Massachusetts and New York have always had similarities. Tragically, the Boston Marathon bombers had plans to also terrorize Times Square in Manhattan, New York City. Both states saw their respective Basketball teams battle against each other in the first round of the NBA playoffs. Also, both states are known for having millionaire politicians that made their success in the private sector before entering public service. However, in terms of Health care reform, the differences are vast.
Massachusetts has the lowest uninsured rate in the nation. Since the implementation of Mitt Romney’s Health care reform bill in 2006, the state has increased coverage by an additional 5 percentage points. In 2006, the state’s uninsured rate stood at 11%. Seven years later, the state’s uninsured rate has lowered to roughly 4%. Many studies have since been published hailing “Romneycare” as a success. As a result, the Massachusetts health policy experiment became the precursor to the Health Exchange concept found in the Affordable Care Act (ACA) signed into law by the Obama administration in 2010.
The United States is now less than 5 months away from the first Health Exchange open enrollment date. As 49 other states gear up for this heavy lift, they continue to outline metrics and measures hoping to define success. If New York were to increase health coverage by an additional 5 percentage points, that would translate to an additional 978,000 individuals enrolled and a 9% uninsured rate. However, benchmarking success to Massachusetts is not that easy. New York is not Massachusetts, and as a result there are many Health care reform implications.
As seen in the chart above, New York and Massachusetts have very similar health coverage rates with Public Programs (Medicare/Medicaid) and Individual private insurance. However, the disparities that lead to the higher uninsured rates in New York are found in Employer-sponsored Health coverage. Massachusetts Employers cover 10% more of their state than New York (58% vs.48%).
This difference in employer-sponsored coverage rates may not change with Health Exchanges. In fact, many can argue the disparity between NY and MA can only grow. Employers with 50 employees or more will face penalties for not offering health coverage. However, already more than 95% of those firms in both states offer coverage. There are no penalties for small employers with fewer than 50 employees to offer coverage. However, this is the exact segment that has the highest uninsured rates.
Firms with 50 employees or more will face penalties for not offering health coverage. Even though the penalties in the first year will be less than the cost of offering insurance, if we assume that the firms in New York with 50 employees or more will match the health coverage rates of Massachusetts, that equates to a 2.1% increase in employer offer rates. Using Census Data, there are 16,230 businesses in New York with more than 50 employees representing more than 4.8M employees. Currently, 15,581 (or 96%) of these firms offer coverage. Post reform, an additional 341 businesses with roughly 100,000 employees would need to offer coverage to match Massachusetts’ levels. However, these are merely offer rates. Simply offering coverage is very different from employees purchasing the coverage offered. Post-reform, offering coverage for an employer will mean it meets affordability rules. That means it must cost less than 9.5% of an employee’s annual salary. So this 96% offer rate in New York is only predicated on the assumption that the coverage offered will remain affordable under the new ACA employer rules in 2014.
A 2008 Health Affairs article outlined survey results from 1,003 randomly selected Massachusetts businesses. It found that after Health care reform in the state, the percentage of firms with 3 or more workers offering health coverage increased from 73% to 79%. The study also found that small employer offer rates increased from 2007 to 2008. More than 60% of micro small businesses (3-10 employees) and more than 80% of other small businesses (11-50 employees) offered coverage. This is a stark contrast from New York and the national average. In 2012, only 50% of firms with 3-9 employees offered coverage nationally. Additionally, only 73% of firms with 10-24 employees offered coverage nationally. The differences in small employer offer rates stems from the differences in penalties found in the Massachusetts Health care reform bill versus the ACA. Massachusetts required all businesses with more than 11 employees to offer coverage in the face of a $295 penalty per employee. The law also enforced cafeteria plans for small employers which allow employees to pay for health coverage with pre-tax dollars deducted from their paycheck. The ACA only requires businesses with 50 or more employees to offer coverage and lacks a cafeteria plan requirement. As a result, there is little motivation for small employers to offer coverage after reform.
Small Employer Implications
Businesses in states with the highest small employer health insurance prices will most likely find it economical to dump coverage all together rather than offer coverage with the threat of employees going to the Health Exchange anyway if coverage is more than 9.5% of their salary. Based on a 2010 AHIP study, West Virginia, New York, New Hampshire, Nebraska, and Massachusetts have the highest small business health insurance rates in the nation. These states average a $523 monthly rate for individual employee coverage. As such, an employee in 2014 becomes eligible for the individual exchange if they pay more than 9.5% of their salary towards coverage. For these five most expensive states, that would equate to small employers contributing $474 a month towards the cost of insurance with the employee paying less than $49 a month. These rates are based on 2010 pricing and will only be more expensive in 2014. A recent Washington Post article from May 1st warns about sticker shock as Health plans begin to file their 2014 rate filings. Small business employees with families become the most at risk. The 9.5% of salary is benchmarked at individual employer coverage. It does not relate to the cost of family coverage from an employer. This is a policy gap that must be addressed if states like New York esteem to reach uninsured rates that match Massachusetts.
Click here for more information on the difference between Massachusetts Reform and the Affordable Care Act.