Governor Deval Patrick's Budget Recommendation - House 2 Fiscal Year 2009

Governor's Budget Recommendation FY 2009

Health Care Reform

Including a section discussing the implementation and costs of the Commonwealth's historic health care reform law in this document reflects the fact that health care reform is a signature initiative for Massachusetts. The Commonwealth is leading the nation in expanding health coverage for the uninsured, with the goal of offering high-quality, affordable coverage to nearly every resident of our state.

Discussing health care reform in this document also reflects the fact that this initiative has considerable financial implications for Massachusetts. Even with success in realigning some state investments from funding sporadic uncompensated care to providing subsidized health insurance, health care reform has clearly required new financial commitments on the part of state government. The fiscal year 2009 budget reflects both the Administration's continuing commitment to the success of health care reform and also the growing public costs of this ambitious endeavor.

Progress to Date

In April of 2006, Massachusetts enacted groundbreaking health care reform legislation aimed at making affordable health coverage available to nearly every citizen of the Commonwealth. Since health care reform was signed into law, a broad array of stakeholders - including providers, insurers, businesses, advocacy and community organizations and government agencies - have worked together to implement this historic legislation. As a result of these efforts, in less than two years, it is estimated that over 300,000 previously uninsured residents have gained access to health coverage and care.

Health care reform included many strategies to expand coverage and access to care for the uninsured, including expanding eligibility for health insurance through our state's subsidized MassHealth program and restoring MassHealth coverage for benefits that had previously been scaled back. The MassHealth program has taken significant steps to enroll residents who are eligible for coverage, including nearly 24,000 children (for whom income eligibility was expanded under health reform).

Lower-income individuals have also secured health insurance through the new Commonwealth Care program, which offers subsidized coverage to residents whose incomes are at or below 300% of the federal poverty level. As of January 1, 2008, over 169,000 residents have signed up for coverage through Commonwealth Care - reflecting greater-than-expected success in enrolling eligible individuals in this program and offering them new opportunities to access affordable care.

Health care reform not only offered new opportunities for subsidized coverage to low-income residents but also made significant reforms to the insurance market to reduce the cost of commercial insurance for residents who are not eligible for publicly-supported coverage. Residents between the ages of 18 and 26 who do not have access to insurance can sign up for new, more affordable Young Adult Plans (YAPs) through the state's Health Connector. The legislation also combined the individual and small group insurance markets, expanding the risk pool for coverage and stabilizing prices for this group.

Health care reform allowed for new products to be offered through the Health Connector to individuals and families whose income exceeds eligibility for Commonwealth Care but who do not have access to employer-sponsored insurance. Six of the state's major health insurance carriers offer health plans through the Health Connector's Commonwealth Choice program. As of January 1, 2008, nearly 16,000 residents had enrolled in Commonwealth Choice plans.

Health care reform also includes an "individual mandate," requiring adults who can afford health insurance to have coverage or pay a tax penalty. For 2007, the penalty for adults who did not have health insurance coverage in force as of December 31, 2007 is the loss of their personal tax exemption (a penalty of $219 per individual). Residents will indicate whether or not they had health coverage as of that date (or were exempt) when completing and submitting their 2007 tax forms in early 2008. For 2008, penalties will increase substantially and accrue for every month an adult lacks health coverage.

In addition to requiring individuals to maintain health insurance coverage, health care reform also imposes new responsibilities on employers. Employers with eleven or more full-time employees must make a fair and reasonable contribution to their employees' health insurance or pay an annual assessment to the state (this is known as the "fair share" requirement). They must also allow their employees to pay their portion of health premiums on a pre-tax basis (pursuant to Section 125 of the Internal Revenue Code).

Funding in Fiscal Year 2009 H.2 Recommendation

The Administration has invested over $2.6 billion in health care reform in House 2, reflecting its strong support for this groundbreaking initiative. House 2 includes:

  • nearly $900 million within MassHealth appropriations to continue funding for the MassHealth eligibility expansions and benefit restorations included in health care reform and provide the final year of statutorily specified rate increases for providers.
  • $869 million for Commonwealth Care to provide coverage to nearly 225,000 residents.
  • $453 million to provide care through the Health Safety Net Trust Fund as an essential safety net for residents who do not at this time have access to affordable health insurance coverage.
  • $439 million to provide supplemental payments to several safety net hospitals, including $160 million in supplemental payments required by S.122 of the health care reform legislation. Other supplemental payments are funded through the Medical Assistance Trust Fund and Essential Community Provider Trust Fund and are intended to encourage coordinated, community approaches to providing care to areas with high concentrations of MassHealth and Commonwealth Care enrollees.

Areas to Watch

Health care reform is an unprecedented initiative. In implementing all aspects of health reform, we are cognizant that Massachusetts is breaking new ground; that we will learn much about its impact and costs during the actual course of implementation; and that we must maintain the flexibility to adjust and adapt based on actual experience and data.

Along these lines, we are continuing to monitor funding needs for health care reform in light of the actual experience of implementation, examining factors such as levels of enrollment in health insurance and the utilization and cost of services.

  • Enrollment in Commonwealth Care has been very strong to date, already significantly exceeding initial fiscal year 2008 year-end estimates. The Administration and the Connector will continue to monitor actual enrollment in Commonwealth Care over the next few months to better assess year-end enrollment and cost scenarios. The Administration's fiscal year 2009 budget is based on revised, more recent enrollment scenarios for Commonwealth Care for fiscal years 2008 and 2009.
  • Based on filings received thus far, year-to-date fiscal year 2008 "fair share" liability for businesses totals slightly over $5 million, relative to $23.9 million estimated in the budget for fiscal year 2008 as a whole. The Administration has assumed $5 million in "fair share" revenues for fiscal year 2009, a conservative estimate consistent with revenues received to date under the Division of Health Care Finance and Policy's current "fair share" regulations.

Among other things, these developments are causing health care costs to consume an ever-growing portion of the state budget. In fiscal year 2008, health-related costs accounted for 45 percent of the state budget, not counting the portion of Local Aid that effectively funds rapidly escalating municipal employee health insurance costs. It is critical that we "bend this cost curve" in a more sustainable direction, so we can continue on the path of expanding health insurance coverage and also have sufficient resources to invest in other public priorities.

The fiscal year 2009 budget does contain over $300 million in gross savings (over $160 million in net savings) in the MassHealth program, achieved by paying providers fair and accurate rates for health services, providing the right care in the right setting, and more efficiently managing the costs of prescription medications. However, we will need to make additional progress in containing health care costs, requiring resolve from everyone who has a stake in the success of health reform and the capacity of state government to address the full range of challenges facing Massachusetts. The Administration looks forward to working collaboratively with the Legislature and other stakeholders to make historic progress in making health care more affordable for government at every level, businesses, and our families.

As it wrestles with the challenge of health care cost containment, the Administration also continues to work with stakeholders to implement and monitor the impact of other provisions of health care reform. For example, the Department of Revenue is beginning to process 2007 tax returns - on which residents will indicate whether or not they had health insurance as of December 31, 2007. Individuals who did not have health coverage as of that date and face the loss of their personal tax exemption based on state affordability guidelines may file appeals with the Connector. DOR has also issued a draft schedule of monthly tax penalties for 2008, based on one-half the cost of the least expensive health plans available through the Connector this year.

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