by 85,000. Even by conservative estimates, this represents an additional annual $250-$300 million commitment by employers. Much of this increased enrollment was not unexpected, as we always knew that in the pre-reform days there were many individuals who were offered health insurance by their employers but turned down the coverage for a variety of reasons. With the state’s individual mandate, many of these employees are now accepting their employers’ insurance coverage to avoid paying a financial penalty. It is important to note that this increased employer-sponsored coverage in Massachusetts comes at a time when it is actually decreasing in most other states.

As the representative on the Connector board for the business community, I feel it is extremely important that we all understand and appreciate the existing major commitment by Massachusetts employers in providing health insurance to their workers. The conversation about new employer assessments is particularly troubling since the Legislature is also poised to enact $400 million in new corporate taxes, which will certainly impair our state’s business climate and raise the overall cost of doing business here. As the state and nation hover on the brink of recession, we must be especially mindful of new burdens on the business community which could seriously threaten employment stability and growth.

Richard C. Lord
President and CEO, Associated Industries of Massachusetts

First, there is a state fiscal issue: The budget is already in structural deficit, costs of government are rising (in large part because of health care), there are powerful competing priorities such as education aid, revenues are threatened by an economic slowdown, and tax increases are off the table (with a proposal to eliminate the personal income tax headed for the ballot).

Second, the federal government is critically involved because it must approve the state’s Medicaid waiver, and commit itself to paying a 50% share of the cost of MassHealth programs; and the President has proposed reducing Medicaid funding in next year’s budget.

Third, if we make the state’s programs more favorable than those available through employers, we risk precipitating a shift to the public side with attendant runaway costs (and a waiver issue as well). Even with a $15 increase, Commonwealth Care enrollees in the 251-300% of FPL range will be paying less (for family coverage, considerably less) than the 80% of people in that income range with employment-based insurance. The Connector staff has estimated that if one percent a year of the 650,000 employees at or below 300% of the FPL who receive health insurance from their employers shift to publicly subsidized coverage, the net cost to the Commonwealth Care program will be approximately $100 million in 2011.

All of us would prefer (at least in principle) to control costs. We are making some progress; the recent bids for Commonwealth Choice were up only about 5%. Until we unite to tackle cost drivers head on, however, this difficult choice is one we must face regularly.

Richard Lord, President and CEO, Associated Industries of Massachusetts

Although the new MCC standards are effective on January 1, 2009, in reality, insurance policies are generally in effect for one year, so those renewing on or after February 1st will need to meet the new standards. A recent report released by the Massachusetts Taxpayers Foundation revealed that approximately 163,000 insured individuals do not have prescription drug coverage, 30,000 of whom have non-group coverage and 133,000 of whom have employer-sponsored coverage. These individuals and employers are going to facing very steep premium increases as they renew their coverage in the next 12 months. Not only will they face the 8%-12% “inflationary” increases that most small employers are facing this year, but also their premiums will increase another 15%-20% to reflect the additional cost of a drug benefit.

Although I have to confess that as a board member of the Connector I supported the MCC compromise last March that included prescription drugs, I am now having second thoughts about the wisdom of implementing this requirement as this time. We are still in the very early phases of putting into place some key requirements of our new health care reform law, such as the enforcement of the individual mandate. It is too early to know what the public reaction will be as penalties begin to be assessed on people who failed to obtain health insurance coverage in 2007. We also have not made any meaningful progress regarding in addressing the double digit increases in health insurance costs which we have experienced for almost the past 10 consecutive years. Finally, it must be pointed out that about 1/3 of individuals who have purchased health insurance in the last eight months through the non-subsidized Commonwealth Choice program have been choosing products without drug coverage. Many of them are probably buying insurance for the first time, and now will be required to buy much more expensive insurance if the MCC standards remain unchanged.

As I listened to the employers who called me on this, I appreciated the huge challenges they face just to remain in business in Massachusetts – rising energy costs, a sluggish economy, intense competition from overseas, and now health insurance increases that could exceed 25%. No other state in the nation requires that health insurance must include a prescription drug benefit. I am increasingly persuaded that we should, at the very least, reconsider the timing of this mandate until we are much further along in terms of implementing health care reform and have made some progress in addressing the spiraling cost of health insurance.

Richard C. Lord
President and CEO
Associated Industries of Massachusetts

The Massachusetts health care reform law mandates that individuals over the age of 18 must have health insurance. Recent profiles of the uninsured indicate that there are significant numbers who a) are relatively young and b) earn above 300% of the federal poverty level and are therefore not eligible for state subsidies. Many of these individuals do not perceive the value of having health insurance because they are young and healthy and do not want to pay premiums that are not inexpensive, even for the young adult plans which have recently become available for 19-26 years olds through the Connector.

The requirement that individuals must have health insurance is a novel one which has never been tried anywhere else in the country. It should not be expected that we can change attitudes and perceptions overnight which is one reason that the Legislature, in its wisdom, created a fairly modest penalty in the first year for non-compliance with the law, i.e. individuals will forfeit their personal tax exemption when they file their 2007 tax returns, which amounts to a penalty of approximately $219. However the financial penalties in future years increase substantially.

There has been a concerted effort by both the Connector and Massachusetts Health Care Reform Coalition (of which AIM is a member) to educate our citizens about their responsibilities under the new law. However recent polling data reveals that the majority of individuals are still neither aware of the deadline for obtaining coverage nor the financial penalty for failure to do so. Obviously the public awareness campaign must continue and be enhanced. Even more difficult is the challenge to convince individuals who do not see value in having health insurance that it is in their best interest – both from a personal health and financial perspective – to obtain coverage.

Richard Lord, President and CEO, Associated Industries of Massachusetts