Despite lingering questions about compliance obligations and potential market fallout, health insurers and employer advocacy groups in Massachusetts largely support a new state law designed to limit escalation in medical care costs.

Scheduled to take effect on Nov. 1, Massachusetts' health care payment reform law will hold health care providers and insurers jointly responsible for maintaining annual medical cost growth rates in proportion with the rate of growth in the state's overall economy.

The law also contains provisions aimed at driving a statewide reduction in fee-for-service contracts favorable to accountable care organizations and other outcomes-based health care delivery models, as well as tax incentives for employers that promote wellness and health management.

Since its Aug. 6 ratification by Massachusetts Gov. Deval Patrick, representatives of the state's largest private health insurers have said they support the new law, though they are still weighing the practical implications of its requirements.

“The legislation includes a number of important provisions that will complement and even accelerate affordability-related initiatives already under way in the market,” Andrew Dreyfus, president and CEO of Boston-based Blue Cross Blue Shield of Massachusetts, said in a statement. “These include significant changes to the health care payment system that reward quality and efficiency, greater transparency for consumers, reforms to the existing medical malpractice system and, for the first time in the nation, a specific medical spending target to ensure that health care spending grows no faster than the rest of our economy.”

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Under the law, the annual growth rate of medical expenditures in the state will be capped according to the state's projected gross state product in a given year. Although the cap will be a measure of aggregate medical costs, state regulators will use the prescribed growth rate as a basis for expenditures reported annually by individual providers, provider organizations and health insurers.

If an entity's year-over-year medical cost growth exceeds the prescribed rate limit or is otherwise deemed “excessive,” that company will be required to submit and implement a performance improvement plan to be approved, published and monitored by the state.

Failure to submit an improvement plan, or failure to implement the plan “in good faith,” could result in fines of up to $500,000. Observers also noted the considerable reputational harm to the individual entities that might result from publishing the improvement plans on the state's website.

“Certainly, there are things that we need to do that are a little bit different than we've done them, but I don't think anything on that to-do list jumps out as being particularly troublesome or onerous,” said William Graham, vice president of policy and government affairs at Wellesley, Mass.-based Harvard Pilgrim Health Care Inc.

Mr. Graham noted that, among other things, the state has not yet revealed the specific reporting requirements providers and insurers will need to meet.

“There are a number of things in the law that will generate work for us that we really need the government to promulgate regulations and interpretations on before we can do anything,” Mr. Graham said. “The state is going to need a whole bunch of data to determine if we're actually meeting those goals, and we're anticipating a decent-size work effort on our part to generate the data and reports that need to be turned in to the state,” she said.

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Employer groups have been similarly supportive of the legislation.

Aside from the broader aim of reining in price escalation, the law expands exemptions from certain penalties contained in earlier health care reform legislation and includes tax breaks for employers to create incentives for workplace wellness programs.

“Essentially, what it's done is change the way some of the 2006 penalties are calculated so that small employers aren't getting overly taxed,” said Alden Bianchi, group leader of the employee benefits and executive compensation practice at Boston-based law firm Mintz Levin Cohn Ferris Glovsky & Popeo P.C.

Under the fair share contribution rules of the 2006 law, businesses with more than 11 full-time equivalent workers that do not provide sponsored health care must pay as much as $295 per employee. Businesses with fewer than 50 employees that do provide health care must demonstrate that at least 25% of their employees are enrolled in the plan.

The new law raises the threshold from 11 employees to 21, and allows employers to exclude workers who are covered under another health plan — through a spouse, Medicare or other means — from their count, making the 25% enrollment minimum for payrolls under 50 full-time workers more attainable.

“Those rules have made it a little bit easier for small and midsized businesses to meet the tests of the fair share provisions of the existing health care reform law,” Mr. Bianchi said.

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The new law also allows businesses, professional partnerships, sole proprietorships and other entities to deduct 25% of their annual wellness program costs from their state tax bills, up to $10,000 per year. Qualification for the tax credit will be determined by employers' compliance with existing regulations for state-sponsored wellness programs.

“From an employer perspective, it all makes sense to us, because having a healthy workforce leads to a more productive workforce,” said Shawn Nowicki, policy director for the New York-based Northeast Business Group on Health.

The law does have its critics, however.

Jim Stergios, executive director of the Boston-based Pioneer Institute, said he is worried that compliance costs, fees and penalties associated with the law would be passed on to employers and individual consumers.

In addition, analysts at New York-based Moody's Investors Service Inc. said last month that they believe the law would damage the state's hospital industry by limiting revenue growth and reducing operating flexibility.