US health overhaul could penalize Mass.

State’s system provides higher subsidies than some plans Congress is weighing

By Lisa Wangsness
Globe Staff / November 1, 2009

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WASHINGTON - Massachusetts’ landmark 2006 health care overhaul law provided the model for the national legislation now under construction in Congress. Now state officials are working to make sure the federal proposals don’t undermine the state’s pioneering system - and that Massachusetts isn’t penalized financially for being first.

Under some versions of the federal legislation, Massachusetts could face pressure to reduce the subsidies it now provides to low- and middle-income residents who get insurance under the state system, a study commissioned by the Blue Cross Blue Shield of Massachusetts Foundation found.

That is because the proposed federal subsidies are less generous, particularly under the bill passed by the Senate Finance Committee. If such a bill passes, Massachusetts could be forced to choose between scaling back sharply to match the federal payment levels, jockeying for a special deal from the federal government, or dipping even more deeply into state taxpayer dollars to make up the gap.

The Senate Finance Committee bill also could end the Massachusetts Health Insurance Connector Authority’s ability to aggressively bargain with insurers on behalf of consumers and taxpayers, turning it into a toothless agency - little more than a Yellow Pages listing of insurers. State officials say that could increase the costs of subsidized insurance significantly.

None of these risks for the state are written in stone, as the various versions of the federal legislation compete for votes. And some of the proposals could benefit the state. The House bill unveiled last week, for instance, provides for approximately $400 million more for Massachusetts each year in Medicaid payments which would help underwrite health care reform here.

“It’s not a matter of saying Massachusetts deserves special treatment, but of figuring out how states that already exceed what is likely to be in the final bill can stay there,’’ said Robert Seifert a senior associate of the Center for Health Law and Economics at the University of Massachusetts Medical School, who wrote the Blue Cross Foundation analysis of the bills passed by five congressional committees over the past several months.

Last week, the Blue Cross Foundation gathered about two dozen of the state’s major health care players and policy makers at the University of Massachusetts Club in Boston to begin discussing the potential ramifications of the emerging federal law.

“Out of that came some concern about flexibility,’’ said Phil Johnston, chairman of the foundation’s board. “We collectively feel strongly in the state that we have a good thing going, and that the federal government has been a partner . . . and we want to make sure that continues.’’

Massachusetts began its landmark quest to cover all of its residents three years ago, and it has been seen as a laboratory of ideas for health efforts across the country. The subsidies the state offers to moderate-income families who make too much money to qualify for Medicaid, but who cannot afford insurance on their own, is a crucial piece of the puzzle. But to help offer the expensive subsidies, the state has had to resort to the bureaucratic equivalent of duct tape and baling wire, piecing together a series of complex funding schemes that combine Medicaid money, state funds, and even money from the federal stimulus.

State officials and advocates warn that it is far too early to draw firm conclusions about how the federal proposals would affect Massachusetts. The House just released its final bill on Thursday, and the Senate is still melding the Finance Committee’s proposal with one crafted by the Committee on Health, Education, Labor and Pensions.

Generally speaking, all of the congressional proposals follow the broad outlines of the Massachusetts system - people who don’t get insurance through work could turn to an “exchange,’’ modeled on the Massachusetts Connector, to buy coverage; depending on income, they could qualify for government-subsidized insurance. But Massachusetts already provides its low-income residents with more comprehensive insurance coverage for much lower prices than the federal bills would: Replicating the Massachusetts system nationwide would be too expensive.

For example, a Massachusetts family of three earning $45,775 a year can purchase subsidized insurance through the Commonwealth Care program for $154 a month. Under the Senate Finance bill, which has by far the least generous subsidies, that family would have to pay $362 a month, according to charts compiled by Community Catalyst, a national health care advocacy group based in Boston.

“One [issue] is, are we allowed to exceed federal minimums; how much flexibility will we get?’’ said Anya Rader Wallack, the interim president of the Blue Cross Foundation and a Medicaid specialist. “And then there’s [the question of] who picks up the tab for exceeding those minimums.’’

Aides to the state’s congressional delegation noted that Massachusetts is already digging deep into its own accounts to help fund its health care system. The state will spend roughly $350 million more in 2010 than it was paying in 2006 to maintain its health care system, according to the Massachusetts Taxpayers Foundation. Nothing in the federal legislation would prohibit states from using their own money to go beyond the federal standards, according to the aides’ analysis, and that could help make up the difference. They also note that all the federal proposals so far would provide subsidized insurance for people earning up to 400 percent of the federal poverty level - Massachusetts provides help only for those earning up to 300 percent. But the bottom line for Massachusetts is hard to quantify because the state has developed its system through a special arrangement with the federal government, known as a Medicaid “waiver,’’ outside of the regular Medicaid rules. That makes it impossible to calculate exactly how much Massachusetts would gain or lose overall. Further complicating the picture, the current Massachusetts waiver expires in 2011, two years before much of the new federal law would take effect, so it would have to be renegotiated during an awkward interim period.

The House bill would send Massachusetts roughly $460 million in Medicaid money in each of the first two years and $380 million a year thereafter for Massachusetts, plus an additional one-time payment of $350 million to $650 million, according to the office of US Representative Edward J. Markey, Democrat of Malden, which said it obtained the figures from state Medicaid officials. The House bill would also let Massachusetts run its Connector independently rather than force it to join a new national exchange, aides said.

“The House bill is a good deal for Massachusetts, period,’’ said Markey, an influential member of one of the main House committees in charge of the health care bill. “If it wasn’t, I wouldn’t support it.’’

The jury is still out on the Senate side. John Kerry, a Massachusetts Democrat and member of the Senate Finance Committee, is leading a group of senators from states with more expansive Medicaid programs in seeking an additional 3 percent federal match, which would mean about $30 million extra a year for Massachusetts, according to his office.

“This investment is one our states are proud of, and was the right thing to do,’’ wrote Kerry, Senator Paul Kirk, and a dozen other senators in a letter to Senate leaders. “But now, our constituents’ tax dollars will not only go to sustaining our own state programs, but will also go to states around the country that have consistently ignored the health care needs of their low-income residents, without any acknowledgement of our original investment. This is unacceptable.’’

Correction: Because of a reporting error, a Page One story in Sunday's Globe about the potential effect of the national health overhaul on Massachusetts misstated the amount of additional Medicaid money the state would get from an extra 3 percent federal match sought by Senator John F. Kerry. The average annual figure over 10 years would be an estimated $300 million, according to his aides.