What’s the rush on Medicaid reform?

Baker’s proposals deserve thorough, careful review

IN THE SUMMER OF 1972, then-governor Frank Sargent announced a series of steps to gain control over the escalating costs of the Medicaid program, which had been launched only a few years earlier. The annual costs were about $500 million.

Nine governors and almost half a century later, with annual costs now at $16 billion, state budget leaders are still struggling to curtail Medicaid cost growth.

This year alone Gov. Charlie Baker has put forward two very different proposals to address the Medicaid (MassHealth) problem. In January, the governor advanced an ill-begotten proposal to tax employers and place price caps on providers, neither of which actually addressed the dynamics of Medicaid cost growth. The price caps would have further destabilized the Commonwealth’s health care sector.

Wisely, the Legislature ignored the price caps and cut back the employer tax, throwing the ball back into the governor’s lap to develop a more modest and thoughtful tax proposal.

Then at the 11th hour in late June, when the House-Senate conference committee was attempting to reconcile the respective fiscal 2018 budgets of the two branches, Baker suddenly advanced his second MassHealth overhaul (including commercial market reforms), which had no public input and bore virtually no resemblance to the first. When the conference committee ultimately produced a final budget, it accepted the employer tax but did not include Baker’s other provisions. The employer tax had been worked out in discussions with the business community and a version had been included in both the House and Senate budgets. In its final iteration, one of the elements of the new tax was actually tied to the issue Baker highlighted last January – that some employees were declining their employer’s health insurance and enrolling instead in the more generous MassHealth program.

However, the conference committee understandably put aside Baker’s other proposals, which in some respects constituted the most sweeping changes in Medicaid since its inception 50 years ago. The changes in eligibility and benefits would impact several hundred thousand MassHealth recipients, with precious little analysis of the impact or savings. And Baker’s plan to bar certain individuals from MassHealth coverage if they have access to employer-sponsored insurance is unprecedented. Despite widespread claims that this approach restores a provision in the Commonwealth’s 2006 universal health care law, an offer of employer insurance was never a bar to MassHealth coverage.

Rebuffed by the conference committee, Baker on Monday returned the entire package, including the employer tax, to the Legislature, urging lawmakers to act within 60 days. Baker’s move is a sop to the business community, which has argued that the employer tax and the other proposals should be treated as a package, though the Legislature never agreed to such a deal.

The sweeping changes proposed by Baker deserve a broad public airing, with a much better understanding of the impact on MassHealth recipients and a detailed analysis of the potential savings. Most of the savings (other than the tax) would be realized beyond fiscal 2018, and several require federal approval, so it is puzzling that Baker continues to press the Legislature to include his proposals in the 2018 budget. Furthermore, while his proposed commercial market reforms are worthy of consideration, they open up a much larger discussion of further steps to control the growth of health costs in the Commonwealth. It is worth noting that with some exceptions, notably pharmaceuticals, Massachusetts has been quite successful in bringing down the rate of growth since passage of the 2012 cost control legislation.

But the ultimate irony is that the main argument for MassHealth reform — escalating enrollments — is no longer happening. In making the case for reforms in both January and June, the administration said that enrollment growth accounted for 85 percent of the increase in expenditures. In its original budget message, the administration estimated that MassHealth enrollment would reach 1.93 million at the end of fiscal 2017 and 2 million at the end of fiscal 2018. However, from a high of 1,906,004 in October 2016, enrollment dropped to 1,872,955 in May 2017. So it appears likely that the MassHealth caseload has stabilized in the 1.85 million to 1.9 million range, which translates into a savings of several hundred million dollars in the 2018 budget and beyond.

This reality was not lost on House-Senate negotiators when they struggled to put together a balanced budget for fiscal 2018 with a shortfall of some $750 million in tax revenues. They cut $387 million from the governor’s original MassHealth request compared to only $219 million in other reductions across the entire state budget. The Legislature’s final 2018 MassHealth appropriation is about a 4 percent increase over estimated 2017 expenditures, before accounting for the $200 million tax on employers.

Meet the Author
From Frank Sargent to Charlie Baker, Medicaid has grown into the state’s number one fiscal challenge, but for one year it has turned out to be more of the solution than the problem. Baker’s proposals deserve serious consideration, along with other ideas, but the sense of urgency ignores the realities of Medicaid enrollment and the complexity of the issues.

Michael Widmer is the former president of the Massachusetts Taxpayers Foundation.