The Ugly Truth About State Healthcare Costs

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Last week, Pioneer Institute released a report showing that the cost of transitioning to an Affordable Care Act-compliant health insurance exchange is likely to top $1 billion over two years. The figure includes $540 million in 2014 for a new transitional Medicaid program that was created when the state exchange failed last year.

Read our report:

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In response, Governor Patrick issued a sharply worded statement that received widespread media coverage, dismissing our report by saying, “The truth is that Massachusetts is still successfully expanding health care and doing so within budget.”

But the facts tell a different story. According to a Boston Business Journal (BBJ) report by Craig Douglas, far from being “within budget,” MassHealth is anticipating a $500 million Medicaid-funding shortfall according to officials of the Governor’s Office of Administration and Finance. Furthermore, in a follow-up story, Douglas reported that state officials had foreseen and disclosed an expected Medicaid budget deficiency of up to $100 million that they disclosed to Wall Street investors when Massachusetts sold state bonds (“State officials knew of potential $100M Medicaid ‘deficiency’ in mid-2013“).

The Boston Business Journal coverage is extraordinary in that it reports unrehearsed, candid disclosures by state officials who hadn’t gotten the message from the Governor’s office that they should say MassHealth is “within budget.”

Turns out that the Connector problems have impacted the MassHealth budget after all, causing huge cost overruns. A closer inspection reveals that the Governor proposed nine line-items that were adopted in the commonwealth’s FY2015 budget authorization to pay for FY2014 cost overruns.  His budgetary authorization to pay for last year’s budget overruns in the current budget was included within large MassHealth budget items and doesn’t specify how big the Connector-related cost overruns are.

So when the Governor says that MassHealth is within budget, he doesn’t tell you that it’s because he buried last year’s cost overruns in this year’s budget.  

A Standard & Poor’s analyst cited in the BBJ story warned that this strategy “can ultimately undermine a state’s financial strength if [payment deferrals] are allowed to grow.” The state’s rolling Medicaid deficit has risen by over 250 percent over the past four budget cycles, while total MassHealth spending has increased 16%. The $500 million unpaid liability incurred in fiscal 2014 was nearly double the prior year’s shortfall.

Pioneer’s Mary Connaughton and Greg Sullivan, cited in the article,  denounced the state’s practice of setting an annual cash allowance for Medicaid, rather than an annual budget for the program’s anticipated expenses. Read the full BBJ article here.

Pioneer Institute again calls on the Patrick administration to release a full and detailed account of the costs of the failed rollout of its ACA Health Connector website and any outstanding costs associated with the Medicaid program.