Subsidized care plan's cost to double

Enrollment is outstripping state’s estimate
By Alice Dembner
Globe Staff /

The subsidized insurance program at the heart of the state’s healthcare initiative is expected to roughly double in size and expense over the next three years – an unexpected level of growth that could cost state taxpayers hundreds of millions of dollars or force the state to scale back its ambitions.

State projections obtained by the Globe show the program reaching 342,000 people and $1.35 billion in annual expenses by June 2011. Those figures would far outstrip the original plans for the Commonwealth Care program, largely because state officials underestimated the number of uninsured residents.

The state has asked the federal government to shoulder roughly half of the program’s cost from 2009 through 2011, but there is no guarantee of that funding. Commonwealth Care provides free or subsidized insurance for low- and moderate-income residents.

“The state alone cannot support that kind of spending increase,” said Michael Widmer, president of the Massachusetts Taxpayers Foundation, a business-funded budget watchdog group.

Even with federal backing, the state may not be able to afford the insurance initiative as designed, because the law did not make any attempt to trim wasteful health spending, said Alan Sager, a Boston University professor who specializes in healthcare costs.

Currently, 169,000 people have enrolled in the program, which is expected to cost $618 million in the fiscal year ending June 30. When it authorized the program in 2006, the Legislature estimated that about 215,000 people would eventually be enrolled at a cost of $725 million. State officials in late 2006 reduced that estimate to between 140,000 and 160,000 – a number that was surpassed last year.

“We’re paying the price of our own success,” said Widmer.

The administration of Governor Deval Patrick produced the new estimates to launch negotiations for federal funding, and has shared them with some state health leaders at closed-door meetings. Patrick is seeking about $1.5 billion over three years, half the cumulative cost for Commonwealth Care. The administration declined to discuss the numbers or the assumptions behind them, citing the ongoing negotiations.

In a statement, however, the governor’s spokesman, Joseph Landolfi, said, “It is clear that paying for healthcare reform will pose a much greater fiscal challenge than was anticipated by the previous administration. We are committed to making health reform a success by aggressively pursuing cost savings and efficiencies in the healthcare system, as well as working with legislative leaders to review options for additional state revenues so that we can continue to afford this important initiative.”

The expanding need for new state and federal money is in sharp contrast to the statements made by former governor Mitt Romney, when he proposed the initiative in 2004 and as he campaigns for president. He has repeatedly suggested that the state could insure low-income residents largely by reallocating money paid to hospitals and health centers that serve the uninsured.

“The bill that I submitted to the Legislature didn’t cost $1 more than what we were already spending,” he said Wednesday night during a GOP debate. “However, the Legislature and now the new Democratic governor have added some bells and whistles.”

In fact, Romney signed the law in 2006 as modified by the Legislature, approving most of the changes, but vetoing a few provisions that were overridden. Lawmakers then estimated that the initiative would cost the state only a small amount of new money in the first few years. It is now apparent that both Romney and lawmakers underestimated the cost of insurance subsidies as well as other parts of the initiative, largely because they based their projections on low estimates of the number of uninsured and the rising price of insurance. When the law was passed, neither Romney nor the Legislature estimated the costs beyond next year because they believed the enrollment growth would be all but complete.

From the beginning, many health policy specialists said the initiative would cost the state more than expected. Now, some say, the benefits of reaching near-universal insurance coverage may counterbalance the financial pain.

“I wouldn’t say there’s an imminent danger that the whole thing is going to collapse,” said Robert Seifert, senior associate at the Center for Health Law and Economics at the University of Massachusetts Medical School. “It’s challenging, but if it’s a priority for the administration, then I think it’s doable. There are benefits that don’t appear in the budget numbers,” including healthier residents, who are less of a financial drain in the long run.

Government-funded costs of another part of the insurance initiative – expansion of the state’s Medicaid program, called MassHealth – are also projected to grow significantly. The state is also seeking federal reimbursement for half of those expenses.

MassHealth covers the poor and disabled who have minimal financial assets. Commonwealth Care provides free or subsidized insurance to those who don’t qualify for MassHealth but have low to moderate incomes and no access to insurance through work.

Overall, spending on the healthcare initiative will total about $1.95 billion this year. Slightly less than half of that will be funded by the federal government, with the rest coming from state taxpayers and other sources.

If the state doesn’t get all of the federal funds it is seeking, policy makers could face difficult choices: spend more state money or cut back the two programs by reducing enrollment, cutting subsidies, or eliminating benefits.

“We need that [federal money] to be able to continue the effort to provide MassHealth and Commonwealth Care to everyone who is eligible,” said Thomas Dehner, director of MassHealth.

Dennis Smith, the federal official who will negotiate the details of the federal contribution, declined to comment about the state’s request for more money.

The federal government has supported that state’s insurance experiment so far – contributing about $300 million for Commonwealth Care since it began in October 2006 and millions more for other parts of the initiative. But the Bush administration has also been trying to curb federal spending in the Medicaid program, which would be the source of the new money Massachusetts is requesting.

Negotiations on the state’s latest funding request are expected to wrap up by July 1.

The financial pressures come as the state struggles to balance the budget for next year, and as the federal economy appears headed for a downturn. The budget proposed by Patrick on Jan. 23 included money for the first wave of the projected increase in Commonwealth Care – $869 million, a figure some observers suggest may itself be too low because of growing enrollment and healthcare costs. The budget counts on the federal government paying less than half of that total.

There has been no discussion of a tax increase to pay for the healthcare plan.

One architect of the initiative said the state should work to build public backing for the measure.

“I hope that the citizens of Massachusetts are willing to provide the support to maintain our status as the only place in the nation that offers universal coverage,” said Jonathan Gruber, an MIT economist.

Two sources of money that were part of the original financing plan have fallen short, contributing to the budget crunch. As more uninsured residents were covered, the state had expected to shift hundreds of millions of dollars from free care to insurance subsidies, but the drop has been slower than predicted.

Lawmakers had also counted on collecting tens of millions of dollars from businesses that do not insure their workers. But the Romney administration reduced the number of businesses subject to penalties, and the state expects to collect only about $5 million from them this year.

Sager suggested that the state look to another source to make up the difference: multimillion-dollar payments to hospitals that were included in the law to win political support.

“It would be tragic to renege on the law’s promises to cover all citizens of the Commonwealth, especially if those promises can be redeemed by . . . repealing the ill-targeted, unnecessary, and unaffordable Medicaid rate increases to hospitals that are already enormously profitable,” Sager said.
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