Firms find ways around state health law

By Alice Dembner, Globe Staff  |  December 23, 2007 - The Boston Globe

To comply with the new state insurance law, a Burger King franchisee in Boston expanded coverage from just his salaried staff to all full-timers. To control his costs, he halved the share he pays. Only three of the 27 newly eligible employees took the insurance; others say they can't afford it.

A large human service provider toughened eligibility for coverage in response to the new law, requiring employees to work 30 hours a week to qualify. That took away the option of work-based coverage for nearly 100 low-wage workers, but made them eligible for cheaper, state-subsidized insurance. It could reduce the company's costs while increasing the state's.

Another employer split his firm into separate corporations, each with fewer than 11 full-time employees, according to his insurance broker. That way he does not have to offer insurance, nor pay a fine.

Businesses from Boston to the Berkshires are responding to the state's landmark health insurance initiative in ways that could help it succeed - or stumble.

Policy makers are watching and waiting, but said they will act if many employers dodge their obligations.

In the first nine months of this year, according to the latest state figures, about 45,000 workers and their families gained insurance because employers picked up part of the tab. That number represents a small but significant chunk of the 293,000 newly insured state residents, a total that puts Massachusetts between half and three-quarters of the way toward its goal of covering nearly every resident.

Yet some employers are taking actions that could shift costs to the state or leave more people uninsured, potentially upsetting the delicate balance of responsibility on which the initiative rests, according to interviews with more than 20 companies, insurance brokers, and trade organizations.

When drafting the universal insurance law, "we purposely did not raise employer taxes" to pay for insurance, said Senator Richard T. Moore, cochairman of the Legislature's Committee on Health Care Financing, who plans oversight hearings within a few months.

"We thought we were treating employers fairly, and I commend the overwhelming number of employers who are doing the right thing," he said. "If some are not going to respond fairly, we'll find ways to structure the law so the loopholes get closed."

Businesses with 11 or more full-time equivalent workers are now required to offer insurance or pay a fine. The law also bars employers from offering higher-wage workers better health benefits than low-wage employees. In addition, workers with access to employer-subsidized insurance are now barred from getting state-supported coverage, and will be excluded from the state's free care program starting in April.

The provisions were designed to ensure that as many workers as possible get coverage through their employers in a state where about 70 percent of the 200,000 businesses offer insurance benefits.

For years, Doug Barlow and his business partner had paid 100 percent of the insurance cost for 11 full-time salaried workers at their three Burger King restaurants in Boston. The new law's antidiscrimination provisions led them to offer insurance to 27 hourly employees. But the potential cost - nearly $1,100 per month for family coverage - pushed them to cut the firm's contribution to 50 percent.

"I was prepared for a lot more people coming into our plan, but it didn't happen," said Barlow. Other employers said they are seeing the same pattern - expanded eligibility that does not lead to many more insured individuals.

"For most working-class people, regardless of whether the company pays part of the premium, it's very expensive," Barlow said. "Some full-time people said they'd done the math and it is cheaper for them to pay the state penalty than pay their half of health insurance."

The law requires individuals to obtain insurance by Dec. 31, if the state deems it affordable, or pay a penalty of $219. Next year, the penalty will rise.

Rebecca Posada works the counter at the busy Burger King in Center Plaza. Although she's been uninsured for the five years she's worked there and would like coverage, she is refusing Barlow's offer.

"I don't make enough" to pay $46 a week in premiums, said Posada, 26, during a morning break. She hopes to continue getting free care at the East Boston Neighborhood Health Center, and may be able to avoid the state penalty because of her low income.

Vinfen, a 2,000-person company that runs programs for mentally ill clients statewide, took a different approach that its officers said is designed to help low-wage workers. New employees now have to work 30 hours a week to qualify for insurance, up from 20.

"It's not a knee-jerk effort to reduce our costs," said Tim De Araujo, vice president of human resources. "By denying them eligibility to our plan, we gave them eligibility to the state plan. We felt this was the right thing to do."

De Araujo said he would like to see the state offer employees a choice of their employer plan or the state plan, whichever is more affordable. Two-thirds of their employees earn less than $24,000 a year, which would qualify them for state-subsidized coverage.

Separately, Vinfen renewed an offer of coverage, with a 70-75 percent subsidy, to 650 existing employees who were eligible but not enrolled. Only 72 signed up.

Some other firms have similarly tightened eligibility to control costs or try to shift employees to state plans, said Christopher DeLorey, a director of Telamon Insurance & Financial Network, and several other brokers.

Policy makers and analysts are concerned that this pattern could boost enrollment in the state-subsidized plan, which is already far above predicted levels. The bulk of the newly insured so far are covered by state-funded programs.

"Both the individual and the employer benefit" from the shift, said Michael Widmer, head of the Massachusetts Taxpayers Foundation, a business-funded financial watchdog. "But we don't have the public dollars to fund this."

Some additional public money is coming from companies required to pay fines of $295 per employee under the law because they don't offer insurance.

Northeast Knitting Mills, a small sweater factory in Fall River, dropped coverage in February because the fourth-generation family owners could no longer afford it, said president Dan Reitzas. He will pay a $13,000 fine, which is about 6 percent of his expenses, he said, but far less than the $50,000 he was paying for insurance. He is helping employees get a tax break on privately purchased insurance.

But other firms are avoiding fines by designating their employees as independent contractors or using other questionable means, employees and brokers said.

Paul Pietro, chairman of the Mid-State Insurance Agency, said he helped one of his clients set up separate corporations for each of its Massachusetts locations. Each then had fewer than 11 employees, so the insurance law did not apply. "It's a loophole," said Pietro, who declined to identify the client. Pietro said his other clients are paying the fine or expanding insurance offerings.

Moore said he had heard of similar cases. "If it's a few employers, we could publish a list of the folks using different schemes to avoid their responsibility and let their customers know," he said.

Healthcare advocate John McDonough has another suggestion: Charge those companies a large fee if many of their employees get state-subsidized insurance.

Alice Dembner can be reached at Dembner@globe.com.