Healthcare Cost Control & Small Business Insurance Fairness—Feels Like It’s Now or Never
By Jon Hurst, President & CEO
At the Annual Meeting of the Retailers Association of Massachusetts (RAM) last November, Governor Maura Healey said the following to rousing applause: “I know one of the real concerns is the cost of health insurance. I want to work with you all on actually doing something about that.”
As the 2025-2026 Legislative Sessions gets more active; and as the Division of Insurance begins rate hearings on the 2026 small business health insurance rates, it’s now time for action. RAM members saw an average premium increase of 11% in 2025, and that is on top of increases which averaged in double digits each year over the past two decades. Small employers are seeing premium increases which are 2-3 times the increases of the inflation rates, the state buying group (Group Insurance Commission), the Health Policy Commission state Benchmark (currently 3.6%).
Family policies for small business employees which have not gone to high deductible and high cost sharing plans, are now in the $40,000 per year premium neighborhood.
Next April, Massachusetts will “celebrate” the 20th Anniversary of Chapter 58, or the so-called RomneyCare, which was supposedly groundbreaking for the country, and served as a model for the ACA which passed 4 years later. Small businesses and their workforces won’t be celebrating due to government-imposed discrimination and high costs, which do not occur to same levels for large employers and individuals.
Small businesses and their employees cross subsidize the premiums of individual in Massachusetts due to a very bad decision made in Chapter 58 to merge small group and individuals into the same risk pool (an outlier compared to 49 states), a form of unfair cross subsidy which was made worse under preemptive federal action in the ACA which eliminated state rating factors designed for fairer rates within risk pools.
The premium cross subsidies from small business employees to individuals became unnecessary, duplicative and discriminatory with the implementation of the ACA, which gave individuals taxpayer subsidies to mitigate their premiums.
To make a bad situation of government-imposed discrimination imposed with risk pool cross subsidies far worse, Beacon Hill began an avalanche of specialty provider lobbied state mandates, which apply to fully insured subscribers, but not those operating in self-insured plans, which follow federal law—specifically the ACA’s Essential Benefits--not state insurance mandate laws. Massachusetts now has over 50 state mandates, 7 passed in the last legislative session alone. State mandates are passed to raise the utilization rates of certain procedures, coverages, and name brand drugs—enriching the providers with more customers, and more leverage to raise their reimbursements. Provider enrichment is clearly prioritized over consumer affordability and freedom of choice with the very costly state mandates.
Unfair public policy forced innovation in the marketplace, such as self-insurance expansion down to very small employers, By self-insuring, employers and their employees can stop unfair cross subsidies of others; and they can ignore the provider friendly and costly state mandates, choosing to follow the less costly ACA Essential Benefits. Is there any question why the number of fully insured small group businesses have plummeted in Massachusetts by 525,000 lives or 63% since the passage of Chapter 58?
We can’t keep mandating that our residents and taxpayers must buy health insurance--and tax them for not buying that coverage—when public policy mandates, and the financial demands of providers are politically prioritized over premium payers and taxpayers.
Solutions are complicated and politically challenging. But here’s a roadmap to fairness, choice, and cost control for small employers and their workforces.
Better Regulation
The level of regulation the Commonwealth has used in the fully insured market over the last two decades has been ineffective. In every product or services marketplace, consumers are protected either through choices, competition and transparency, or through regulation. Arguably neither effectively exists today for fully insured employees of small businesses. The absence of both means all the leverage and power resides with the receivers of our premium and tax dollars—the providers. Representing the most competitive and transparent industry on the face of the planet, the retail industry firmly believes competition can work on behalf of consumers, but only if the marketplace is fully transparent. That means consumers must know what is being charged to them at what rates, and for what purposes. With negotiations and contracts between insurers and providers, non-transparent, consumers are not getting that vital data. The Division of Insurance (DOI) should require the disclosures of the contracts themselves, or vital aspects of the contracts between the insurers and providers. This is particularly important for any insurer applying for increases in excess of the Health Policy Commission Benchmark. Consumers deserve to know which providers are asking for excessive reimbursement increases, and why. Payroll data (including specialty provider pay scales, union contracts, etc.), capital investments, current reserves, all should be transparent. The data should be available from the insurer, and from the DOI. Premium statements should also be transparent, and provide breakdowns of where the premium dollars are going, including the insurer, hospitals, physicians, pharma, and state mandates and assessments.
If insurers aren’t doing their job in provider negotiations on behalf of their premium payers to contain costs, the consumer should know that. Similarly, if certain providers are demanding unjustifiable increases, that must be transparent and known as well. The DOI in those cases should require the rate filings to be lowered, or should reject the proposed rates entirely.
Beyond the power of transparency, outright prohibitions of increased reimbursements beyond a certain level—such as the HPC Benchmark—could be prohibited. Name brand drugs pricing should be contained by prohibiting coverage beyond a certain multiple of Medicare reimbursements, such as a cap at 140% Medicare rates.
Merged Market Reforms
Chapter 58 merged the small group and non-group risk pools together (Merged Market) in order to provide premium assistance to individuals. Small businesses were at least partially protected under Chapter 58 through rating factors to help ensure at least somewhat fair rates under actuarial and cost of service purposes. The ACA chose a different path to assist individuals—taxpayer funded premium assistance. Unfortunately, the ACA was written assuming all states operated separate non-group and small group risk pools (and that was the case at the time for 49 states), and limited rating factors to those laid out in the federal law. Recognizing the particular uniqueness of Massachusetts—both as the model for the ACA, and as the only state with a Merged Market risk pool, both the Obama and the Trump administrations granted flexibility to Massachusetts to continue to use two important small business protecting state rating factors—size and small business cooperative rating factors. The Biden Administration unfortunately did not grant the state the ability to support our small businesses and their workforce. Today, fully insured small businesses and their workforces are clearly discriminated against, and forced to cross subsidize individuals with both their premiums, and their tax dollars. A small business in the Merged Market with 50 subscribers is forced to pay the same in premiums as 50 individual policies. Given the Death Spiral the Commonwealth is seeing for small group, it is vital to take one or more of the following steps:
- Demerge and return to separate non-group and small group risk pools.
- Work with CMS in the Trump Administration to reestablish the usage of state size and cooperative rating factors, as seen in the first Trump Administration term.
- Establish up front or back-end rating factors which work like the size and cooperative rating factors, to provide fairer premiums, create incentives to continue to offer coverage and grow small business jobs, and to create an incentive to stay fully insured, as opposed to going self-insured.
Consumer Choice Offerings
Excessive provider costs, and unfair state risk pool cross subsidies are two reasons small businesses have unaffordable value for their health insurance. The third reason is state mandated benefits and assessments. With more than 50 state mandates passed (7 alone in the last legislative session), often with the intent to broaden specialty provider services in Medicaid, the fully insured small business owner is getting less and less profitable, and less competitive with workforce recruitment and retention due to costly mandated benefits. A major reason why employers—large and small—now go self-insured/ERISA-exempt, is to avoid, or otherwise mitigate the high costs and lack of consumer choices imposed by state mandates.
The state can certainly take steps to give the employees of a fully insured small business to buy the level of coverage that they want, need, and can afford. Most small employers only offer their work forces one health plan, even though one size certainly doesn’t fit all. A variety of defined contribution offerings made available to employees of small businesses would take the decision making out of the hands of the employer, the insurer, the broker, the provider, the regulator or the elected official, by giving the actual employees and consumers the right to choose what is best for them. No employer is going to force their workforce to take a health plan which may exclude certain high-cost providers, or which excludes or mitigates the cost of certain very costly and provider friendly state mandates on procedures or new name brand drugs. But that doesn’t mean that the employees and premium payers shouldn’t have the choice to opt-in to an affordable choice which empowers them, not the high-cost providers. The DOI should mandate insurers offer to subscribers of fully insured small businesses a cafeteria plan option with a minimum of two or three plans.
- One such plan would be a full provider coverage, state mandate compliant plan.
- Another plan would be an actuarial equivalent limited state mandate plan, which the insurer and the DOI certify is comparable to what ERISA exempt plans are currently offering to employees of self-insured plans in the Commonwealth. All such offerings must be compliant with ACA Essential Benefits.
- A third plan (or perhaps combined with the limited mandate option) would be a limited network, or tiered network plan.
Insurers should be also be required to make flexible spending accounts available to employees of small businesses for favorable pre-tax benefit savings.
Choices benefit the consumer and premium payer. Mandates and government restrictions on choices benefits the providers and accelerates medical inflation.
It’s truly time to prioritize the premium payer over the providers. If the Commonwealth won’t do that, then it is long past time to repeal the nearly two-decade old state tax penalty for our residents who decide not to purchase health insurance.