Health care tax on business brought in far more money than anticipated

Craig F. Walker/Globe Staff/Globe Staff

Nobody likes getting hit with a tax hike, but this one was a particularly bitter pill for the Massachusetts business community to swallow.

Lawmakers promised the “EMAC,” short for employer medical assistance contribution, would last only two years when they approved it in 2017, ostensibly to cover a shortfall in the state’s Medicaid program. State officials also projected it would raise $200 million a year, or $400 million by the time the sunset arrived at the end of 2019.

Business leaders worried the actual collections would well exceed those numbers, and that legislators would never turn off the spigot, once the tap was flowing. The latter fear turned out to be unfounded: The Legislature let the increase expire, as promised, on Dec. 31. A good reason to break out the bubbly on New Year’s Eve.


But the fear of it raising more money than expected? That one turned out to be correct.

Numbers provided by the Baker administration show the additional EMAC fees raised more than $640 million over the past two years, from the time they took effect in January 2018 until their Dec. 31 end date. To be sure, the old number of $400 million was presented as an estimate. As estimates go, that one was wildly off.

Maybe it could have been worse. The final plan that lawmakers approved in 2017 was billed as a compromise effort, a less painful alternative to a previous measure proposed by Governor Charlie Baker to help pay for the Medicaid program, aka MassHealth. That one was supposed to raise $300 million in one year, which sounds strangely similar to the increase that actually took effect. (One big difference: That initial proposal lacked the sunset clause.)

Baker, a Republican, also wanted reforms to the MassHealth program that would curb expenses, to accompany the hit that businesses would take. This goal, along with the efforts made to reach a compromise, helped persuade some business groups to go along — albeit begrudgingly. But those reforms turned out to be a nonstarter in the Democratic-controlled Legislature. So lawmakers passed the new MassHealth taxes without the proposed reforms alongside them.


The temporary EMAC tax hike involved two parts. The first: an increase to a preexisting EMAC assessment, from $51 to as much as $77 per worker. Businesses really didn’t like the second part: an additional charge of up to $750 for each employee who received publicly subsidized health insurance.

Leaders at these business groups aren’t particularly surprised to learn these charges brought in a much bigger haul than expected. Associated Industries of Massachusetts went as far as to push a bill a year ago that called for the Legislature to end the tax hike early. The legislation seemed like a shot in the dark, even from a group as well connected as AIM. But it also made a valid point: OK, Legislature, you got what you wanted, earlier than you thought you would.

Jon Hurst, president of the Retailers Association of Massachusetts, points to one reason the tax haul was so high: The state sometimes collected more than one $750 assessment for the same individual, if that person worked for multiple employers in a particular year. For many retailers, the EMAC hit drove up costs by tens of thousands of dollars.


Hurst noted that small businesses in the state, the ones with fewer than 50 workers, already pay some of the highest premiums in the country.

Chris Carlozzi, the state director of the National Federation of Independent Business, says his members barraged their local senators and representatives with complaints about the EMAC. He says he’s never seen them get so revved up about an issue. They’ll be vigilant, he says, to ensure that an “EMAC by another name” doesn’t emerge at the State House.

The Legislature eventually approved a waiver process, for companies that demonstrated hardships. But those waivers didn’t seem to make much of a dent in the money flow – judging from the final tally of the EMAC windfall.

Baker and his counterparts in the Legislature lived up to their promise that this increase would go away. It turned out to be easier than many expected, after all, to turn off the spigot. But those reforms to control health care costs? For the most part, business groups are still waiting for those.

Jon Chesto can be reached at jon.chesto@globe.com. Follow him on Twitter @jonchesto.