Mass. has yet to Collect Fees from Firms for Healthcare: 
Totals Expected to Fall Far Short of Predictions

Taxpayers are bearing a larger share of the cost of the expansion of healthcare coverage than expected because the state has not yet collected a penny from businesses that do not help insure their workers.

Penalties on those businesses were expected to bring in $95 million this fiscal year and $76 million next year, according to the Legislature's estimates when the bill was signed into law a year ago.

But the state now expects to collect nothing in the fiscal year that ends June 30, and only $24 million next year, according to budget officials in Governor Deval Patrick's administration and in the House of Representatives.

Even in future years, when the state is actively collecting the fees, the amount will be significantly less than originally anticipated because of changes made by the administration of Governor Mitt Romney and the Legislature after the law was passed.

In this start-up year, lower costs for some aspects of the nearly $1.7 billion health insurance initiative are expected to offset the money that would have been collected from businesses.

But in fiscal 2008, the drop in revenue and increases in costs mean taxpayers will pay nearly $125 million more than expected, according to a Globe analysis of proposed budgets for next year.

The added expense will be covered by shifting funds from other state accounts. Nonetheless, it raises doubt about whether the responsibility for insuring nearly all Massachusetts residents will be shared as planned among individuals, government, and businesses.

"We have always suggested that there are financing concerns going forward, in terms of holding this law together," said John McDonough, executive director of Health Care for All, an advocacy group that helped win passage of the law. "This gives us a first hint of what they look like. These numbers also give us a reason to question whether business is indeed paying its fair share."

As lawmakers shaped the law in 2005 and early 2006, one of the hardest-fought battles was over how much businesses should contribute. Business leaders adamantly opposed a proposed payroll tax on employers who did not provide insurance for workers.

The compromise was a fee of up to $295 per worker annually charged to companies that did not make a "fair and reasonable" contribution to their workers' insurance.

The legislative conference committee that hammered out the compromise estimated in March 2006 that this "fair share" fee would bring in about $45 million this year. Romney vetoed the fee, but the Legislature restored it.

The law also contained a second fee on businesses whose workers and their dependents regularly seek charity care funded by the state. The conference committee estimated that this "free rider" fee, based on how much charity care a business's employees used, would generate about $50 million this year.

Both fees apply only to companies with 11 or more full-time employees, and money from them was supposed to help provide state-subsidized insurance for low-income people.

But the Patrick administration does not expect to collect any free rider fees until fall 2008 because the Legislature has delayed the effective date, and the administration has yet to issue regulations detailing how the fee will be imposed. House officials say some money may be collected early in 2008, but they are so unsure of the amount that they are not counting on that revenue in next year's budget.

When the fee is collected, it will probably generate much less than the originally estimated $50 million, because the Legislature exempted any company that helps its workers secure a tax break for health insurance premiums. Most companies are expected to do that because it also cuts their payroll costs.

The fair-share fee went into effect last October, but the Romney administration did not begin collecting it, and the Patrick administration is still setting up the billing systems to do so.

Even when fair-share bills go out, the revenue is anticipated to be only $24 million, because of rules established by the Romney administration that reduced the number of firms facing the fee.

"The previous administration had no intention of collecting it, so the infrastructure was not put in place," said Representative Patricia Walrath, cochairwoman of the Legislature's Committee on Health Care Financing.

Romney's spokesman, Eric Fehrnstrom, said the Romney administration had not dragged its feet, despite initial opposition to the fee. He said that regulations were established "in a timely manner" and that the money could not have been collected any earlier.

To bring in more revenue from businesses, Walrath suggested, Patrick could revise the Romney regulations in line with the original intentions of the Legislature.

But Patrick's deputy press secretary, Cyndi Roy, said it is too early to consider that kind of change.

"We've got to wait and see how much we do collect from businesses," Roy said. "We have to let healthcare reform work."

Michael Widmer -- president of the Massachusetts Taxpayers Foundation, a business-funded fiscal watchdog -- said that businesses will eventually pay both fees, but that the total collected will be small. The estimates for free-rider collections, he said, were "really exaggerated."

"It's a major misunderstanding to focus on the fair-share assessment as a centerpiece of the business contribution" to health reform, he said.

The main business contribution, he added, will be the hundreds of millions of dollars employers spend to cover workers who buy insurance for the first time this year, as required by the new law.

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