New ACA-Related Medicaid Fee Will Cost MA $162M+ Over Next Decade

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Read news coverage of this report in The Boston Globe.

Health Insurer Provider Fee Will Cost Taxpayers $324 Million by 2025

BOSTON – Taxpayers will be saddled with over $320 million in additional costs in the next decade as a result of a revenue provision of the federal health care law that helps fund increased public insurance coverage, according to a new Pioneer study.

In “Over a Decade, the ACA Fee on MassHealth Will Cost Hundreds of Millions of Dollars,” authors Lauren Corvese and Josh Archambault examine the potential budget impact of the Health Insurer Provider Fee (HIPF), a revenue-raising mechanism for the Patient Protection and Affordable Care Act (ACA).

“The ACA insurer fee is taken from taxpayers’ wallets, and will mean fewer dollars for education, public safety and infrastructure, instead of being funded by the large insurers who profit from Medicaid expansion,” said Archambault, a Pioneer Senior Fellow. “This is another unintended consequence of the federal health reform law.”

Under the ACA, the Medicaid program, jointly funded by the federal and state governments, must be expanded to cover those with incomes below 138% of the federal poverty level. The HIPF is an excise tax imposed in part on certain private entities that contract with Medicaid to provide coverage for this growing population.


While the Medicaid expansion under the ACA was relatively small in the Commonwealth compared to other states, the tax implications are significant.

The co-authors requested data from MassHealth indicating that the agency paid its managed care entities $36 million for the HIPF in 2015. The state will be reimbursed by the federal government for 50 percent of this payment, resulting in a net cost to the Commonwealth of $18 million for 2015. However, since the reimbursement uses federal money, the full $36 million will be borne by Massachusetts taxpayers.

After much lobbying, the recently passed Omnibus Appropriations Act suspended collection of the fee in 2017, but only for one year; collection of the tax is scheduled to resume in 2018. Over the next ten years, even factoring in the 2017 moratorium, the HIPF will cost the Commonwealth at least $162 million and taxpayers at least $324 million.

“A quarter of Massachusetts’ population is enrolled in MassHealth,” said Pioneer Executive Director Jim Stergios. “Given the size of the program the impact of the fee is significant – over 10 years costing the state $162 million.”

The HIPF applies to many Managed Care Entities (MCEs), including Managed Care Organizations (MCOs), Senior Care Options (SCOs), Programs for All-inclusive Care for the Elderly (PACE), and Massachusetts Behavioral Health Partnerships (MBHPs).

MCEs and commercial entities must pay an annual fee to the federal government, projected to total $14 billion nationally in 2018, indexed to the rate of premium growth in subsequent years. MCEs are charged on a sliding scale based on their share of the premium revenue market for Medicare, Medicaid, and the State Children Health Insurance Plan (SCHIP).

The HIPF is imposed most heavily on large insurers, with lower to no cost for smaller insurers. Non-profit organizations that receive over 80 percent of their premium revenue from Medicare, Medicaid, SCHIP, and dual-eligible plans are exempt from the ACA insurer fee.

In Massachusetts, where most Medicaid MCOs are non-profit entities, 62 percent of MassHealth premiums are paid to insurers that qualify for this exemption. Going forward, this arrangement may put for-profit insurers at a disadvantage, reducing enrollees’ options and limiting competition.

About the Authors:

Lauren Corvese is Pioneer’s Research Assistant and Development Coordinator. She joined Pioneer in 2015 as a co-op student, writing on education, healthcare, and transportation policy in Massachusetts. Lauren recently earned a Bachelor of Arts in Political Science from Northeastern University, where she graduated summa cum laude.

Josh Archambault is a Senior Fellow at Pioneer Institute. Prior to joining Pioneer, Josh served as a Health Policy Fellow at the Heritage Foundation, Legislative Director in the Massachusetts State Senate and as Senior Legislative Aide in the Governor’s Office. Josh holds a Master’s in Public Policy from Harvard University’s Kennedy School and a BA in Political Studies and Economics from Gordon College.

Pioneer Institute is an independent, non-partisan, privately funded research organization that seeks to improve the quality of life in Massachusetts through civic discourse and intellectually rigorous, data-driven public policy solutions based on free market principles, individual liberty and responsibility, and the ideal of effective, limited and accountable government.