• Employer responses to the Massachusetts mandate

    The employer mandate in Massachusetts has a very weak penalty, just $295 per employee per year. That’s far below health insurance premiums and the ACA’s penalty. One might think that employers in Massachusetts would drop insurance coverage and pay the tiny penalty instead. Nope.

    In their recent NBER paper, Colla, Dow, and Dube wrote a useful paragraph about employer responses to the Massachusetts employer mandate:

    Based on a pre-post comparison from a Massachusetts household survey, Long and Masi (2008) found no evidence of dropped coverage or restricted eligibility, and no major changes in the scope of benefits, network of providers, cost to employees or quality of available care under health plans. They also found that employer sponsored coverage had expanded due to increased take up among employees. Gabel and colleagues surveyed Massachusetts employers, finding that the percentage of firms with 3 or more employees offering health benefits increased from 73 to 79 percent, that there was an increase in firms offering Section 125 plans, and that Massachusetts employers were less likely than other US firms to terminate coverage or restrict eligibility (Gabel et al. 2008, Gabel, Whitmore, Pickreign 2007). Furthermore, evidence from Massachusetts indicates that despite concerns about potential crowd out from new public options (Cutler and Gruber 1996, Gruber and Simon 2008), there was actually an expansion in private coverage. (© 2010 by Carrie Hoverman Colla, William H. Dow, and Arindrajit Dube.)

    Despite incentives to the contrary, employer-based coverage is alive and well in the Bay State. Go figure.


    Cutler, D. and J. Gruber (1996). “Does public health insurance crowd-out private insurance?” Quarterly Journal of Economics 111: 391–430.

    Gabel, J.R. et al. (2008). “After The Mandates: Massachusetts Employers Continue To Support Health Reform As More Firms Offer Coverage.” Health Affairs 27 (6).

    Gabel, J.R., H. Whitmore, J. Pickreign (2007). “Report From Massachusetts: Employers Largely Support Health Care Reform, And Few Signs Of Crowd-Out Appear.” Health Affairs 27(1).

    Gruber, J. and K. Simon (2008). “Crowd-out 10 years later: Have recent public insurance expansions crowded out private health insurance?” Journal of Health Economics 27(2):201-217.

    Long, S.K. and P.B. Masi (2008). “On the Road to Universal Coverage: Impacts of Reform in Massachusetts at One Year,” Health Affairs 27 (4).

    • It’s just that they are not hiring!

    • Agree with Dennis! I wonder how this will effect unemployment in MA.

    • I don’t quite see why one would expect a weak employer mandate to result in less coverage than no mandate at all. Is anyone actually making this argument?

      The concern shouldn’t be that employers who previously provided coverage might drop it. The concern is that employers who previously did not offer coverage would instead fire employees rather than begin coverage.

      • In their NBER paper Jonathan T. Kolstad, Amanda E. Kowalski promise a forthcoming one that focuses on labor force issues. When it is out, I will read and comment on it. Stay tuned.

        • Be sure to include in your analysis some comments about businesses moving out of Massachusetts.

          The problem with what I read in the Colla, Dow, and Dube paper is that it only looked at first year results in San Francisco which doesn’t allow time for companies to explore relocating to other areas with less onerous employer mandates. Pre-recession results at that!

          Same goes for Massachusetts. As of now, companies can simply relocate to the New Hampshire suburbs and continue to offer health care coverage while avoiding paying any penalty at all. After all, companies in Massachusetts still have to compete for labor so tossing their employees into a substandard Massachusetts public health care plan creates a different kind of cost for firms… and that cost may be far greater than $295.

          However, under the ACA there will not be any “relocation option” so companies may well decide to look for other alternatives… such as paying the penalty and letting their employees go into the exchanges. And with supporters of ObamaCare claiming that 1/4 of the country will be in the Exchanges to start with and opponents claiming the figure is more likely to be 1/3, there won’t be as much of a recruiting advantage for firms to offer their own health care coverage.