A number of employers have suggested recently that the Massachusetts Health Care Reform Act is headed to federal court. They say tougher requirements for employees (that take effect October 1st) make the conflict between state law and ERISA (the federal Employee Retirement Income Security Act) worse. ERISA applies to and preempts state regulation of most employee benefit plans. States can still regulate insurance companies and the products they sell. But most large companies are self-insured and the state can not regulate self-insured health plans.
The issue is whether several parts of the Massachusetts law violate ERISA by establishing requirements that employers must follow. Massachusetts says employers with 11 or more workers set up payroll plans so that employees can pay for coverage on a pre-tax basis. It also fines employers that do not pay 33% of the cost of a health plan or cover 25% of full time employees. The Patrick administration plans to change OR to AND on October 1st. Business groups say the change will hurt more employers and will make an ERISA suit more likely.
In January, Massachusetts will establish a minimum standard for health plan benefits. Taxpayers will have to have insurance that includes prescription drug coverage and other benefits to comply with the Individual Mandate. There is a question about whether this requirement would violate ERISA. While the minimum coverage standard applies to the individual, most Massachusetts residents have insurance through their employer, so the employer will be pressured to provide insurance that meets the minimum requirements.
This is head spinning stuff, but we’re laying it out in the event that one of the groups threatening an ERISA suit follows through. Over the next few days, we’ll hear from some ERISA experts on whether a lawsuit would succeed.
One more thing, a successful suit would not likely derail the whole law. It would be a political blow and would crimp funding (although some legislative leaders say they would find other employer charges to help fund the law).
Martha Bebinger
Educating everyone on this is a good idea Martha.
I think it is worthwhile to point out that the Massachusetts employer community has helped prevent such a challenge to this point because earlier policy decisions did not put our jobs, our employers or our economy at jeopardy. Everyone was working together to make this reform a success, which it has been to date on coverage, but not yet on cost. Unfortunately double digit premium increases have continued for small businesses; and state promises of provider transparency and lower cost small business health plans through the Connector are undelivered. On top of those costs and slow state reform implementation comes new quarterly filings, and tougher compliance standards.
The proposed “fair share” changes would trigger an unfair small business tax even though those small employers are disciminated against on health insurance pricing versus big business and big government. And the proposed Minimum Credible Coverage changes somewhat arrogantly seek to dictate to employers across the country what their plans should look like here and elsewhere. For national employers with jobs in the Commonwealth, are you really going to give your MA employees better coverage than those in NH?
Incredibly the fair share change will result in thousands of employers (primarily small businesses) having to pay the tax simply because they cannot make the 25% participation rate. (Small employers have lower participation rates because their premiums are more costly than those of big government and big business, so if you are a dual earner family, with one working for a big employer and one for a small business, which plan are you going to choose?)
That tax will be imposed despite the facts that they made offers of insurance to all of their full-timers, and that they have made substantial co-premium payments. But many small employers simply can’t reach that 25% threshold due to high premium costs or the demographics of their staffs (such as having many secondary wage earners on spouses’ or parents’ policies or retirees on Medicare). The tax will be assessed on all of their employment. That includes part-timers, those that they insured, and those that have insurance coverage elsewhere.
Why offer health insurance at all if you are going to be taxed by the state regardless of the fact that you are currently offering coverage and paying premiums? So the Commonwealth will raise new tax dollars, but less people will be insured because employers will stop making their offers and will simply pay the tax rather than pay both the tax and premiums. That is a counterproductive policy which doesn’t make any common sense. It punishes thousands of small employers that have tried to do the right thing over the past two years.
When we make regulatory changes that increase compliance costs, bureaucratic red tape, and taxes without the promise of lower health insurance premiums, there is going to be a splintering of support by those paying the majority of the tab. Without a rethinking of some of these proposed changes, it will be very difficult or impossible for the local employer community to continue to urge a wait and see policy.
Jon Hurst