Health Care Spending

Section I: Introduction and Summary

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.

This is a bar graph that identifies the rate of insurance coverage for children and total population. The data shows the following:

2008 - Children, 98.8%; total population, 97.4%
2009 - Children, 98.1%; total population, 97.3%
2010 - Children, 99.8%; total population, 98.1%

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.  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 in FY13 up from 23% in FY2000. 

This is a stacked bar chart that compares health care spending against spending for other areas in government, from 2000 to 2013. The data is as follows:

2000: 77% other spending, 23% health care
2005: 71% other spendng, 29% health care
2010: 64% other spending; 36% health care
2013: 59% other spending; 41% health care

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.

These are difficult challenges that we must overcome. With every challenge, there is an opportunity and the Patrick Murray Administration has taken advantage of that opportunity. 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 over $800M in savings in FY2012 and going forward. Below are just a few examples of our major achievements in FY 2012:

This is a chart that identifies the total amount of health care cost containment savings in FY12. It shows a total savings of $904 M, and breaks down to the following:

MassHealth: $588 M
Medical Security Plan: $16 M
MuniHealth: $100 M
Commonwealth Care Procurement: $100 M
GIC: $100 M

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.

This chart compares the growth in spending without savings and reduction in spending after savings for FY12 and FY13. The variance shows the impact on reducing the overal cost trend.

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

Section II: Health Coverage


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.

This is a chart that provides average member month growth from FY06 to FY13, for the following population categories of MassHealth members: non-disabled children, non-disabled adults, disabled children, disabled adults, long term unemployed, and seniors.

This chart shows annual spending in MassHealth from FY08 actual to FY 13 projected (in bars).  A line graph that shows growth in enrollment is layered on top of the spending chart to compare growth in spending versus growth in enrollment.

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 offenders 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 offender healthcare would have increased by 31% since FY 2008, but DOC held that growth to 1% total over those six years. In FY 2013, offender 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 offender health care contractors and maximizing federal reimbursement opportunities for allowable costs.

Health Safety Net Trust Fund

Overseen by the Division of Health Care Finance and Policy, the Health Safety Net (HSN) reimburses hospitals and community health centers for health care services provided to low-income uninsured or underinsured residents.  Prior to the enactment of health care reform, this financing mechanism was known as the Uncompensated Care Pool.  The Health Safety Net is financed by dedicated revenues from an assessment on hospitals ($160 million) and an insurer surcharge ($160 million), other offsetting revenues ($70 million), and any state contribution from the General Fund.

Although success in expanding enrollment in health insurance through health care reform has resulted in decreased Health Safety Net utilization and payments, economic pressures from the recession have resulted in increased HSN utilization over the past three years.  An unstable economy naturally lends itself to individuals ‘cycling’ in and out of short-term employment and underinsurance; the trends in the HSN from fiscal year 2011 through fiscal year 2012 reflect these natural increases in the burden on safety net care.

This is a chart that shows the FY11, FY12 projection, and FY13 projections of sources and demand of the health safety net.

To help reduce the burden on hospitals in Health Safety Net fiscal year 2012 (October 2011- September 2012) for providing care to the uninsured and underinsured, the budget provided $30 million in a General Fund contribution to offset 2012 costs.

Despite the unprecedented fiscal challenges of fiscal year 2013, the Administration is maintaining a $30 million General Fund contribution to the Health Safety Net in its fiscal year 2013 budget proposal.  We will continue to closely monitor the Health Safety Net and refine projections for fiscal year 2012 and 2013 demand based upon updated information

Section III: FY 2013 Health Care Policy and Savings 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

The total amount of spending reductions related to the policy and savings initiatives highlighted above total $730M in FY13. This is a combination of costs reductions in the MassHealth, Commonwealth Care, Group Insurance Commission, Department of Corrections and the Department of Public Health. Below is a chart that highlights those savings.

opitions to electronic health record systems in fiscal year 2012. This is a table that outlines the savings initiatives in FY13, which totals $730 M. It shows the following: 

1. Leverage purchasing power and Competition in State Health Care Contracts - $144 M
2. Build the Foundation for Payment and Delivery System Reform - $21 M
3. Leverage National Health Care Reform - $40 M
4. Strengthen Community Long Term Care Services for Elders and Disabled - $37 M
5. Continue Program Integrity Efforts and Expand Audit Actitives to Tackle Fraud, Waste, and Abuse - $44 M
6. Other Savings - $188 M
7. Payment strategies - $256 M

[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