Addressing Health Care Costs

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Governor Patrick    FY 2013 Budget Recommendation:
    Issues in Brief

    Deval L. Patrick, Governor
    Timothy P. Murray, Lt. Governor


The Commonwealth is a national leader in ensuring access to health insurance. More than 98% of residents have coverage, the highest rate in the nation with nearly all children (99.8%) and seniors (99.6%) insured.  This state has been a model for the nation in expanding access to health care services, and now it is taking the lead in controlling costs and improving quality through payment and delivery system reform initiatives.

Title: Insurance Coverage in Massachusetts - Description: This chart shows the percent of insurance coverage for children and total population from 2008 to 2010.
Source: Division of Health Care Finance and Policy

The Patrick-Murray Administration has carefully managed the financing of health care reform.  Independent, non-partisan analysis underscores that the incremental state costs of health care reform have been moderate and in line with original expectations.  Despite this achievement, the total costs of state-subsidized and employee coverage create a difficult challenge for the Commonwealth.  These costs are occupying an ever-increasing share of the state budget as state revenues have declined and the recession has increased demand for subsidized insurance.

From FY 2011 to FY 2012 average enrollment growth in state subsidized health care programs is estimated to increase over 4%, most notably due to the planned integration of the Aliens With Special Status (AWSS) population into the Commonwealth Care program (see section on Commonwealth Care).  Health spending growth for the same period is estimated to be approximately 3.5%. Holding the average annual growth in state subsidized health care costs to 3.5% is a significant achievement.  The historic rate of growth in state subsidized health care costs from FY 2008 to FY 2011 grew over 8%.  As a result of this growth and declining state revenue, health care spending for subsidized and employee coverage programs now account for close to 41% of the state budget.  Based on long term forecasts conducted by the Executive Office for Administration and Finance, were health care costs to continue to grow at these historic rates, they would consume approximately 50% of state spending by 2020.  Health care spending has crowded out key public investments that, among other things, likewise significantly impact the health and welfare of the people in the Commonwealth. The historic trends are also unsustainable for local governments, businesses and families, forcing all of these groups to make difficult choices between paying for health care and other areas of potential investment.

Description: Title: Health Care as % of State Budget - Description: This is a pie chart that breaks down health care spending relative to the overall operating budget. Health care spending, as it pertains to MassHealth (34.7%), Commonwealth Care (2.3%), and the Group Insurance Commission (4%) represents a total of 41% of the state budget.


  1. Spending for Medicaid and Commonwealth Care is not offset by Federal Matching Funds.  In addition, Medicaid spending includes payments to Delivery System Transformation Initiative Payments to safety net hospitals.
  2. Commonwealth Care spending includes the reintegration of the Aliens with Special Status into the Commonwealth Care program
  3. GIC excludes municipalities which are included in the state’s appropriation but are reimbursed by cities and towns for their costs

Health Care Cost Containment Efforts and Progress to Date

The Patrick-Murray Administration has taken a number of steps to successfully control health care costs to date and it is working.  The Administration is moving aggressively to reform the entire health care payment and delivery system to ensure that health care costs are sustainable for government, businesses and families over time.  The successful cost containment initiatives implemented to date and planned for FY 2013 with respect to the Commonwealth’s subsidized and employee health insurance programs are described below.

In FY 2012, the Administration mitigated dramatic increases in health care costs, but also launched major reform initiatives.  Government health care programs faced unprecedented challenges brought on by the impact from the economic recession that drove caseload to historic peaks and increases in health care program costs.  Despite these cost pressures, Massachusetts achieved ground-breaking progress in health care cost containment.  For many of the state’s health care programs – Massachusetts Medicaid program (MassHealth), Commonwealth Care, the Group Insurance Commission (GIC), Municipal Health, and the Medical Security Program (MSP) – the current FY 2012 budget reflects bold changes to achieve significant cost savings while providing continued access to coverage and high-quality care.  These programs are on track to reach nearly over $900 M in savings in FY2012 and going forward. Below are just a few examples of our major achievements in FY 2012:

Bending the Health Care Cost Curve

The Commonwealth will continue to face health care cost pressures in FY 2013.  In the FY 2013 budget the Patrick-Murray Administration proposes a range of reforms that continue to reduce costs but maintain coverage and access to quality health care.  From FY 2012 to FY 2013, the administration is limiting increases in health care spending growth for MassHealth, Commonwealth Care and GIC to an aggregate of 5.1%, even after taking into account significant enrollment growth.  The budget summaries for major government health care entities are described below.

Title: Bending the Health Care Cost Curve - Description: This chart shows the trended rate of growth of health care using actuals from FY08 to FY11, and the offsets in savings for FY12 and FY13 projected. The chart shows a trendline that projects growth without savings and a trendline that projects growth savings. You see a reduction in growth trend after savings in FY12 and FY13.

  1. Costs and savings pertain to MassHealth, Commonwealth Care and Bridge, and the Group Insurance Commission


MassHealth provides comprehensive health insurance to approximately 1.3 million low-income Massachusetts children, adults, seniors and people with disabilities.  The Administration’s FY 2013 budget includes $10.951 B for MassHealth, allowing for approximately 5% spending growth from FY 2012 estimated spending to FY 2013. The Administration also plans to fund $186 M in incentive payments to hospitals under the Delivery System Transformation Initiative, with the federal government providing half of the revenue to support the initiative. (See section on “Build the Foundation for Payment and Delivery System Reform” for more information.)

Enrollment and utilization account for most of the projected spending in MassHealth and are sensitive to changes in the economic climate.  The FY 2013 budget is primarily driven by program wide projected enrollment increase of 2.8% or 38,000 member months.

Title: MassHealth Expenditure and Enrollment Growth FY2008 - FY2013 - Description: This chart compares growth in spending from FY08 to FY13 to growth in enrollment in MassHealth.

In FY 2013, MassHealth plans to once again contain the growth in costs by using a variety of reforms and innovative management and contracting strategies and will also move aggressively on several initiatives aimed at transforming the delivery system and payment methods.  MassHealth is also implementing a number of organizational and policy changes required for timely and effective implementation of the federal Affordable Care Act and to implement the delivery and payment system changes in the 1115 Medicaid Waiver. 

Commonwealth Care

The Commonwealth Health Insurance Connector Authority (Health Connector) administers the Commonwealth Care program. In addition, for FY 2012 the Health Connector, along with the Executive Office of Administration and Finance and the Executive Office of Health and Human Services, oversees the Commonwealth Care Bridge program.  Commonwealth Care provides subsidized health insurance coverage for nearly 160,000 adults under 300% FPL that are not eligible for MassHealth and do not have access to adequately subsidized employer sponsored insurance.  The Commonwealth Care Bridge program, which will end in FY 2012, covers approximately 13,400 legal immigrants that have not met their five year immigration status. Funding for these programs is made available through the Commonwealth Care Trust Fund (CCTF), which is supported by the general fund and other dedicated revenue sources such as the cigarette tax and fair share and individual mandate penalties.

On January 5, 2012, the Supreme Judicial Court held that the Massachusetts statute limiting the eligibility of many legal immigrants for Commonwealth Care violates the equal protection provisions of the Massachusetts Constitution.  The Health Connector is now faced with the challenge of re-integrating the Aliens With Special Status (AWSS) population into the Commonwealth Care program.  The Health Connector estimates that over 24,000 new members, in addition to the 13,400 currently enrolled in Commonwealth Care Bridge, will become eligible for the Commonwealth Care program as a result. This may add as much as an additional $150 M to the annual cost of covering the AWSS population above the current spending on Bridge.  Cost increase will likely begin to take effect in FY 2012 as AWSS members are reintegrated into the program.

Despite the cost pressure, the Patrick-Murray Administration is committed to fully funding the re-integration of AWSS. In an effort to close the budget gap for both FY 2012 and FY 2013, the Health Connector is developing an aggressive cost containment plan for Commonwealth Care focused on procurement savings and other reforms.  The Health Connector’s goal is to achieve this once again without relying on benefit cuts, member co-pay increases, or any other strategies that would severely damage the value of Commonwealth Care.

Group Insurance Commission (GIC)

The Group Insurance Commission (GIC) provides high value health insurance and other benefits to employees, retirees, and their survivors/ dependents of the Commonwealth and of certain of its public authorities. The GIC also provides health-only benefits to participating municipalities' employees, retirees, and their survivors/ dependents. 

Looking ahead, the GIC will continue its focus on providing high quality health insurance coverage to its members while containing costs for the Commonwealth.  Next year the GIC will embark on a major procurement of its health plans.  It will solicit innovative strategies through this procurement to maintain coverage and quality of care while containing costs.  This includes implementing the principles of payment reform and incorporating any changes required by national health care reform.

Total GIC spending in FY 2013 is $1.665 B, inclusive of the $435 M transfer from the State Retiree Benefit Trust Fund (SRBTF) which covers the cost of retiree health insurance.  Spending specific to health insurance premiums and plan costs for active state employees, retirees, and employees of participating municipalities and authorities is $1.582 B, a decrease of .3% from FY 2012 estimated spending.  This includes an anticipated rate increase, and the addition of approximately 7,700 enrollees via municipal health reform.  GIC has reduced spending for state only active employees premiums by 9% or $66 M from FY 2012. The GIC was able to successfully reduce spending in FY 2013 compared to its original projection using several strategies, including leveraging the use of federal Early Retiree Reinsurance Program (ERRP) funds, and working closely with its health plans to negotiate a lower premium increase.

Department of Corrections Health Care (DOC)

The Department of Correction provides medical and mental health care to inmates and civil commitment populations in its care and custody.  The Commonwealth has successfully contained the growth in inmate health care costs since FY 2008.  Without cost containment measures, the cost of inmate healthcare would have increased by 31% since FY 2008, but DOC held that growth to 1% total over those six years.  In FY 2013, inmate healthcare is proposed at $98 M, essentially level funded from FY 2012 estimated spending, despite a projected growth of $7.6 M over FY 2012.  DOC plans to achieve savings through re-negotiation efforts with the inmate health care contractors and maximizing federal reimbursement opportunities for allowable costs.

FY 2013 Health Care Policy Initiatives

In FY 2013, Massachusetts is poised to once again provide a model for the nation by leveraging opportunities to control health care costs that: 1) promote care delivery in lower-cost, high-quality settings; 2) improve the coordination and management of care; 3) expand support for primary care; 4) place a greater emphasis on prevention and 5) promote innovative payment models that reward high-value care instead of high-volume care. With the scale of the health insurance coverage it purchases, the state is well-positioned to capitalize on this opportunity to foster innovation in the health care insurance and delivery systems and contain costs while maintaining coverage and improving quality of care.  The state also has opportunities to achieve greater efficiencies and continuity of coverage within state-subsidized programs by aligning coverage standards and coordinating procurements.  The Administration’s major FY 2013 policy initiatives are described below.

Leverage Purchasing Power and Maximize Competition In State Health Care Contracts

Build the Foundation for Payment and Delivery System Reform

The Patrick-Murray Administration made significant strides in FY 2012 that strengthen the foundation for payment delivery system reform for the next fiscal year. On February 11, 2011 Governor Patrick filed “An Act Improving the Quality of Health Care and Controlling Costs by Reforming Health Systems and Payments”.  This bold, comprehensive payment and delivery system reform legislation will promote the transformation of the Massachusetts delivery system into an innovative care delivery and health care financing model.  In December 2011, the Commonwealth successfully renewed the 1115 Medicaid waiver.  Over three years, the waiver authorizes more than $26.7 B in federally supported expenditures, allowing the Commonwealth to fully fund its landmark health care reform law and to implement integrated delivery system and payment reform initiatives.

In FY 2013, to fully support the goals of payment reform and to promote the transition to integrated care systems, the Administration proposes a number of reform initiatives that support a transition towards value based purchasing, including global capitation and bundled payments, and that promote evidence-based, high quality medical and support services.  These initiatives are significant steps forward that replace traditional fee for service arrangements and build the foundation for the next stage of payment and delivery system reform.

Leverage National Health Care Reform

The Patrick-Murray Administration is moving aggressively to prepare the Commonwealth to take full advantage of the federal health reform legislation, the Patient Protection and Affordable Care Act (ACA), and the major components of ACA as of January 1, 2014.  To date, Massachusetts has received over $186 M in funding as a result of the Affordable Care Act including $36 M for an “Early Innovators” grant to develop the health information technology necessary to develop a real time, integrated eligibility system, and enhance existing Massachusetts systems in order to meet federal guidelines for an ACA-compliant Exchange.  Massachusetts hopes to develop reusable technology components that may subsequently be leveraged by one or more of the six New England states participating in this collaboration.  Some of the major national health care initiatives underway include:

Strengthen Community Long Term Care Services for Elders and Disabled

Long term care is the fastest growing spending category in Medicaid and provides critical services for elderly and disabled populations.  Building on its commitment to the principles of Community First, the Patrick-Murray Administration is transforming the long term care services and supports (LTSS) system through the following core initiatives:

Continue Program Integrity Efforts and Expand Audit Activities To Tackle Fraud, Waste And Abuse

MassHealth is undertaking a number of initiatives focused on ensuring that only eligible members receive services and that providers are only paid for appropriate services provided to eligible members.  These efforts leverage enhanced data and field-based audit activities with a focus on program areas that have experienced rapid growth.

Reduce the Health Care Cost Burden for Small Businesses

Improve the Health Technology Infrastructure

The Executive Office of Health and Human Services (EOHHS), Information Technology Division (ITD), the Health Connector and the Massachusetts e-Health Institute are developing a strategic implementation plan to align IT resources for national health care reform readiness and transition to payment reform.  IT systems are evolving from segmented to integrated based payment methodologies.  The Administration proposes three major components in the health care IT strategic plan:

Promote Wellness

[1] Richard P, West K, Ku L (2012) The Return on Investment of a Medicaid Tobacco Cessation Program in Massachusetts. PLoS ONE 7(1): e29665. doi:10.1371/journal.pone.002966

Prepared by the Executive Office for Administration and Finance ·
For more information email: (617) 727-2040