Health care plays an oversized role in the Massachusetts state budget, and the state’s overall financial health — regardless of what Washington ultimately does about health care — needs a cure, says the president of the Massachusetts Taxpayers Foundation.
Eileen McAnneny, who heads the fiscal watchdog and advocacy organization, apologized for painting a gloomy picture for the 100 Franklin County Chamber of Commerce members at their breakfast meeting Friday.
“Massachusetts is facing a trifecta of fiscal issues,” with slowing economic growth, a mushrooming of mandatory expenses like pensions, borrowing interest, collective bargaining and especially MassHealth, and it doesn’t have enough of a cushion in its stabilization fund, said McAnneny.
“When there is the next economic downturn, which there will be, we’re not well-positioned to weather that storm,” she warned.
For the budget year beginning July, she warned, “We’re off to an over-optimistic start,” because it assumes 3.9 percent growth in revenue rather than the 2.65 percent MTF predicts, based on the past couple of years.
And in many ways, she added, “The Fiscal ’18 budget is really a health care budget.”
The House budget proposed is expected to be unveiled sometime “in the next week or so,” McAnneny said, but already, Gov. Charlie Baker’s proposal assumes substantial ongoing revenue growth with the health insurance program continuing to outpace all other spending by a wide margin. Baker has therefore proposed major health-care policy changes, some of which, like added assessments to employers, MTF opposes.
She called the growth in health-care spending “almost a crisis or catastrophic issue, from a fiscal standpoint.”
With about 60 percent of state revenues coming from the income tax, and much of that from a “very volatile” capital gains tax, Baker has also called for changes in the way the state contributes to its stabilization fund, to encourage a contribution without having to wait to see how well capital gains revenue has done.
McAnneny called it “alarming” that MassHealth represents over 60 percent of the new growth in the coming year’s budget, or about 40 percent of the nearly $41 billion in line-item spending that Baker has proposed. MassHealth is also growing at a rate of 5.14 percent. “It leaves pretty little for almost everything else in the budget.”
Health care, which costs the state about $15 billion, is up by nearly $800 million from last year, despite nearly $250 million in expected “savings,” largely because of “ever increasing enrollment” — about 4,000 expected new subscribers each month, according to Baker’s projections. More than a quarter of the population of what’s considered a wealthy state is on MassHealth, a reality that McAnneny says leaves her “scratching my head.”
The next largest increase in proposed budget spending is nearly $200 million for pensions, followed by $91 million for Chapter 70 school aid and $40 million for local aid, said McAnneny.
Rep. Stephen Kulik, D-Worthington, the vice chair of the House Ways and Means Committee, which is drawing up the House budget now, wasn’t present in Greenfield for her talk. But he told The Recorder, “I share the majority of her concerns, but I don’t see things as gloomy. Given the slow recovery from the recession and the fact that we had to rely on the ‘Rainy Day Fund,’ even with slow growth, we’ve been able to build the fund well over $1 billion.”
He added that the state also isn’t relying on one-time revenue as it had before the recession, and is on an accelerated schedule to fully fund state pensions. While that will take another 18 years, he said it’s an important factor in improving the state’s bond rating.
Still, Kulik added, “We’re very concerned that health care is the primary driver in budget growth.”
The bleak picture, McAnenny noted, doesn’t even take into consideration what happens if the federal government scraps or substantially cuts the Affordable Care Act.
“We think we have problems today. Next month could be a very different situation — and much, much worse,” she said. The federal government contributes half of the cost of MassHealth.
Included in Baker’s proposal are policy changes, including a new health-care assessment on employers that she said overattributes surging MassHealth growth to employers not providing care.
“There’s all kinds of factors playing into that growth,” she said, advising the audience that included many business leaders, “This is very much in play, and it’s a huge cost to all of you.”
Baker is also proposing capping rates offered to hospitals and other health providers, as well caps paid for state employee health benefits and a greater tiering of insurance products to encourage patients to seek “the appropriate setting for care” at community hospitals.
“We need to understand all of the different funding mechanisms and see if there’s a better way, a more streamlined way” to cure health care costs, she said. “Unfortunately, I think the conversation is going to be forced upon us, just given what’s going on in Washington and a lot of the financial struggle we’re having now to pay for all of this. It’s going to get worse … It behooves all of us to try to figure out a way to do this better.”
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