Baker’s health care tax is bad policy

It’s also not fair and a misreading of history

IN AN ERA OF ALTERNATIVE FACTS, a bit of revisionist history may seem like a small sin. But in the case of Gov. Charlie Baker’s proposed tax on employers who don’t offer a high level of health insurance, a misreading of history can have serious consequences.

The governor claims that the “assessment” represents a revival of the fair share contribution that was critical to passage of the state’s landmark 2006 universal health care law. In fact, his proposal is strikingly similar to a tax on employers that was included in the House version of the legislation, a provision that actually blocked consensus for many weeks in late 2005 and early  2006 and threatened to torpedo universal coverage. The Senate version did not include any such tax.

The logjam was broken when the employer community developed a very different proposal, the so-called “fair share” assessment, which was specifically intended to equalize employers’ responsibility to pay for uncompensated or free care for the uninsured. The $295 assessment was based on the average amount of free care used by employees working for employers who did not contribute anything to their employees’ health coverage and to uncompensated care.

The distinction is important for several reasons. Beyond the fact that the governor’s proposal is not fair, it risks breaking apart the broad consensus that has allowed the Commonwealth to make important strides on health care access and cost control, even while there have been intramural disputes among the many stakeholders.

More important, the governor’s proposed tax is bad policy. The past seven Massachusetts governors, with varying degrees of urgency, have attempted, largely unsuccessfully, to gain control over the ever-growing Medicaid expenditures which have consumed an ever-larger share of the state budget.

Clearly this administration is under great pressure to control Medicaid costs so it can fund the countless other important programs supported by the state budget. But the tax is a one-year fiscal fix that doesn’t address the underlying drivers of Medicaid enrollment.

The governor contends that the employer share of health coverage in the state is dropping while the Medicaid share is growing. That appears to be the case, but the administration has provided little data on the cause.

Employers in Massachusetts do not appear to be dropping health care coverage in any significant way. What appears to be happening is that some employees are choosing richer Medicaid benefits rather than the insurance offered by their employers. This is likely a direct result of the federal Affordable Care Act (ACA) which raised the income eligibility for Medicaid benefits. In other cases, employees are working part-time and do not qualify for their employer’s coverage.

The proposed employer tax will do nothing to address this migration. It will not incentivize employers who do not offer coverage to do so. Worse, it will likely penalize thousands of employers who already provide health benefits for their employees.

In order to avoid the tax, employers would need to pay at least 60 percent of the premium cost, and 80 percent of full-time employees would need to accept their employer offer. With so many two-earner families, many employers who offer good health benefits would be forced to pay the tax. Not only would that discourage hiring but it will encourage some employers to scale back coverage since they would be paying the tax in any case.

From a fiscal perspective, the estimated $300 million to be raised by the tax will help balance the state’s fiscal 2018 budget but will do nothing to address Medicaid’s relentless cost growth. Think of it as a one-year Band-Aid that allows the administration to propose increases in local aid and other areas. In fiscal 2019 and beyond, the $300 million will be baked into the budget and there will be no new revenues to cushion Medicaid’s growth.

Another element of the governor’s proposal purports to deal with the long-term but is equally misguided, namely, price caps on payments to providers by commercial health insurance plans. Not only is there a long record of failure of this kind of blunt intervention by government in the health care arena, but the administration is targeting a sector that has come in below the state’s cost control benchmark. Spiking pharmaceutical prices and Medicaid enrollment are the primary drivers of growth above the benchmark.

In a further irony, the Baker administration’s relentless squeezing of Medicaid payments to providers (which are well below a hospital’s costs) has put pressure on commercial rates that the administration now wants to regulate. The health care sector in Massachusetts is under more serious financial pressures than is widely recognized, and state government is exacerbating the problem.

Meet the Author
As difficult as the Medicaid problem is today, it may get a lot worse if the Trump administration follows through on its destructive health care agenda. The Legislature and the governor may shortly face vastly more serious challenges that will require exceedingly difficult decisions in order to protect our citizens and health care institutions.

Michael Widmer is the former president of the Massachusetts Taxpayers Foundation, a business-backed group that monitors the state’s finances.