While the focus of health care reform has now moved to the U.S. Senate, it is a good time to start thinking about what it means for New Jersey.
New Jersey is a small business state. About 95% of the state’s businesses, or 249,448 firms, employ 50 or fewer employees. These firms employ eight out of ten working people in the state, or nearly 1.36 million people. Most of the adult citizens who are uninsured are employed, primarily by a small business. According to federal statistics, 54.3% of New Jersey employers with fewer than 50 employees provide health care coverage. This represents about 135,550 employers that employ 737,500 people.
New Jersey employers have stated that the primary reason for offering coverage is to attract and retain qualified workers. Rutgers Center for State Health Policy (2004). Most employers that do not offer health insurance indicate that the cost is too high. Id. Research indicates that even a 30% reduction in premiums would cause only about 15% of currently uninsured small employers to offer coverage. See The Commonwealth Fund, Task Force for the Future of Health Insurance (2002).
In 1992, New Jersey reformed its individual and small group insurance market. All insurance carriers (other than HMOs) are required to offer five standardized contracts on a guaranteed issued, community rated basis. Carriers may not consider the health status or past claims experience of a group in determining premiums. The law requires carriers to limit variation in cost to a two to one ratio. Thus, the rate for the highest cost group (based on age, gender, and geography) may not be more than two times the rate for the lowest cost group of the same size.
The number of individuals insured by these small employer plans peaked in 1999 at 937,784 but has since declined to about 884,000. Health Affairs “Community Rating and Sustainable Individual Health Insurance Markets in New Jersey” Vol.23, No.4.
New Jersey’s health care reform has done little to mitigate health care inflation. According to the N.J. Business and Industry Association Health Insurance Survey, the average cost per employee in 2008 was $7,861, nearly double the cost in 2002. The cost of health care premiums in New Jersey rose nearly five times faster than wages this decade, according to Families USA, a Washington-based nonprofit group. Their report issued in 2008, found premiums in New Jersey rose 71 percent while earnings increased just 15 percent between 2000 and 2007.
New Jersey ranked 28th among states in the rate of growth in premiums compared with earnings.New Jersey may likely receive tens of millions of dollars in subsidies, Medicaid funds, tax credits and direct grants to cover the costs of expanded coverage, the creation of community health clinics, training of primary care providers and nurses, and other programs. In return, states must comply with substantial administration and record keeping requirements across the entire health care industry and conform its insurance laws to federal standards.
The biggest risk for New Jersey is that small employers who are already providing health care insurance to their employees will simply choose not to sponsor a health care plan knowing that their employees will still be covered by a mandated plan. Advocates of federal health care reform have taken a big leap of faith in believing that small employers will not respond to this incentive to cut back or drop coverage entirely. They believe that the competition for talented employees will maintain the status quo. For small knowledge-intensive firms, where talent is scarce, health care benefits will be a big attraction. But for many small employers, the skills of an uninsured workforce weighed against the increasing costs of health care may cause them to drop coverage altogether, particularly with the assurance that every employee will have access to the mandated plan. The complexity and enormity of the health care reform will require states to develop the public and private infrastructure to implement the law. Conceivably, every important state government agency will be impacted. While New Jersey’s insurance laws already substantially conform to federal standards, at present the state bureaucracy may be incapable of administrating federal health care funds, particularly in the urban areas that will be targeted for clinics and for wellness and prevention programs. Moreover, even if comprehensive reform is not enacted, the trajectory of health care inflation will continue to be a drag on New Jersey economy for the indefinite future. In terms of policy, the state cannot risk creating the perverse incentive for some employers to cancel employer-sponsored coverage simply to shift the costs onto the employers who continue to provide insurance. An employer tax when the state’s economy is losing jobs is untenable. Therefore, whatever happens in the Senate, health care reform will remain at the top of the policy agenda.
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