MA Health Care Penalty Falls Short of Expectations

November 26, 2007 ( - Only about 500 Massachusetts companies out of the tens of thousands covered by the state's new health insurance mandate will pay a penalty rather than offer insurance to some of their workers, the state reported last week.

According to the Boston Globe, to enforce the law, the state required about 62,000 companies with eight or more employees to report by November 15 whether they met the requirements of the new mandate. Nearly 44,000 filed and more than half were too small to face the coverage requirement while 518 agreed to pay the penalty of $295 per worker.

While it is good news that the majority of firms are complying with the mandate, it means the state will collect only about $5 million in penalties, far less than the $24 million budgeted, which could result in another financial shortfall for health care reform, the Globe said. The state based its budget estimate on a survey of employers from 2005.

Some health care advocates say the numbers mean too many companies were let off the hook. Rules issued by officials when implementing the mandate excuse companies from a $295 annual per-worker fee if at least 25% of employees sign up for coverage (See New Bay State Rules Would Excuse Most Cos. from Per-Worker Health Coverage Fee ).

When the bill was signed, the Legislature estimated that the “fair share” penalty on businesses would bring in $45 million last year and another $36 million this fiscal year, but the state did not collect any money last year, and the administration of Governor Deval Patrick downgraded the revenue estimate to $24 million for this year, according to the Globe.

The amount is a small part of the expected $1.8 billion annual cost of the insurance initiative, but other strains on the budget exist. Enrollment in the state-subsidized insurance plan could cost $147 million more this year than expected, and the federal government has proposed rules that could cut more than $100 million from the state Medicaid program, another important component of financing the insurance initiative, the news report said.

The Patrick administration declined to discuss how it might make up the shortfall. “It’s still early,” said Sarah Iselin, state commissioner of healthcare finance and policy, in the news report. “This is all preliminary.”

Iselin said the state will send reminder notices to more than 18,000 employers who have not reported their insurance status. If they still do not reply they will be fined as if they were not providing any insurance. Iselin said she expects many will be exempt from the requirement because they have fewer than 11 employees.