POLICY: More on Mass, by Eric Novack

Sometimes (perhaps too often!) I agree with Eric Novack. Here’s what he writes about the pay or play version of the new Mass plan:

The recently passed bill in Massachusetts, well reported here at THCB, aims to provide ‘universal health insurance’ to state residents through personal and employer mandates, plus Medicaid expansion. It still has not been signed/ modified by Governor and future GOP Presidential candidate Mitt Romney, but the state legislature is already threatening to override any changes the governor might make.

I want to focus briefly on the employer mandate. The law, if unchanged, states that employers who do not provide health insurance would be assessed $295 per employee per YEAR. That’s right. Employers would pay about $300 per year per employee if coverage is not offered.

Does anyone see the problem? Most small businesses spend close to $300 per MONTH per employee now, for ‘good’ coverage.

Math never looks good in print, so I’ll make this example brief. Small business, ‘Matt’s Place’, has 20 employees. Currently, covering health insurance for those 20 costs 20 x $300 x 12 months = $72,000 per year. (That’s $6000 per month.)

Under the Massachusetts plan, if ‘Matt’s Place’ did not provide coverage, it would cost about 20 x $300= $6000 per year.

Hmmm. $72,000 versus $6000. And the employees would still be covered with insurance. And the company saves $66,000. A small business. Hmmm.

Any idea what is likely to happen?

I do not like predictions (my crystal ball is rather cloudy). But here is one. Within 3 years the number of small businesses offering insurance plummets. The ability of the state to cover expenses in a system that has no utilization controls plummets. And the state is forced to raise some combination of income taxes, sales taxes, property taxes, business taxes or completely revise the system.

But I am not against the experiment. I could be wrong.

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11 replies »

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  3. The uninsured, and under-insured, come in to my office all the time. I do not turn anyone away based on whether or not they have insurance. Some of my best-paying customers are migrant workers without insurance. All the docs in my town also cover the ER on a rotating basis and agree to see the patients without physicians for necessary follow-up, irregardless of their ability to pay. Hospitals are not able to turn anyone away irregardless of their payer status.
    I am not sure who you are referring to regarding doctors “working the system,” but, of course, there are unethical people in all professions (how would you know if your car really needs that new water pump?).
    Small, rural hospitals are closing every day and even midsize hospitals are cutting out services. My guess is that probably 60% of hospitals are nonprofit, and those that are provide a disproportionate amount of uncompensated care and higher-complexity-lower-reimbursement care.
    But all of this is off-topic.

  4. Mr. Hinson, I didn’t think the uninsured who couldn’t pay went to single physicians, or at least that the docs even allowed them past the front door. They usually go to the urgent care or ER. Some will go to free community clinics who may benefit from this plan. As for beaurocracy, the U.S. “system” is overflowing with it, while the single provider government pay system (from those godless “socialist” countries) has much less for docs and hospitals. And all the providers get paid. But you know even docs figure out ways to boast their incomes by “working” the system. Here’s one, “Good morning Ms. Patient.”, well that just qualified as a paid “consult”. I don’t think the docs and hospitals here, except maybe the community public ones who get the unable-to-pays, are doing badly.

  5. > So aren’t all employers really looking at paying
    > higher taxes if they drop health coverage, PLUS
    > the $300 per employee?
    Eric is exactly right. I’ll do a little illustration though.
    If the employers keep the $3,600 for themselves, they will pay $300 as a new tax, and then pay the normal corporate income tax on the $3,300 (which runs around 40%). So the employer would be better off by at least $1,980 per employee. i.e. This is how much their net income will go up if they drop insurance coverage and keep all the money. As Eric says, there are any number of things the employer can do with the money.
    However, I bet that most employers don’t keep the money, or at least not all of it: I bet they let the employees keep it as income, and this year the employer sees no difference in his bottom line.
    But NEXT year, he avoids the (say) 15% increase on the $3,000 = $450 per employee in increased health insurance costs. Presuming 15% increases every year, health insurance costs will double in about five years, but now it is the employees’ “problem” so to speak. The cost will be entirely transparent to them. This all by itself, is IMHO, a Good Thing. But you can’t change just one thing, and Matthew has blogged extensively about that.
    Immediately the employee will probably be worse off. First, he’ll probably pay income and payroll taxes on the $3,300, which comes to around 30%, or $990. Then he’ll have to take his remaining $2,310 out into the health insurance market and buy coverage that had cost his employer $3,600. Identical coverage may well cost him more than $3,600 in the individual market.
    If insurance premiums are made compeletely non-taxable at all levels, then he’ll have $3,300 to take out into the health insurance market to buy coverage that had cost his employer $3,600. But still, $3,300 ain’t $3,600 and the identical coverage will probably cost more in the individual market.
    After this, the employees can try to get a raise every year out of the employers. If they can’t, the rising price of health insurance comes quite directly out of their pockets. And so long as healthcare inflation outstrips general inflation, a rising fraction of personal income will be spent on health insurance premiums.

  6. Peter, I do not disagree with your overall assessment of this plan, but you’re taking it a little too far with the providers reaming the taxpayer rhetoric. This bill, heavily supported by the large Boston hospitals, still will just help them recover from the amount of free care they provide now. It will not help them increase prices to get more out of everyone.
    The small group or solo physician will likely break even, or even suffer more losses in dealing with increased bureaucracy. On the one hand, fewer people will come in to be seen without any source of insurance. On the other hand, we will see a higher percentage of people on Medicaid, and, I predict, a lower percentage of people with the better-paying private carriers.
    Also, there is an as-yet-specified pay-for-performance provision that will likely add to the administrative burden we’re already dealing with. I read this quote about the P4P details in the Boston Globe and it has me quite worried about just how I am suppose to display such data from my solo practice: “In addition to improving quality, hospitals and doctors must show they are reducing racial and ethnic disparities in the delivery of healthcare and outcomes for patients.”

  7. Any program that does not control costs by providers is doomed to fail. The best explaination of this plan I have heard so far is, “no provider left behind.” Canada’s plan is probably the most controlled for provider costs and it is always grappling with costs and services. Wait until businesses and health providers learn the loopholes of this plan and start to download costs to the State. The details of this plan are non-existent but the biggest idea thrown out by the politicians so far is the “$200-$300” mandatory premium paid by unisured individuals, yea like that is going to last more than a nano-second. I bet the rise in premiums will mirror the present double digit compounded rise in the health insurance industry, except now you will have to pay for it. At some point in the future the U.S. will realize that a single pay government system is the best for controlling costs and administering services, but not before the private provider sector has reamed the taxpayer and their clients for all they can take. Get prepared for a painful ride.

  8. Rick- currently, health insurance premiums are a tax deduction for company income taxes. Most companies show a ‘zero’ income at the end of the year (through paying employees, owners, etc.). The savings in the example above would go to (1) hiring more employees, (2) making capital investments in the business, (3) higher salaries for employees, (4) greater income for owners.
    In the example I gave (a very realistic one, BTW), you could give every employee $2000 and pay the payroll tax and still have an extra 5-10K left over for the owners of the business.

  9. Aren’t we forgetting something, though? Don’t employers get a tax credit for offering employee health insurance, and would they not lose that by dropping coverage? So aren’t all employers really looking at paying higher taxes if they drop health coverage, PLUS the $300 per employee?
    Seems to me the Massachussets legislature is crazy like a fox. Yes, indeed, it may well have to expand state programs to cover for employers that drop coverage, but it will be collecting more than enough in higher tax revenues to make it a wash. I guess someone who knows the details should answer this.

  10. Tom and Matt are riding up from the lobby of our office condo building in the suburbs of Boston. Tom says, “Well, I know you are not alone in dropping health insurance as a benefit, however disappointing it is for all of us. Does this mean I get a $3,300 raise?” Matt begingly smiles and says in a soothing tone, “Oh, of course! I won’t dream of decreasing your total compensation because you are such a good and loyal employee, and I want to keep you!” and immediately steps off the escalator.