Insurance law strains small firms

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A landmark law requiring Massachusetts residents to buy health insurance will add costs to small businesses already grappling with difficult health care expenses.

To help residents obey the new law, the state requires employers to take steps to increase health insurance coverage. In some cases, businesses must arrange plans that allow employees to buy health insurance with pretax money, which can help reduce employee health premiums.

A fine of about $300 will be charged to companies that don’t enhance their insurance options.

“It is very early in the process, but we are not sure how the small-employer community is going to react to these new requirements as they unfold,” said Laurie Felland, lead author of a new report by the Center for Studying Health System Change, which examines the health insurance law and its effect on small businesses. “The mandate for individuals to buy insurance could be what hurts them the most.”

The Center for Studying Health System Change is a nonpartisan policy research organization in Washington.

Exhausted by uncompensated health care costs that acted as an albatross on the state’s economy, Mitt Romney, then the governor and now a Republican presidential contender, shepherded the bill through the state legislature in 2006.

About two-thirds of the uninsured work force in Massachusetts is employed by small businesses, making those employers more susceptible to an increase in health care costs as more people fall in line with the mandate to buy health insurance.

“When these people want health insurance, they’ll turn to their employer and in turn, cost will go up,” Ms. Felland said. “There is a concern about how prepared the small-employer market is for this change.”

The deadline for adults to buy health insurance was July 1. About 15,000 people who had no health insurance have bought some form of coverage through their employer or individually. But the state is targeting about 300,000 people who have no insurance; therefore, market observers say the law gradually will take a toll on small businesses.

“The tax penalty on people for not buying health insurance is about $200 this year, but will continue to go up over the next few years, so more people will likely find it cost-effective to buy a minimal coverage plan to avoid the penalties. And that could amount to a slow bleed on small businesses that offer health insurance but have employees that hadn’t, until now, taken advantage of it,” said a market analyst speaking on the condition of anonymity.

The state’s goal to implement a near-universal health care system will be judged on whether the law’s new requirements reduce health insurance costs and get more people insured.

Some success already was achieved as 135,000 low-income state residents now have health insurance through an expansion of public health care programs such as Medicaid.

“It is a mammoth undertaking to communicate the complexities of new obligations to 190,000 businesses in Massachusetts,” said Jon Kingsdale, executive director of the Commonwealth Health Insurance Connector Authority, which oversees the program. “We’ve done a good job of reaching out, but I assume there are still questions.”

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