Small Business Premiums: The Third Rail of Massachusetts Healthcare Policy

By Jon B. Hurst

On January 1, 2020, Massachusetts small businesses with 50 or fewer employees will presumably enter a world of government imposed marketplace discrimination which is unmatched in 49 other states.  At that point, health insurance coverage purchased by the small businesses for their employees will be priced the same as buying 50 individual policies.  There will be no pricing adjustment for the fact that small group employer has lower administrative costs, or is actuarially a better risk due to better claims experience compared to individuals.  This is the final nail in the coffin of local small business fairness under a discriminatory process which began in 2006 under RomneyCare, and has continued in recent years by the preemptive requirements of ObamaCare. 

The little understood public policy position of Massachusetts health insurance law is that employees of small businesses must pay more than their fair share so individuals can pay far less.  This cross subsidy principle exists only in Massachusetts—not in the other 49 states—and also doesn’t apply to larger employers of 51 or more.  Whether designed intentionally that way, or the result of unintended consequences, this is the fault of bad public policy.  It is not the fault of the normal targets of our high health care cost discussions: teaching hospitals, big pharma companies and other high cost providers.  Rather the fault lies squarely on both Beacon Hill and Capitol Hill.      

It all comes down to the quagmire of government required and allowed risk pools.  In 2006, under Chapter 58—aka RomneyCare—Massachusetts combined the non-group (individuals) and small group (50 & under) risk pools into one merged marketplace.  The only state in the country—then and now—to do so, it was intended to help mitigate premium increases of individuals.  And the result was large, double digit premium reductions for individuals, yet painful and damaging double digit increases for those working for small firms.  Part of the political deal for the risk pool merger at the time was that state rating factors would be in place to protect small businesses and their employees, and to help ensure relatively fair premiums for all of those in the merged risk pool.  Rating factors such as size, cooperative purchasing groups, industry sector, and participation rates helped make the premium increases a bit more affordable, and more fairly distributed costs. 

But that deal was broken with the passage of the ACA, which envisioned health insurance markets like Massachusetts had prior to 2006, and as exist in 49 other states—separate non-group and small group risk pools.  The ACA preempted the important Massachusetts state rating factors which were intended to make premiums somewhat fairer for the employees of small businesses forced into the same risk pool as individuals.

The federal government granted Massachusetts a small group premium glide path through the end of 2019 in eliminating the state rating factors, in order to phase in premium increases for local small businesses and their employees; as well as to give state elected officials the opportunity to go back to separate non-group and small group risk pools like the rest of the country. 

That hasn’t happened; thus we are facing the reality of no favorable premium pricing opportunities for our small businesses one year from now; and the resulting “only in Massachusetts” small business requirement to in effect pay individual premium pricing for all of their employees.

This premium cross subsidy public policy has been swept under the rug, and not openly discussed due to both the complexity, and political fallout of asking small businesses to pay more so individuals can pay less.  Making the situation even worse is the migration in recent years of lives from MassHealth (the state’s Medicaid program), to ConnectorCare, which is part of the same risk pool as small employers.  Resulting utilization trends were certain to be felt by small firms in the Merged Market pool. 

The unfairness is clear.  All of us are asked under the ACA to cross subsidize individuals’ health insurance costs through our taxes, through plans available through the exchanges like our Connector.  Yet no employer of 51 or more—not the Group Insurance Commission which provides coverage for our state public officials, nor any large employer groups—are asked to also cross subsidize individuals through their premiums.  That costly mandate falls only to those consumers working for small businesses in Massachusetts.

The state has recently noted that individuals in Massachusetts buying through the Connector have the second lowest premiums in the country.  At first blush, this is quite an accomplishment for one of the highest healthcare cost states in the USA. 

But not discussed as openly is the fact that small businesses and their employees in the state have the second highest premiums in the country, nor the real reasons behind this rather disturbing and discriminatory premium contrast.  (Sources: Kaiser Family Foundation analysis of data, and US Agency for Healthcare Quality, Medical Expenditure Panel Survey).  And to go along with those unaffordable premiums, the majority of small businesses in Massachusetts are forced into high deductible plans, with far more employee cost sharing than occurs with large government and big business employers.

And that premium contrast is about to get even worse one year from now due to the ACA total elimination of the Massachusetts state rating factors. 

This unfair level of cross subsidies from employees of small businesses to individuals must end.  Those who work for small businesses are just as healthy as those who work for big government or big business, and to force them alone to pay more so individuals can pay less is blatant discrimination under the law and in the markets. 

And small businesses compete every day with big businesses not only for customers, but also for employees.  Government must stop forcing employees of small business to pay higher premiums for inferior coverage.

It’s time to come clean and admit the mistakes the Commonwealth made in hurting small businesses back in 2006, and how the ACA made those mistakes far worse for our small employers.  Efforts to get more flexibility out of Washington, or to change our own laws to assist Main Street Massachusetts must be the primary healthcare priority of 2019.