Monday, August 16, 2010

10-point plan to jumpstart Cape Cod's economy

Cape Cod's economy is fueled by tourism, retirees, technological and ecological development, health care, and the demands for goods and services related to all of the above.

The 5th Barnstable District reflects these same characteristics and its business community is a roster comprised, almost exclusively, of small businesses.

Our focus, as a state legislature, must be on the small business owner. Nationwide, approximately 70 percent of all jobs are created by small businesses; on Cape Cod, that figure is even higher.

Rather than repeat the platitudes and talking points that voters seemingly have become immune to, I have compiled a list of specific items that can be embraced and acted on by your state government to improve the overall business climate and expand opportunities for businesses of all sizes across the commonwealth.

These actionable items fall into three categories:

Health care
  • Adopt a 50-employee exclusion (currently ten) for determining which small businesses must offer health insurance. This is consistent with the new federal Affordable Care Act and would allow small businesses to grow beyond ten employees without triggering a huge expense for mandated insurance.
  • Abandon the "creditable coverage" standard, which mandates that everyone carry a blue ribbon, bells and whistles policy. We have to wake up to the fact that not everyone can afford the same insurance plan enjoyed by our legislators.
  • Implement other measures to reduce the cost of insurance, such as tort reform, standardized electronic medical records, and interstate competition between insurers (a federal issue), to name a few.
  • Allow small businesses to band together to purchase health insurance policies as a group. This is a provision that was included in the Small Business Health Care Cost Relief Bill passed in the most recent legislative session. Unfortunately, that bill also included measures to increase government control in this market which, in the end, will drive away competition and increase costs.

 Taxation

  • Roll back sales, meals and personal income tax to 5 percent. Our state government's insatiable appetite for spending resulted in $2 billion of new taxes during the most severe economic recession in decades. That ignores the fact that it leaves less spendable income in the pockets of consumers, who are the life blood of small businesses.
  • Reduce corporate income tax to 5 percent. At 9.5 percent, Massachusetts is among the highest taxing states in the country; yet another reason for large businesses to not come here or to relocate elsewhere. These large businesses generate big demand for goods and services from our small business community.
  • Reduce the short-term capital gains tax rate from 12 percent to 5 percent. As a CPA, I'm always cautioning my small business owners about the state's taxation of capital gains. This puts the brakes on entrepreneurs who would otherwise expand more quickly. 

Regulation
  • Open public construction projects to all bidders, not just union shops. The governor claims that PLAs (project labor agreements) account for relatively few of the total contracts awarded by the state. What he doesn't say is that those "few" are the largest projects, accounting for the lion's share of project dollars spent.
  • Repeal the Pacheco Law, which bars privatization of state services. Small businesses could certainly benefit if allowed to bid on such things as vehicle fleet maintenance, building management and maintenance, and state park maintenance.
  • STOP CHANGING THE RULES (at least changes that make things worse.) The unpredictability of what our legislators have in store for businesses from year to year makes Massachusetts a poor choice for new and expanding businesses.

11 comments:

  1. Hey Randy,

    While I pretty much across the board disagree with your views, I really do appreciate that you take the time to outline specific proposals you would like to see enacted instead of relying on vague, meaningless generalities and obnoxious party line rhetoric.

    While I could suggest a litany of amendments to your proposed points, I'll limit myself to one. Your first point suggests changing the employer mandate exclusion from employers with 11+ employees to 50+. While this would be in line with the sentiment of PPACA, it doesn't really take into account the fact that the Massachusetts mandate is a lot less stringent than the PPACA mandate will be come 2014 with regard to penalties on employers for failure to comply.

    Correct me if I'm wrong (because it may have been indexed to increase with inflation since 2008) but the penalty for employers who don't comply with the health insurance mandate is $295 PEPY (while the national penalty will be $2000 PEPY, excepting an employers first 30 employee). I think you are slightly overexaggerating the impact of the mandate on MA employers since they can always choose not to play and pay the penalty. This means any employer wanting to increase past 10 employees must either begin to offer health insurance or pay at a minimum $3,245 (11 employees X $295) and then an additional $295 per employee per year for each new person they want to hire. This amounts to pennies when compared to what they would pay if they offered health insurance and covered even as little as 33% of the premium (the fair share contribution minimum).

    What I'm saying is that employers are free to grow beyond 10 employees and will really not incur that large of an expense. However I do see your point that it does provide a disincentive to employers to grow. So I would like to hear your view on a less drastic change as far as MA goes (at something Dems on Beacon Hill may be more likely to get behind).

    Continued...

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  2. ... Two simple things: Keep the mandate requirement at 10 employees but as far as the penalty goes don't begin assessing it until the 11th employee and onward. So if an employer with 10 employees wants to grow, he or she is faced with paying a penalty of only $295 per employee beyond the initial. Secondly, only apply the penalty to employers who have at least one employee receiving subsidized, no Medicaid coverage (ie Commonwealth Care). Both of these provisions would be in line with policy from PPACA and not substantially weaken the employer mandate.

    Thoughts?

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  3. Mike M, your comments are interesting and accurate regarding the Fair Share Contribution ($295/employee/year), but you left out the Free Rider Surcharge. That provision of the MA plan makes it much more ominous than the national plan by a longshot. And it's a little known aspect of the MGL Chapter 58 regs.

    From http://www.bencorpusa.com/Pages/erFairFree/

    "This provision applies to employers with 11 or more employees, who do not offer to contribute towards, or arrange for the purchase of health insurance. Employers are to be assessed if its employees access the Uncompensated Care Pool (UCP) a total of 5 times per year or one employee accesses the Uncompensated Care Pool 3 times in one year and the total claims billed to the UCP exceed $50,000.
    The amount of the surcharge is a percentage of the cost of the care (based on number of visits and employer size). The effective date of this provision is October 1, 2006."

    More in the next post...

    ReplyDelete
  4. From http://www.bencorpusa.com/Pages/erFairFree/

    Repeal the Free Rider Surcharge Penalty

    The free rider surcharge penalty, part of the state's new health insurance law, is expected to raise $160 million in revenue during its first year. Massachusetts appears set to impose this penalty even if employers follow the rules.

    Imagine this scenario: A food manufacturing plant employs 50 part-time hourly employees working mothers' hours. On Jan. 2, 2007, a worker who is barely six months pregnant hemorrhages and is rushed by ambulance to Massachusetts General Hospital, where her baby is born prematurely. Mass. General achieves a medical miracle and the baby survives to live a normal life. The recovered mother and her husband do not have health insurance, so Massachusetts pays the $1 million hospital bill. Massachusetts also paid several small hospital bills for other company employees before Sept. 30, 2007.

    On Dec. 31, 2007, under complex regulations, Massachusetts duly assesses two free rider penalties: $450,000 against the mother's employer and $350,000 against the father's employer. Payments are due by March 31, 2008. The two employers cannot easily come up with this money. Massachusetts then charges these employers interest at the rate of 18 percent per year plus an unlimited failure-to-pay penalty of 5 percent per month until payment is made or the employers go out of business. One of the employers decides to sell his business. The deal falls through when the buyer learns that she would have to assume the free rider liability.

    Under current law the free rider penalty will not be imposed if the baby's family had health insurance, or if the mother's and the father's employers both had established Section 125 health insurance cafeteria plans for their employees. But the free rider penalty becomes effective before these "vaccines" become legal requirements. Specifically, the free rider penalty becomes effective on Jan. 1, 2007. Individuals, however, are not required to have health insurance until July 1, 2007. Similarly, businesses with more than 10 employees are not required to offer cafeteria plans until July 1, 2007.

    The larger problem is that the free rider penalty is arbitrary and capricious in its effect. Some nonconforming employers will escape unscathed, while others will see their businesses destroyed.

    The free rider penalty is also bad policy. It will arbitrarily destroy businesses in a state that has lost jobs for four straight years.

    The free rider penalty should be repealed immediately. In the meantime, employers who are unwilling to bet their businesses on prompt legislative action will want to have a basic cafeteria plan in place by Jan. 1, 2007. The cost -- about $1,495 per employer -- is cheap insurance.

    Morris N. Robinson is a Boston-based tax attorney at M. Robinson & Co.

    ReplyDelete
  5. Yes and No Randy...

    While your correct, if an employer were not to establish a Section 125 (Cafeteria) Plan, then the above scenario is much more risk then I would advise any small business owner to take on, and they almost certainly would have to offer health insurance. The Free Rider surcharge only applies to a company that doesn't offer a Section 125 Plan (basically the option for an employee to elect some sort of benefit in lieu of cash, pretax).

    However you are (and i believe the article you cited also mistakingly is) equating the establishment of a Section 125 Plan with offering employer sponsored health insurance. The two DO NOT go hand in hand. An employer need only establish a Section 125 Plan and then give their employees access to the Commonwealth Choice plans in the Connector. There is no requirement with a Section 125 plan that the employer contribute a dime (See page 1: https://www.mahealthconnector.org/portal/binary/com.epicentric.contentmanagement.servlet.ContentDeliveryServlet/FindInsurance/Section%2520125%2520Handbook%2520documents/Section%2520125%2520Handbook.pdf)

    A Section 125 plan is simply an IRS designation that gives employers the ability for its employees to elect any benefits (cafeteria style, hence the nickname) pretax. These can be completely voluntary benefits with 0 employer contribution or in the case of Commonwealth Choice, state facilitated.

    So my original point does in fact stand, the only real actualized penalty an employer of 11+ will incur is the fair share contribution penalty, provided they take the time to establish a Section 125 plan, which is little more than a payroll practice.

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  6. Excellent analysis, Mike M. I will look closely at your suggestions and will be happy to tap your obvious expertise going forward.

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  7. What frustrates me Randy is that my husband works at a small business where there are only 3 full time employees. I am solo, self-employed. Therefore, we must purchase our own health insurance. We have 2 kids, own a home and drive reliable but not outlandish vehicles. Bottom line, we do not live beyond our means like a lot of people. We pay $850 a month for health insurance. It is very hard. Some people say that isn't a lot but for us, it is. I feel like when health insurance is discussed, people like my family are left out. Writing a check which is about $400 less than my mortgage is a lot. And it went up $120 from last year! I hope that you can look out for we who are not poor but are also not fortunate enough to have a job where insurance is paid for us. Thanks.

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  8. Sue, I have several clients who fall into situation where a subsidized plan is not available (they make too much money according to the formula) but the insurance premium is too much to manage.

    Some of them used to pay for a catastrophic plan with bare bones ongoing benefits for $300 to $400 a month. They bought what they could afford, counting on the insurance to be there in case of a crisis medical situation.

    That's no longer available, thanks to minimum creditable coverage. Everybody must purchase the blue ribbon policy.

    Putting this MA plan on steroids in the form of the national plan is a recipe for disaster.

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  9. Oh, we could get some cruddy insurance if we wanted to but you get what you pay for! I do appreciate all your efforts, please keep people like us in mind though. Not rich, not poor, just paying the bills and gettin'....nowhere :)

    Obama and company just don't see the people like us, the reality. Writing the $850 check each month. No, I don't smoke. We rarely eat out, don't have fancy cell phone or cable plans. We do save for a nice family vacation each year though, we deserve it!

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  10. Sue, the reality is that you cannot purchase a cruddy insurance policy...

    To avoid the $2,000+ penalty that is assessed on your MA tax return, you must purchase a state-approved insurance plan. Anything less than that is considered the same as not having insurance.

    Does that give anyone else a sick feeling in their stomach?

    State-Approved Health Insurance Plan.

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  11. Oh, wow, I didn't realize that. I thought people had the option to purchase one of those fly-by-night plans with high deductibles and limited coverage, simply because they look affordable.

    That does make me sick. Good thing I have insurance ;)

    ReplyDelete

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