The Taxpayers Foundation has released a new report which debunks this myth. The analysis concludes that the public cost of achieving near universal access has been modest and well within early projections of how much the state would have to spend to implement the reform.

Based on actual and projected spending data for the first four years of health care reform, the Foundation concludes that state budget spending on health reform has grown from a base of $1.041 billion in fiscal 2006 to a projected $1.748 billion in fiscal 2010. That is an increase of $707 million, half of which is supported by federal reimbursements. The $353 million state share translates into an average yearly increase of only $88 million.

The analysis found that new spending for Commonwealth Care and MassHealth was largely offset by decreases in uncompensated care pool payments and in supplemental payments to Medicaid managed care organizations.

Fears that the initial rapid enrollment in Commonwealth Care would continue unabated never materialized. CommCare enrollment peaked at 176,000 members in mid-2008, and the state will spend approximately $800 million on this program in fiscal 2009 compared to the once-projected $1.3 billion.

The key to the reform’s success has been shared participation; employer-sponsored enrollment has increased by 148,000 and the number of individuals buying private coverage directly has grown by 39,000.

The strong growth in privately funded coverage has helped dispel concerns that public programs would replace, or “crowd out,” private coverage. In fact, the Foundation estimates that the added cost to Massachusetts employers for newly insured employees and dependents is at least $750 million – more than double the $353 million increase in state spending since health reform was enacted.

The state is experiencing an enormous fiscal crisis that has everything to do with the collapse of tax revenues and almost nothing to do with the costs of health reform.

Michael J. Widmer
President, Massachusetts Taxpayers Foundation

Contrary to the claims of advocates, the current fair share regulations reflect the carefully crafted compromise that broke the logjam and led to passage of the landmark legislation in 2006. The administration’s rationale for blowing open this hard-earned agreement is that employers aren’t paying their fair share. Let’s look at the facts.

It’s true that people with state-subsidized insurance are paying higher out-of-pocket costs this year – up to $25 million in the aggregate – but the increased price tag for the business community is far more. Not only are Massachusetts employers paying an additional $500 million to cover 85,000 previously uninsured employees and their dependents, but the $35 million being transferred from the Medical Security Trust is paid by employers, and $100 million of the $300 million in new corporate taxes will fund state health-care spending.

The ultimate irony is that the state’s increased assessments on employers, insurers, and providers may be covering a “shortfall” that does not exist. Enrollment in Commonwealth Care has been flat for several months. And even if spending on reform exceeds projections, any shortfall pales in comparison to the enormous shortfall in federal reimbursements that the state may face under the renewed Medicaid waiver.

Based on a false pretext, and for an almost insignificant revenue gain, the administration’s proposed fair share regulations risk a loss of employer support, a fracturing of the political coalition, a likely legal challenge under ERISA, and the abandonment of employee health coverage by many small businesses that are currently keeping up their part of the bargain.

Michael J. Widmer
President, Massachusetts Taxpayers Foundation

- It is essential that state leaders and others get a better handle on the scale and nature of the “problem” that needs addressing. For example, what are the factors that are driving the larger than anticipated enrollment in Commonwealth Care? Is enrollment likely to peak in the next year or will it continue to grow indefinitely? National medical inflation is driving up health costs for everyone so we need to focus on the incremental increase in state spending beyond the norm.

- There is a danger that revenue raising proposals, unless carefully thought through, could undermine the longer term sustainability of health reform. One of the key underpinnings of health reform was to encourage individuals to accept employer coverage. This is working, according to a recent survey by the Massachusetts Association of Health Plans, which concluded that an additional 85,000 individuals enrolled in employer-sponsored coverage in 2007 at a time that employer coverage is dropping in most other states.

- The funding of health reform is part of a large fiscal challenge facing state leaders and should be addressed in that context. The Governor’s proposed budget for fiscal 2009 already relies heavily on one-time or speculative revenues. The impact of the recession on tax revenues will only make the situation worse. The shortfall in funding for health reform is a small part of a much larger fiscal problem.

- Political support for health reform remains strong and a broad spectrum of stakeholders is committed to addressing the issues that have arisen. This spirit of cooperation is critical to the law’s success.

Michael J. Widmer
President
Massachusetts Taxpayers Foundation

The beauty of the Massachusetts law is that it uses a combination of individual and employer incentives and responsibilities to build on our state’s historically high level of employer-sponsored coverage, increasing both the number of insured and the amount employers spend on health care by creating a strong incentive for previously uninsured employees to sign up for employer health coverage. Our study estimates that 50,000 employees and dependents who were previously uninsured will now enroll in employer coverage, increasing employer spending by about $150 million a year. Employers will spend an additional $25 million to offer employees new prescription drug benefits.

Our analysis highlights the fact that employer participation in health reform goes way beyond the so-called “fair share” provisions that have received most of the public comment and have been widely misunderstood. The fair share contribution is specifically tied to equalizing the obligation on employers to pay for free care. It was never intended either to increase employer coverage or to help pay for reform in any significant way.

The Foundation’s report comes on the heels of the Connector’s announcement of new enrollment numbers that include, for the first time, uninsured residents who are signing up for unsubsidized coverage directly with the state’s health plans, in addition to those joining through the Connector. Taken together, these are two more promising signs that health reform is working.

Michael J. Widmer
President, Massachusetts Taxpayers Foundation

In our view, the Division of Health Care Finance and Policy has struck just the right balance – providing a legitimate safety net for low-income individuals who do not have access to affordable coverage on the one hand, while not creating a disincentive for individuals to purchase health insurance on the other.

Reforming the Uncompensated Care Pool, the precursor to the Safety Net Trust Fund, was a driving force behind health reform – moving the uninsured from “free care” into health insurance with its broader range of services and better medical care. The regulations help achieve this goal by promoting enrollment in affordable health insurance coverage in a way that is consistent with MassHealth and Commonwealth Care.

The funding of health reform critically depends on reducing the cost of free care so those dollars can be used to subsidize coverage for lower-income individuals.
The transfer of funds from uncompensated care to an insurance-based system is also an absolute precondition to negotiating a new federal waiver and securing all-important federal dollars that are essential to the success of health reform.

Michael J. Widmer
President
Massachusetts Taxpayers Foundation

Rather, the fair share contribution was specifically tied to equalizing the obligation on employers to pay for free care. Massachusetts employers that provide employee health insurance contribute to the funding of uncompensated care through an annual $160 million insurance surcharge; the very small number of employers that don’t provide coverage, don’t contribute. The agreement captured in Chapter 58 was to level the playing field by having “non-contributing employers” with 11 or more employees pay for the uncompensated care costs of their uninsured employees. The $295 was the per-employee cost of free care in 2005 for all employees working for employers who made no contribution toward their health coverage. Using this same methodology, the amount of the fair share assessment will be calculated each year, an amount that should decline over time as the use of free care decreases.

The law charged the Division of Health Care Finance and Policy with setting a standard that will differentiate between employers that do contribute to uncompensated care and those that do not – the so-called “fair and reasonable” test. The two-step test established by DHCFP – at least 25 percent employee participation in the employer’s plan or a minimum 33 percent employer contribution to the premium – appropriately reflects the intent of the law. The definition was never intended as a standard for what employers should provide; rather, it is a way to determine whether or not an employer is making a contribution to free care.

Those who argue that a 33 percent contribution threshold is too low miss another point. A new employer contribution to employee health coverage, at almost any level, is preferable to a fair share contribution toward uncompensated care; an employer that wants to start offering employee coverage but can only afford to make a modest contribution shouldn’t be discouraged from doing so. A “race to the bottom,” where large numbers of employers that already provide coverage drop their contribution levels to 33 percent, would be a legitimate concern, but with average employer contribution levels now at 75 percent, that’s a dire and, at present, unsupportable prediction.

As I pointed out in an earlier entry, the beauty of Massachusetts health care reform law is that it represents a true partnership of shared responsibility among government, employers, and individuals. The fair share contribution is only a small part of the additional employer responsibilities under health reform.

Michael J. Widmer is President of the Massachusetts Taxpayers Foundation

An estimated 100,000 of the state’s uninsured are working for employers who provide health insurance; the majority of these individuals will take that coverage for the first time under health reform. This will produce a major infusion of additional employer dollars into the health care system – a minimum of $200 million and probably much more. This is several orders of magnitude larger than the estimated $31 million to be raised by the fair
share assessment.

Of course, employers have other major responsibilities as well, such as the obligation to establish a so-called Section 125 plan so employees can purchase health insurance with pretax dollars, and the requirement for many employers to upgrade their health plans to meet the standards of minimum creditable coverage.

The health reform law was built on a strong system of employer-based coverage in Massachusetts, and additional employer responsibilities and dollars will be critical to the reform’s success.

Michael J. Widmer is President of the Massachusetts Taxpayers Foundation

There is a tendency on the part of advocates and others to overreach in both areas – setting the MCC requirements too high and establishing affordability standards that are too broad. Doing either, or both, risks dealing a fatal blow to reform.

One of the key elements of health reform was to bring as many of the uninsured as possible into employer-based coverage. Health reform was never about setting a universal standard for all employers which would disrupt the existing insurance market and force a large group of employers to amend coverage that already provides a good benefit package valued by employees. At a minimum, if the Connector decides to mandate drug coverage, there should be a two-year period to allow employers ample opportunity to make this change.

Similarly, the Connector should resist the temptation to adopt a too sweeping standard of affordability which would have the effect of undercutting the individual mandate and discouraging younger, healthier individuals from buying insurance. It is better to back off on the penalties in the early stages of reform than to exempt too large a group from the requirement to purchase insurance. There is little, if any, likelihood that the state will have the money to broaden subsidies in the years ahead.

Michael J. Widmer
President
Massachusetts Taxpayers Foundation