Looking for ways to trim a looming $1.3 billion state budget gap, Governor Deval Patrick will propose shifting more of the cost of health insurance premiums onto tens of thousands of state employees.
Under his plan, about 37,000 employees would see their monthly premiums increase by 10 percent.
The governor also plans to require the purchase of more generic drugs in the state Medicaid program, and wants to cut Medicaid reimbursements to some hospitals and doctors for additional savings, according to administration officials familiar with the budget.
The early targets of Patrick's budget-cutting will be included when he files his budget proposal on Jan. 23, kicking off a monthslong debate in the Legislature that will highlight the governor's priorities as he enters his second year in office. The budget, for fiscal 2009, will take effect July 1.
The aspect likely to generate the most objection will be a plan to raise the monthly health premiums for 58,000 of 80,000 state employees and their families. The savings would be $51 million.
Right now, most employees pay 15 percent, and the state covers 85 percent. But under the governor's proposal, a three-tier system would be set up with a sliding scale based on annual salaries, according to a draft letter explaining the changes that was scheduled to go out to employees last night.
Employees making less than $35,000 would continue to contribute 15 percent; employees making $35,000 to $50,000 would pay 20 percent; and those making more than $50,000 would pay 25 percent.
For the 37,000 employees who would face the 10 percent increase, that would mean additional monthly costs of $51 for an individual plan and $120 for a family plan. About 21,000 employees would see the premiums increase by 5 percent, while 16,000 would see no change, and 6,000 employees would have a 5 percent reduction. That would be the case for employees who currently pay 20 percent but earn less than $35,000.
The new rate increases would not affect retirees and would bring state employees closer to what private employees pay for healthcare, according to administration officials.
"We will continue to be very aggressive when it comes to ensuring that our members have affordable, quality healthcare coverage," said Jim Durkin, spokesman for the local chapter of the American Federation of State, County, and Municipal Employees.
He declined to comment further until union officials have seen the full details of the plan.
Larger savings would come from restructuring portions of Medicaid, which covers the poor and disabled and is split between state and federal governments. The governor's proposals would save the state $155 million by purchasing more generic prescription drugs and eliminating legislative earmarks that provide additional funding to healthcare providers. The officials would not disclose the details of those cuts. Patrick proposed several of the initiatives last year, but the Legislature removed them.
"This happens every single year," said John McDonough, executive director of the advocacy group Health Care For All. "They come up with these things. Some of them are real, some of them are fiction."
All told, the proposed Medicaid changes would reduce the level of spending by $303 million, but because the program is also supported by federal dollars, it would save the state about half of that, $155 million.
Under the healthcare overhaul package approved in 2006 by the Legislature, hospitals received large increases in Medicaid reimbursements. The hospitals, which have long argued that they are shortchanged under Medicaid, got boosts of $90 million last year and $180 million this year. They are scheduled to get $270 million next year.
"There was a commitment by all stakeholders involved to bring Medicaid rates closer to the actual costs of hospital care," said Rich Copp, spokesman for the Massachusetts Hospital Association. "Any kind of postponement or elimination of Medicaid rate adjustments I think hospitals would really view as state government reneging on their commitment to that part of the reform law."
Patrick also plans to restructure the sheriff's offices in seven counties. Those offices, which have 3,000 employees and are funded by counties through fees paid to the registry of deeds, would become part of the state's Executive Office of Public Safety. The maneuver would do little to boost the state's bottom line next year, but would save about $10 million annually for the counties where the sheriffs serve - Barnstable, Bristol, Dukes, Nantucket, Norfolk, Plymouth, and Suffolk. It would also give the state control over the budgets, which could save money in future years.
In his proposed budget, Patrick is facing the choice of either trimming costs in politically sensitive areas - such as local aid and education - or raising revenue through politically unpopular avenues such as closing corporate tax loopholes.
"This is going to be a very difficult budget year where there are going to be no good and popular options," said Noah Berger, executive director of the Massachusetts Budget and Policy Center.
Patrick last year proposed legislation that would have raised $500 million by closing so-called corporate tax loopholes and $78 million by ending a property tax exemption for telecommunications companies. He also proposed that cities and towns be allowed to boost their budgets by raising local meals and hotel taxes, which could have brought in more than $250 million. None of those were acted upon by the Legislature.
"The cost of inaction is too high," Patrick said Friday at the annual meeting of the Massachusetts Municipal Association, which represents the state's 351 cities and towns. "We are proposing solutions. If our solutions are flawed, fix them. If our ideas are wrong, bring different ones."
The governor kept about one-fifth of the budget items at their current spending levels, according to administration officials.
Patrick is also weighing whether to include projected casino licensing revenues in his budget proposal, despite warnings from key legislators who say it would be unwise, given that the issue hasn't received a formal hearing, much less been approved by the Legislature.
State lawmakers and Patrick administration officials agreed last week that state revenues would grow to $20.987 billion next year, a 3.8 percent increase over this year. Rises in healthcare costs, which make up nearly half of the budget, will more than offset the revenue increases.
Matt Viser can be reached at email@example.com.