State health plan underfunded
Finance secretary seeks proposals on closing gap

By Alice Dembner, Globe Staff  |  March 21, 2008

The state's new subsidized health insurance program will cost
"significantly" more than the $869 million Governor Deval Patrick
proposed in his 2009 budget just two months ago, the state's top
financial official said yesterday, after insurers were granted an
increase of about 10 percent.

To close the gap, the Patrick administration has asked insurers,
hospitals, healthcare advocates, and business leaders to propose ways
to cut costs and raise revenue. During two closed-door meetings in the
last two weeks, several dozen proposals have been put forward,
including raising assessments on insurers, hospitals, and businesses.
The goals are to solve the short-term funding problem for next year
and ensure the long-term survival of the state's near-universal health
insurance initiative.

Leslie Kirwan, secretary of administration and finance, declined
yesterday to discuss specifics of the proposals or the size of the
budget gap, but said that without changes, the state doesn't expect
"to be able to live within" the proposed budget.

A state panel yesterday approved a contract to pay insurers about 10
percent more for each person enrolled in the subsidized insurance
program, starting July 1. The insurers had asked for about a 15
percent increase, but agreed to take less after weeks of negotiations.
Still, the state's cost is higher than was included in the governor's
budget. Under the contract, the state also would assume more of the
financial risk if the enrollees were to use more medical care than
expected.

To partly offset the increased costs, the panel yesterday also voted
to raise premiums by 10 percent for some of the 176,000 people
enrolled in Commonwealth Care, and to increase copayments for many
more. Starting July 1, the lowest premiums will range from $39 to $116
per month.

"We have closed some of the fiscal gap here, but we have not closed
most of it," Kirwan said during the meeting at which the Commonwealth
Health Insurance Connector approved the contract and premium
increases.

Kirwan said the gap also is because of increased enrollment, now
expected to exceed projections for both the current fiscal year and
the next, which will begin July 1. Paradoxically, enrollment dropped
slightly last month, because the state has begun disqualifying people
who became ineligible because of changes in income or access to other
insurance. But that is expected to be a temporary downturn. The budget
figure of $869 million already was significantly higher than projected
by legislative architects of the plan because of the enrollment boom.

Healthcare advocates vehemently had opposed increased premiums and
copayments for enrollees, which were first proposed in February. They
argued that the insurance would become unaffordable for many of the
low-income people it was designed to serve and that it was unfair to
ask enrollees to pay more without also asking more of businesses,
hospitals, and insurers.

The administration muted its criticism by negotiating slightly smaller
premium and copay increases, and by agreeing to seek similar but
unspecified "sacrifices" from other parties.

"We're still disappointed that, at this point, the only ones making
the sacrifices are enrollees and taxpayers," said the Rev. Hurmon
Hamilton, president of the Greater Boston Interfaith Organization, a
group of congregations that advocates for healthcare access. "But the
administration is very committed to seeing all the stakeholders do
their share. That's where the fight goes now."

Hamilton and other advocates pointed to private health insurers and
some hospitals that they said are benefiting greatly from healthcare
reform through additional members and insured patients. Some suggested
that both insurers and hospitals should contribute more than the $160
million each they now pay annually to the state's free-care pool,
which pays for hospital care for the uninsured. Money is being shifted
from the pool to help pay for subsidies.

Advocates also said the state needs to get more money from businesses
that are not providing insurance for their employees. A penalty on
those businesses - of up to $295 per uninsured employee per year - has
raised only about $6 million this year, far less than originally
expected.

"Healthcare reform is not sustainable financially and it's also not
sustainable politically if the best we can do is more taxpayer money
and shifting costs to consumers," said Nancy Turnbull, an associate
dean at the Harvard School of Public Health and member of the
connector board. "We have to find other ways [to raise money and
control costs] and we have to find them very quickly."

Kirwan declined to say that the state was targeting any particular
sector for help. Most of the groups that helped the state pass
healthcare reform two years ago are participating in the
administration-led discussions about addressing the cost of
Commonwealth Care. Yet, convincing them to cough up more money will
not be easy.

Organizations representing insurers, businesses, and hospitals said
yesterday they were already doing a lot. "The employer community is
picking up its fair share," said Richard Lord, president of Associated
Industries of Massachusetts and a member of the connector board. More
than 85,000 employees were newly insured by employers last year,
according to data released yesterday by the Massachusetts Association
of Health Plans.

"This is successful because everyone has done something," said Tim
Gens, senior vice president for policy at the Massachusetts Hospital
Association. "We're willing to consider doing more," if everyone else
is.

For members of Commonwealth Care, the premiums will go up 10 percent
on average. For example, people with incomes between $21,000 and
$26,000 who are now paying $70 per month, will pay $77. Only those
with incomes more than about $15,000 pay any premiums.

Copayments will rise $5 for a primary-care doctor's visit, to $10 for
some patients and $15 for others. Copayments for drugs also will rise.
For enrollees at the highest income levels covered in the program -
individuals making between $26,000 and $31,000 a year - copayments for
use of the emergency room and for outpatient surgery also will rise.
For the first time, there will be caps on out-of-pocket expenses for
all medical care, excluding medicines, of $750 or $1,500, depending on
the individual's income. They placed a separate cap on medication
expenses.

The copayments and premiums originally proposed would have raised
about $30 million in revenue, according to Celia Wcislo, assistant
division director of labor union 1199 SEIU and a member of the
connector board. She said the revised schedule shaves off nearly $10
million, which she called a substantial concession to the concerns
raised by advocates.

Underlying the discussions yesterday was the issue of rising
healthcare costs statewide. State Medicaid director Thomas Dehner,
also a connector board member, said the healthcare reform law had
accelerated the increase by providing care for more people and
increasing the rates the state pays hospitals and doctors.

Board member Dolores Mitchell, who manages health insurance for state
workers, said the state has to focus on "wringing the excess
costs . . . out of the system. Everybody wants an omelet, but nobody
wants to break some eggs."

Alice Dembner can be reached at dembner@globe.com.