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Massachusetts health-care reform tests impact of employer 'tax' on jobs

After six years of reform, Massachusetts has the highest rate of health-care coverage in the US, but effects of its 'tax penalty' on employers are less clear. Some fear penalties are hamstringing job creation.

By Mike EckelContributor / July 5, 2012

Massachusetts Health and Human Services Secretary JudyAnn Bigby (c.) and Amy Whitcomb Slemmer (r.), executive director of Health Care for All, clasp hands after a news conference at the State House in Boston on June 28, as health reform advocates applauded the US Supreme Court's decision to uphold President Obama's health-care overhaul.

Elise Amendola/AP

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The US Supreme Court calls it a tax. The Obama administration says it’s a penalty. In Massachusetts, where health-care mandates have been in effect for six years, they call the money a person pays for not having health insurance a “tax penalty." As far as small-business owners like Diane Giblin are concerned, it doesn’t make a difference one way or another.  

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“To me it’s the same no matter what you want to call it. It’s just another way to get into my pocket,” says Ms. Giblin, co-owner of a nine-employee metal fabrication company located just south of Boston. “Whether it’s a tax or a penalty, it’s the cost that you have to pay, it’s the money you to have to pay out."

But with the Supreme Court's historic ruling last week upholding the federal health-care reform law, the Massachusetts program faces increased scrutiny for how its plan, especially the mandate for small businesses, has played out in practice.

The upside of the Bay State's pioneering reform is clear: The state now has the country’s highest rate of people with health insurance, due in no small part to the requirement that businesses over a certain size help provide it. The downside is less clear: the longer-term impact on business hiring and employment.

Under the 2006 law, Massachusetts businesses with more than 11 employees or their equivalent must offer a “fair and reasonable contribution” toward coverage or pay the state a “Fair Share Assessment” of $295 per full-time employee. The law also requires businesses to help employees pay for premiums using pretax dollars.

Under the federal law, by contrast, businesses with more than 50 employees will face penalties (called a “shared responsibility payment”) equal to $2,000 per full-time employee, with some exclusions. Tax credits are intended to help smaller businesses get coverage for workers.

Almost 79 percent of nonelderly insured Massachusetts residents now receive health insurance through their employers. In 2010, under the most recent data, Massachusetts had about 188,000 employers, 22,324 of which had 11 or more full-time equivalent employees and were potentially subject to the tax penalty, according to the state Division of Health Care Finance and Policy. Of that figure, 1,017 employers faced penalties, with restaurants making up the vast majority. Between 2006 and 2010, the penalties brought in an average of $15.7 million per year to the state, which helped offset costs for the entire law.

Businesses that rely on part-time or seasonal workers have reported the most problems in trying to comply. In the Cape Cod town of Wellfleet, where the local economy is tied to summer tourism, John Vincent Jr. says he’s struggled to keep his drive-in movie theater, mini-golf, and snack bar business in compliance. 

Of the 50 people on payroll, the majority are college- or high-school-aged students doing summer work, he says. He also has four year-round employees, whose health benefits are paid 100 percent. That is down from 10 year-round employees a decade ago, a drop he blames on rising health-care costs, including double-digit premium increases, he says.

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