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Few Signs So Far of Massachusetts Employers Dropping Coverage

By John Reichard, CQ HealthBeat Editor

November 26, 2007 -- Few employers in Massachusetts are likely to stop offering health benefits to their employees because of the state's new law subsidizing an individual's purchase of health care coverage, a new survey suggests.

Only about three percent of small employers in the state will drop coverage, suggested the survey led by Jon R. Gabel of the National Opinion Research Center, which is affiliated with the University of Chicago. However, Gabel acknowledged in an interview Monday that not all the data are in yet to show how large—or small—the problem will be of expanded government-funded coverage "crowding out" private coverage.

The likely extent of crowd-out looms large in debates over expanding publicly funded health insurance. In opposing legislation passed by Congress expanding the State Children's Health Insurance Plan (SCHIP), the White House has pointed to a Congressional Budget Office (CBO) estimate suggesting that many children are likely to shift from private to public coverage as a result. The CBO reported earlier this year that for every 100 children who enrolled in SCHIP, between 25 and 50 left private health insurance plans.

Some estimates are much lower. According to an analysis by the consulting firm Mathematica Policy Research, between 10 percent and 56 percent of families in SCHIP dropped or declined private coverage. The percentage depends on how crowd-out is calculated; the higher figure requires the assumption that any reduction in private coverage observed among low-income children eligible for SCHIP is caused by crowd-out.

The survey led by Gabel and recently posted online by the academic journal Health Affairs found little evidence that crowd-out was occurring or planned in Massachusetts. "Less than three percent of Massachusetts employers with 3–50 workers said that it was very or somewhat likely that they would drop coverage in the next year," the survey reported. Under the state's law designed to create nearly universal coverage in the state, employers with 11 or more full-time employees must pay a penalty of $295 per employee unless they pay up to one-third of the cost of coverage, Gabel said. That caused concern that employers would drop coverage to save money, knowing that at least some of their workers would qualify for state-subsidized purchases of private insurance plans. "The rationale is that the required contribution of $295 per year is less than 10 percent of the actual cost of providing coverage," said Gabel and his co-authors.

However, the survey was conducted between February and July of 2007 when employer understanding of the requirements of the overhaul law was spotty. Companies weren't required to report until Nov. 15 whether their insurance offerings were sufficient to escape the penalty. Gabel acknowledged the possibility Monday that with greater understanding of the law, the crowd-out figure could climb.

However, Gabel said that a Boston Globe analysis published Nov. 22 is consistent with his survey findings suggesting that crowd-out is not likely to be a major problem. Of 62,000 companies required to report by Nov. 15 on the extent of their insurance coverage, only 518 will pay a penalty instead of providing the required level of coverage, according to the Globe. Employers are reluctant to take the step of dropping coverage to save money, Gabel noted. "Any time an employer drops coverage . . . they realize that very often leads to morale and productivity problems."

But of the 62,000 companies required to report their insurance status, 18,000 have yet to report, the Globe analysis also noted. If the non-reporters are less likely than those who have reported to offer sufficient coverage, crowd-out may be more of a problem than it now appears to be, Gabel said. But "so far it looks like our worst fears are not realized." Gabel said that one reason may be that employers were part of negotiating the compromise that led to the Massachusetts overhaul law, which called on individuals as well as companies, providers, and taxpayers to share in the costs of providing coverage.

Gabel shied away from drawing conclusions about whether his findings suggest SCHIP crowd-out fears may be exaggerated. Asked whether the survey means crowd-out wouldn't be a big problem in other states that adopted a Massachusetts-type overhaul, Gabel suggested that employers in the state may not be typical, in that Massachusetts residents tend to be healthier, wealthier, better educated, and more liberal. While those factors suggest that employers in Massachusetts may be more open to the state's coverage plan, another factor does not: companies face higher premiums costs in Massachusetts, he said.

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