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What Does the Governor’s $300 Million Employer Health Care Tax Mean to You?

Last week, Gov. Charlie Baker filed his $40.5 billion FY18 state budget proposal and included what is described as a return of the former Fair Share Assessment on employers that was part of the old MA Health Care reform law. However, the Governor’s new version of this health care tax on employers is looking to be much worse than the old $295 per employee assessment. Under the original Fair Share regulation established in 2006, the assessment brought in $7.5 million – as it was not designed to be a revenue generator. The Baker proposal is the opposite, as it is clearly crafted to raise a significant amount of money - $300 million in taxes on employers, payable to the MA Department of Revenue. The new tax is said to be needed to help close a $600 million budget gap in the state’s Medicaid program, MassHealth.

The rub is that employers with 11, or more, “assessed or its equivalent” employees are being asked to solve a problem that they did not create. This will be done through a proposed new $2,000 tax per "uninsured" worker on employers. The claim is that the tax is only to be charged upon employers who do not offer health insurance. This assertion is not accurate. To the contrary see how it would apply to ABC Corporation that has 20.8 (Full Time Equivalents) FTE’s.

• ABC has 18 full time workers (each works 40 hours per week) and 4 part time employees (two moms work school hours 30 hours per week and 2 high school students work after school or on Saturday 10 hours per week). ABC offers qualified insurance – pay more than 60% of premium and more than $4,950 per worker. The workers at ABC work 10,400 hours divided by 500 equals 20.8 FTE’s at ABC for the first quarter of 2018.
• The two part-time moms get their insurance from their spouses who are white collar workers at a large corporation and the local bank. The two high school students are insured on their parents’ plan. Of the 18 full time workers, 2 are on Medicare, 5 have spouses who are either teachers, police officers or firefighters and have insurance there, and 2 are insured with their spouses in the private sector. That leaves ABC insuring 9 of its employees. Of the 20.8 FTE’s, all are insured, none are insured by a subsidized state plan (unless you count public employment as subsidized), all are insured on an employer’s plan, all have chosen the best plan for themselves, and the two on Medicare have no choice. The “take up rate” for ABC is 43.27%, well below the 80% threshold.
• 80% minus 43.27% is 36.73% times 20.8 FTE’s equals 7.64 times $500 equals a $3,820 tax for the quarter and more than $15,280 per year.
• Now suppose two male workers on the floor are each heads of families of four. They make about $60,000 per year (three times poverty). In recent years because of the cost of insurance, ABC has been forced to increase co-pays and deductibles – 20 years ago ABC paid 100% of the cost of health insurance and that was not unusual. The two workers hear the ads on the television and radio that they may be eligible for subsidized health care at the Connector. They look into it and find the insurance at the Connector is a better deal for them. Now ABC has two fewer on its insurance and somehow ABC is to blame according to the state and they are assessed a higher tax -- $4,825.60 per quarter or $19,302 per year!
The 80% take-up rate is almost impossible for any employer to meet, and will certainly be a challenge for any retailer or restaurant that has a number of part-timers and secondary wage earners on staff.

All members are encouraged to review your plans and policies and run the numbers to see what, if any, tax penalty you would owe under this troubling proposal. Please then share that information with us, with your legislators, and with the Governor’s office. The Chamber is working with RAM, NFIB and other chambers in the employer community to vigorously oppose this new tax, but your input is critical.

(the above is a modified version of an email the Retailers Association of Massachusetts (RAM) shared with its members)