WASHINGTON — Some Massachusetts companies are considering trimming employee insurance benefits as they prepare to implement provisions of President Obama’s health care overhaul, a move that follows announcements by several national firms that they plan to cut coverage, according to business leaders.
In recent weeks, UPS and Delta Airlines, among others, have said they would scale back benefits to make up for new expenses incurred under the health law. That has prompted employers across the country, including in Massachusetts, to study whether to cut the number of hours in a typical workweek and eliminate coverage for spouses who can get insurance through their own employer, among other changes.
The potential cutbacks in coverage come just months before the law requires most Americans to obtain health insurance by Jan. 1. Some Massachusetts industry leaders say they are worried that progress made under the state’s first-in-the-nation health reform law will stall — or that advances will be lost.
“It only takes one or two companies like UPS to start the trend. And that makes me nervous because in Massachusetts, there’s nowhere to go but backwards,” said Kristen Lepore, vice president for government affairs at the Associated Industries of Massachusetts, the state's largest employer association. “Both small and large employers are concerned.”
The uncertainty is echoed by other New England business groups, which are watching Massachusetts companies closely as they weigh whether to drop health insurance coverage and move workers into government-run marketplaces where many will qualify for federal subsidies to buy private insurance.
Companies in New England that are known to be considering coverage cutbacks refused to speak on the record because they do not want to incite employee backlash before a decision has been made and risk losing workers to competitors, say trade group representatives.
“They’re still trying to figure this out, and they don’t want to tip their hand,” said Don Nokes, president of the Rhode Island Business Group on Health.
Similar concerns were raised in 2006, when Massachusetts passed its health reform law on which the federal legislation was modeled.
At the time, businesses worried that costs would skyrocket and eat into their bottom lines. Consumer advocates worried employers would drop coverage.
The fears proved unfounded. The number of employers offering health insurance grew from 70 percent in 2005 to 76 percent in 2011 — compared to a stagnant 60 percent nationally, according to a report by the Blue Cross Blue Shield of Massachusetts Foundation.
Now Massachusetts employers are increasingly worried about the ramifications of the federal law, which, in some instances, imposes more stringent — and more expensive — requirements than the state law.
The federal law requires companies with 50 or more employees to offer insurance to full-time workers — those working 30 or more hours a week. The state law, on the other hand, defines full-time as over 35 hours a week.
As a result, Lepore and others said, many companies that employ low-wage, seasonal, or part-time workers — including retail and fast-food businesses, and even colleges and universities — are contemplating reducing employees’ schedules to under 30 hours a week so they do not have to bear the cost of providing health insurance.
To mitigate employer concerns and give businesses across the country time to adjust, the Obama administration announced this summer that it would delay the employer mandate to offer health insurance by one year, to 2015.
After 2015, large companies that do not offer their full-time employees insurance will be fined $2,000 per employee. In comparison, the fine for not covering employees in Massachusetts was $295, but that has now been abolished to make way for the federal penalty.
Notwithstanding the Obama administration's decision to put off the employer mandate for a year, some companies have already decided to cut employee hours, which would enable them to provide coverage to fewer workers when the law does go into full effect.
Forever 21, a national teen clothing chain, said in August that it will cut the hours for full-time nonmanagement staff to 29.5 hours a week. The company denied the change was made in response to the federal law, known as the Affordable Care Act, or, colloquially, as “Obamacare.”
Some advocates for expanding health care have said companies are using the law as a scapegoat in explaining coverage cutbacks.
UPS, the shipping company, recently said it will not cover spouses of employees if the spouses have jobs that provide health coverage. The company said that the decision, which will affect 15,000 spouses, was made in part because of higher costs associated with the Affordable Care Act.
“This change is consistent with the way many large employers are responding to the costs associated with the health care reform legislation,” said the company in a memo to employees. Before reaching its decision, UPS said it studied other companies’ health benefits and determined that 35 percent plan to exclude working spouses in 2014.
Delta Airlines has reduced the generous health benefits offered to its pilots in order to avoid a new federal tax on costly health plans, known as the “Cadillac tax.” Starting in 2018, most employers must pay a 40 percent excise tax on the amount that premiums for a health plan exceed $10,200 for an individual and $27,500 for a family.
“Given enough years, all plans will eventually risk being subject to the Cadillac tax and as they do, the natural reaction will be to continually reduce benefits provided,” wrote a Delta executive in a memo.
The myriad new taxes imposed under the federal law make Massachusetts companies nervous, Lepore said. Many are awaiting insurance rates for Jan. 1 to be announced before making a decision on benefits.
“If prices keep going up, they may entertain a plan with less coverage,” said Ryan Kearney, general counsel of the Retailers Association of Massachusetts, which represents smaller businesses. “For some businesses, depending on how their numbers work out, it may be more optimal for them to drop coverage and just pay the fine.”
Among the primary concerns for companies with fewer than 50 employees is that the federal law requires Massachusetts to dismantle its own insurance rating system that allowed insurers to consider about 10 factors in setting the rates for small businesses.
The federal law mandates that insurers use only four rating factors — age, number of family members, geographic area, and tobacco use — and does not take into account the size of the company, a change that small businesses fear will drive costs up by more than 50 percent.
The federal government has agreed to allow Massachusetts to phase in the change over three years, but the Bay State business community, as well as the Legislature, will continue seeking a federal waiver.
“If we don’t get the waiver and some employers see those big rate increases, we might see some employers dropping coverage,” said Richard Lord, president and CEO of the Associated Industries of Massachusetts.
In Warwick, R.I., a manufacturing company employing about 100 workers has eliminated health coverage for employees’ spouses, going as far as calling the spouses’ employers to check whether they offer health insurance, said Amy Gallagher, vice president of major accounts at the Cornerstone Group, a benefits advisory firm based in Rhode Island.
The company expects the move to save 15 to 20 percent in health benefit costs, Gallagher said. Gallagher said the company’s owner did not want the business to be named.
While national business groups have been hostile to some elements of the federal law, Massachusetts companies for the most part bought into the state’s reform efforts in 2006, a key reason why the state law has been so successful, advocates and business leaders say.
“It’s critically important to maintain the underpinnings of what made health reform successful in Massachusetts, which includes employer responsibility,” said Amy Whitcomb Slemmer, executive director of the Boston-based Health Care For All.
Indeed, the Obama law has spurred at least one Massachusetts company to expand employee access to health coverage beyond federal requirements.
Framingham-based Cumberland Gulf Group, which owns the Cumberland Farms convenience stores and Gulf Oil gas stations, is reclassifying more than 1,200 part-time workers to full time to make them eligible for health insurance beginning Oct 1. The company said the move will cost the company several million dollars but will help it retain valued workers, which it said would please customers and pay off in the long run.
“Some companies are taking full-time people and converting them to part time. We’re taking the opposite approach,” said John McMahon, Cumberland Gulf Group’s senior vice president and chief human resources officer. “It’s not just the right thing to do, but it’s also a good business decision.”Tracy Jan can be reached at email@example.com. Follow her on Twitter @GlobeTracyJan.