Massachusetts Governor Pitches Health-Insurance Penalty for Employers

Massachusetts Governor Pitches Health-Insurance Penalty for Employers

Massachusetts Gov. Charlie Baker is aiming to solve what he sees as a flaw in the national health law: Medicaid ends up being more appealing to low-income workers. PHOTO: STEVEN SENNE/ASSOCIATED PRESS

By JENNIFER LEVITZ and MELANIE EVANS
Jan. 25, 2017

Budget proposal is aimed at addressing state’s growing Medicaid rolls

BOSTON—The first state in the nation to require residents to carry health insurance is grappling with escalating Medicaid rolls, but a fix floated by Massachusetts’ Republican governor is drawing pushback from employers.

In the state’s budget released Wednesday, Gov. Charlie Bakerproposed a $2,000 penalty per worker on businesses that don’t shoulder enough of the health-insurance cost, as well as limits on certain hospital prices.

With an employer penalty, the governor is aiming to solve what he sees as a flaw in the national health law: Medicaid ends up being more appealing to low-income workers than insurance offered by employers, raising the costs for the state. The proposal to regulate hospital price increases would make Massachusetts one a few states to do so, along with Maryland and West Virginia.

As employers shift toward lower-cost, high-deductible plans that require bigger out-of-pocket outlays for employees, some lower-income workers in Massachusetts have opted instead for Medicaid, which offers more traditional health coverage and lower upfront costs.

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In Massachusetts—whose 2006 health-care overhaul, adopted under then-Gov. Mitt Romney, served as the model for key planks of the Affordable Care Act—near-universal health coverage is generally a point of pride, yet the state is struggling to manage the fiscal price of health coverage for the 1.9 million Massachusetts residents on MassHealth, the state version of Medicaid. MassHealth consumes nearly 40% of the Massachusetts budget, even with state unemployment below 3%.

The issue arises at a tricky time for governors who are trying to estimate budget outlays for the coming fiscal year when the future of federal funding for expanded Medicaid is in question as Republicans in Washington seek to repeal and replace the health law.

There has long been tension over the best way to provide health insurance, through more regulation or market forces. Republicans have generally favored proposals that lean on the private market. In a December letter to governors, House GOP leaders asked for input on what Congress can do to preserve employee-sponsored coverage.

Employers in Massachusetts are opposed to the proposed penalty, saying it would punish them for a problem they didn’t cause. They believe the state could drive down premiums by doing more to reduce health-care tabs, including steering people away from the state’s most prestigious hospitals for routine care and rolling back legislation that has mandated insurers to cover a range of specialty services and products. Mr. Baker also proposed a series of cost-curbing strategies, including a moratorium on the types of new insurance mandates that worry employers.

“It’s not the fault of employers that we have exploded the Medicaid budget,” said Jon Hurst, president of the Retailers Association of Massachusetts, a trade organization.

Under the governor’s proposal, which needs legislative approval, employers with more than 10 full-time workers would be penalized if they cover less than 80% of their workforce and spend less than $4,950 on employees’ premiums or health savings accounts. Employers with less than 80% of the workforce covered by health plans would face penalties for full-time workers who account for the difference.

Unveiling his budget, he said the ACA had disrupted a Massachusetts health-care law that had worked well.

Initially Massachusetts fined similar employers that didn’t provide health insurance, but repealed that rule in 2013 in light of a parallel ACA employer mandate for larger companies. That ACA mandate was delayed, and while it is now technically in effect, businesses aren’t yet seeing bills or enforcement, said Kathryn Wilber, senior counsel for health policy at the American Benefits Council, a trade organization.

And while the Massachusetts law disqualified people who had access to adequate workplace insurance from Medicaid, the ACA didn’t include that restriction. Massachusetts amended its law to comply with the ACA.

As a result, an additional 118,000 people who work full time and most who were offered insurance at work, enrolled in MassHealth between 2011 and 2015, according to Mr. Baker’s administration.

Around the country, the workplace is still the most common way people under age 65 access health insurance, a trend aided by tax benefits for employers who offer it. But employers say rising premiums are driving them to choose high deductible plans that shift costs to employees—who are then choosing Medicaid.

“People are making rational decisions,” said Richard Lord, the president and chief executive officer of the Associated Industries of Massachusetts, a 4,500-member employer association. “If it’s going to cost them less and they are eligible for a subsidized product, they are choosing to do that.”

Mr. Baker’s proposal also included limits on certain hospital prices, a move intended to hold down rate increases at the state’s priciest health centers. “Prices for certain medical procedures can increase two or three times depending on where they’re performed,” Mr. Baker said at a news conference Wednesday.

The proposal would set limits on prices for privately insured patients. Medicaid and Medicare managed-care health plans would be excluded. Hospitals would fall into one of three groups, from least- to most-expensive. The cheapest hospitals would be exempt from price limits, while the priciest would see no increases. All other hospitals would get price increases up to 1%. Hospitals that participate in health plans with aggressive incentives to manage cost and quality could get additional increases of up to 1%.

State insurance regulators wouldn’t approve health plan rates that paid hospitals more than allowed under the limits. The proposal would apply to rates that begin July 1, 2018.

Massachusetts Health & Hospital Association “has significant concerns” with the hospital price proposals, President Lynn Nicholas said in a statement. The trade group called the governor’s budget “a starting place” for discussions with policy makers.

Write to Jennifer Levitz at jennifer.levitz@wsj.com and Melanie Evans at Melanie.Evans@wsj.com

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