Health Care Cost Containment

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Governor Patrick    FY2012 House 1 Budget Recommendation:
    Issues in Brief

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



Governor Patrick’s and Lieutenant Governor Murray’s fiscal year 2012 budget seizes the moment to achieve ground-breaking progress in health care cost containment – with a vision for maintaining the Commonwealth’s historic coverage gains and high-quality care while making health care spending more affordable for the state and taxpayers.  For each of the state’s health care programs - MassHealth, Commonwealth Care, the Group Insurance Commission and the Medical Security Program – the budget proposes bold changes emphasizing the power of competition and innovative contracting to promote continued access to coverage and high-quality care while achieving significant cost savings.  The Administration’s goal is to leverage the state’s immense purchasing power to be a force for rewarding models that provide cost-effective, high-quality coverage and care to those who rely on state health insurance and better coordinate government’s health care purchasing decisions. It would maintain eligibility for all state-subsidized health insurance programs - under the most generous eligibility standards in the nation (see below).

Bar graph displaying the national median Medicaid/CHIP income eligibility threshold compared to Massachusetts by population. Massachusetts covers additional programs that traditional Medicaid does not for childless adults, HIV patients, insurance partnership, and breast and cervical cancer coverage for women. In traditional Medicaid categories for children, pregnant women, and parents, Massachusett eligibility standard are significantly broader than the national median.

Note: Medicaid income eligibility for most elderly and individuals with disabilities is based on the income threshold of Supplemental Security Income (SSI).SOURCE: Based on a national survey conducted by the Center on Budget and Policy Priorities for Kaiser Commission on Medicaid and the Uninsured, 2009.

* Senior and disabled individuals can be up to any income if they meet a certain buy-in criteria.

Separately, the Administration is planning on filing comprehensive payment reform legislation in the coming weeks that will, across the health care delivery system, promote movement away from “fee-for-service” payments to providers towards “global payments” and other models that better reward evidence-driven, coordinated, preventive care.  In combination with the Administration’s budget initiatives, this legislation will place Massachusetts squarely in the forefront of national efforts to contain health care costs while ensuring high-quality coverage and care.


The Massachusetts Medicaid program (MassHealth) provides comprehensive health insurance to approximately 1.29 million low-income Massachusetts children, adults, seniors and people with disabilities. The Administration’s fiscal year 2012 budget includes $10.34 billion for MassHealth, essentially level funding from the fiscal year 2011 estimated spending level of $10.24 billion. Due to tremendous fiscal pressures in fiscal year 2012 stemming principally from the loss of more than $1.5 billion in federal stimulus funds, the Administration established aggressive spending targets for all state programs, in many cases reducing funding below fiscal year 2011 levels.

Massachusetts is not the only state with a Medicaid budget that has experienced exceptional growth. Medicaid budgets across the nation have experienced unprecedented spending increases. Enrollment in Medicaid historically mirrors trends in the economy, with more individuals turning to public assistance during tougher times. Total national Medicaid spending growth averaged 8.8% across all states in fiscal year 2010, and spending is expected to increase by 7.4% in fiscal year 2011. Enrollment growth averaged 8.5% nationally and is expected to decrease to 6.1% in fiscal year 2011.[1]

Enrollment and utilization are the greatest cost drivers in MassHealth and are sensitive to changes in the economic climate. From fiscal year 2008 to fiscal year 2010, long-term unemployed adults (unemployed for 12 months or more) represented the fastest growing population in Medicaid, increasing by an average of 16.6% each year. Non-disabled adults represent the next highest category of growth, increasing by an average of 4.44%. Overall, from fiscal year 2008 through fiscal year 2011, MassHealth enrollment grew by approximately 146,000 people.

MassHealth Average Enrollment (by member months)
Population Fiscal Year
Fiscal Year
Fiscal Year
Fiscal Year
Fiscal Year
Non Disabled Children 459,712 469,618 486,806 501,815 519,700
Non Disabled Adults 263,247 273,315 283,176 297,685 314,181
Disabled Children 26,501 26,510 27,371 29,273 30,424
Disabled Adults 207,559 210,506 213,952 223,585 232,326
Long Term Unemployed Adults 66,921 79,642 96,221 110,782 124,235
Seniors 125,483 125,874 128,380 132,194 134,658
Total 1,149,423 1,185,465 1,235,907 1,295,335 1,355,523
% growth from prior year   3.1% 4.3% 4.8% 4.6%


Without smart cost-saving changes to MassHealth, the Commonwealth could face an $800 million shortfall in fiscal year 2012 and the prospect of across-the-board cuts to services.  Even beyond the need to achieve savings to address immediate, economy-driven fiscal challenges facing MassHealth, containing MassHealth costs is critical to the long-term sustainability of health care reform and the long-term ability of the state budget to invest in the full range of public needs.  Success on this front would not only maintain our health care safety net for all who need it as well as facilitate other key public investments, but also – given the scale of MassHealth – drive positive innovation in the delivery of care throughout our health care system. 

Given these short- and long-term challenges and opportunities, MassHealth will be pursuing aggressive strategies to manage its fiscal year 2012 budget. Unlike other state programs, MassHealth costs are difficult to constrain, since expenditures are driven by caseload and eligibility is primarily controlled by eligibility standards fixed by the federal government. Despite these challenges, MassHealth has developed proposals to improve payment efficiency while preserving services for MassHealth enrollees.

Starting immediately, MassHealth plans to conduct a competitive procurement that will focus on reducing costs while providing quality care to over 800,000 members.  The procurement will include both the managed care and the Primary Care Clinician plan but will not include seniors or dual eligible members. The goals of the procurement are to ensure access and quality care for members at the lowest cost.  Managed care organizations (MCO) and providers who demonstrate the ability to provide this care will have the opportunity to expand membership. The procurement process will promote innovative approaches to care management and delivery as well as payments for services for this population. In addition, MassHealth will begin to lay the foundation for a comprehensive plan to promote the efficient delivery of care for MassHealth members under age 65 with a focus on care integration and care management for the highest-risk populations.

This procurement strategy will only mitigate a certain amount of growth in MassHealth costs that would otherwise occur. MassHealth plans to undertake several other steps such as constraining provider and capitation rates, limiting payments for preventable admissions, implementing small co-pays for some services, adopting additional program integrity measures, and limiting coverage for certain optional benefits.

Beginning in fiscal year 2011 and continuing in fiscal year 2012 and beyond, MassHealth will be launching a project to manage the dual population that is eligible for Medicare and Medicaid. MassHealth is engaged in discussions with consumer advisory groups to ensure that this new integrated care model meets the needs of the younger dual eligible population and is attractive to members so that they will want to enroll.  The new model’s care entities will be accountable for the delivery, coordination, and management of health and community support services that promote improved outcomes and living with dignity and independence in the community.  MassHealth envisions that the Medicare and Medicaid benefits would be administered jointly through an integrated financing mechanism at the state level such that dual eligible individuals would experience their coverage as a single, integrated care program.  The Commonwealth is continuing to pursue this concept with the federal government.

Commonwealth Care

The Commonwealth Care program was created with the enactment of health care reform and is administered by the Health Connector.  The program provides health insurance coverage for individuals under 300% of the federal poverty level (FPL) that do not have access to employer-sponsored insurance.  Commonwealth Care fully subsidizes individuals under 100% of the federal poverty level and institutes a sliding scale of member premiums for those above that income threshold.  It provides health care services through a fully capitated insurance model.  As of January of 2011, there are 160,824 members enrolled in Commonwealth Care, excluding the Aliens with Special Status population (see next section on Commonwealth Care Bridge).

The budget provides $822 million for Commonwealth Care in fiscal year 2012, equivalent to currently projected fiscal year 2011 spending.  These funds are designed to maintain eligibility for the program and pay for moderate additional enrollment (including coverage for individuals that transition from the Medical Security Plan to Commonwealth Care after their unemployment benefits expire). 

The Administration envisions that the Health Connector will conduct a procurement process for the Commonwealth Care program, which will incent aggressive bidding and achieve savings by rewarding innovative, lower-priced health plans with increased membership.  This competitive procurement strategy would aim to leverage premium savings that enable the Health Connector to maintain eligibility for comprehensive coverage, pay for growing enrollment, and minimize increases in cost-sharing within a level-funded budget.

Commonwealth Care Bridge

Aliens with Special Status (legal immigrants who have resided in the U.S. for less than five years) lost eligibility for Commonwealth Care in fiscal year 2010, due to the extreme fiscal challenges created by a national economic downturn and the fact that the federal government does not reimburse states for health insurance coverage for this population.  Instead, a separate investment of $40 million was appropriated to provide health insurance for this population.  This coverage is now available through the newly created Commonwealth Care Bridge program.  The Commonwealth Care Bridge program was maintained in fiscal year 2011 at a projected cost of $50 million. The Administration’s fiscal year 2012 budget includes level funding of $50 million for the Commonwealth Care Bridge program, and aims to maintain coverage for current enrollees through fiscal year 2012.

Commonwealth Care Bridge currently provides coverage to 20,389 Aliens with Special Status, who were enrolled over a three-month period from October to December of 2009.  Enrollees have been eligible to receive comprehensive coverage through a network of providers that fully meets the Connector’s Commonwealth Care network adequacy standards.  While cost-sharing is in some instances higher than that for Commonwealth Care and some benefits are excluded, steps have been taken to reduce any hardships for members.

Medical Security Program

The Medical Security Program (MSP) provides health insurance assistance for Massachusetts residents with family income less than 400% FPL while they are receiving unemployment benefits.  To pursue savings and improve alignment of state-subsidized health insurance programs, the Administration is requesting that the Health Connector work with the Division of Unemployment Assistance (DUA) to conduct a new, competitive procurement for MSP Direct Coverage and restructure the program to maintain eligibility for adults and children up to 400% FPL while more closely matching Commonwealth Care coverage.

The alignment between Commonwealth Care and MSP Direct Coverage will preserve the long term sustainability of the medical security program, which is funded by an employer assessment through the medical trust fund. The reform plan is estimated to save up to $10 million in the program, and as a result, will reduce the impact of rising program costs to employers. 

Group Insurance Commission

The Group Insurance Commission (GIC) will contain costs for employees’ health care by negotiating lower rates and providing an incentive for employees to join limited network plans. The GIC will have a full open re-enrollment that will incent employees to move to a limited network, which costs less than broad network plans. The employees that move to the lower cost plan in FY 2012 will save on average an estimated $800 for an individual and $1700 for a family plan which they will see reflected in their paychecks.

Health Safety Net

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 landmark health care reform legislation in 2007, this financing mechanism was known as the Uncompensated Care Pool. 

Although success in expanding enrollment in health insurance through health care reform has resulted in decreased Health Safety Net utilization and payments, the counter cyclical 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 2010 through fiscal year 2011 reflect these natural increases in burden on safety net care.

Health Safety Net Trust Fund - Sources
(in millions)
Source FY10 FY11 Projected
Assessments $320.0 $320.0 $320.0
Offset $70.0 $70.0 $70.0
Commonwealth Contribution $30.0 $30.0 $30.0
Total Sources $420.00 $420.00 $420.00


Health Safety Net Trust Fund - Uses
(in millions)
Uses FY10 FY11 Projected
Hospital Costs $372.0 $449-$474 $449-$499
CHCs $42.0 $64.7 $65.0
Demos (Admin) $6 $6.0 $6.0
Total Uses $420 $520-$545 $520-$570


Despite the unprecedented fiscal challenges in fiscal year 2012, the Administration is maintaining a $30 million General Fund contribution the Health Safety Net in its fiscal year 2012 budget proposal.  We will continue to closely monitor the Health Safety Net and refine projections for fiscal year 2011 and 2012 demand based upon updated information.

Municipal Health Care

The Administration proposes a new health insurance plan required for cities and towns that can save up to $95 million for cities and towns across the Commonwealth. The Administration is also committed to filing legislation that mandates the enrollment of eligible retired local employees into Medicare as their primary source of health insurance coverage; municipalities will save between $15 million to $30 million a year as a result.

Small Business Health Care Cost Containment

The Health Connector will be launching updates in July to its Commonwealth Choice program, which creates a streamlined, simplified process for small businesses and individuals to shop for unsubsidized, name-brand health insurance, saving them money by making it easier for them to understand their options and choose better-priced health plans. The Health Connector will be enhancing the Commonwealth Choice shopping experience by enabling small businesses and individuals to search whether a desired hospital or doctor is covered through the health plans they are considering.

The Health Connector will eliminate a fee it currently charges small businesses to shop through Commonwealth Choice.  This fee was already significantly lower than those charged when small businesses shopped through other intermediaries, and now it will be eliminated starting in July. 

The Administration’s fiscal year 2012 budget includes $10 million (including $2.5 million contribution from the Health Connector) to enable the Health Connector to implement a provision of Chapter 288 calling on it to offer premium discounts for certain small businesses which purchase coverage through Commonwealth Choice and set up wellness programs for their employees.  This will reduce premiums for qualifying small businesses by up to 5%. 

Money Follows the Person

In January 2011, Massachusetts applied to join Washington D.C. and the 29 other states already participating in “Money Follows the Person Rebalancing Demonstration” (MFP). With federal support, states will have additional programmatic and financial tools to rebalance their long-term care systems. The approval of the project will strengthen the Administration’s Community First initiative to transition long term care residents to the community from facility settings and improve MassHealth’s quality infrastructure, data resources and reporting capabilities. MassHealth also plans to create two new Home and Community-Based Waivers for MFP Demonstration participants who will need more intensive supports on an ongoing basis once they transition from facilities.

Patient-Centered Medical Home Initiative (PCMHI)

The Administration has committed to assist 46 primary care practices, including community health centers, hospital-affiliated primary care offices, and group and solo practices, to transition into certified medical homes focused on integrated and patient-centered care. Selected primary care practices will work toward mastering core competencies in patient-centered care over the course of three years and will receive training support, technical assistance and funding from the state.  To help practices achieve core competencies and transform their operations, each participating practice will receive on-site, individualized coaching from a medical home facilitator and membership in a learning collaborative that includes in-person conferences, online trainings and evidence-based performance evaluation.

Electronic Health Record (EHR) Initiative

The Administration is committing $500,000 as the state share to operate the implementation of the MassHealth Electronic Health Record (EHR) initiative, which will offer provider incentive payments with 100% federal participation funding to encourage Medicaid health care providers to adopt, implement, upgrade or meaningfully use certified EHR technology. MassHealth plans to distribute up to $50 million to approved health care entities to support transitions to electronic health record systems in fiscal year 2012.

[1] Kaiser Commission on Medicaid and Uninsured, “ Hoping for Economic Recovery, Preparing for Health Reform: A Look at Medicaid Spending, Coverage and Policy Trends” September, 2010.

Prepared by Diana Ong, Executive Office for Administration and Finance ·
For more information contact: (617) 727-2040