Massachusetts Governor Hiking Taxes To Rescue Failed Health Reform

(A version of this column was published by Forbes.)

Governor Charlie Baker of Massachusetts has proposed a tax of $2,000 per worker on businesses which do not offer health coverage to employees who become dependent on Medicaid. This makes him the second Republican governor of Massachusetts to buy into the notion that imposing taxes (or fines or penalties or fees) on individuals and businesses can force them to accept responsibility for government failure at getting health spending under control.

Evidence from Massachusetts and the nation shows the opposite is true. Yesterday, I testified on the effect of Obamacare’s individual mandate before the Oversight Subcommittee of the U.S. House of Representatives’ Ways and Means Committee. (The video is at this link, and my written testimony is at this link.)

I was joined on the panel of witnesses by Dr. John E. McDonough of Harvard University’s T.H. Chan School of Public Health. Professor McDonough was a central figure in Governor Mitt Romney’s 2006 Massachusetts health reform, where the individual mandate was first implemented. Governor Romney tried to label it a “conservative” or “Republican” idea. The spin was that the mandate characterized individual responsibility.

The reality is the mandate merely camouflages significant growth of government spending and control over health insurance. This has been the case in Massachusetts since day one: Spending has grown out of control despite many failed efforts to bend the cost curve.

In its 2007-2008 Progress Report, the state noted 97,000 uninsured residents (58 percent of the uninsured) were assessed a (very small) penalty in 2007. However, of the 434,000 who became newly insured through March 2008, 72,000 were enrolled in the fully subsidized MassHealth program and 176,000 in the partially subsidized Commonwealth Care. Although, a majority of enrollees in Commonwealth Care did not actually pay any premium.

The proportion paying premium was just 42 percent in 2013 (the last year before Obamacare threw federal subsidies into the mix). For most beneficiaries, Commonwealth Care was wholly welfare, not “individual responsibility”.State and federal spending attributable to Massachusetts health reform almost doubled from $1.0 billion in 2006 to $1.9 billion in 2011.

Hospitals’ emergency department use increased by 17 percent in the two years after the reform was implemented. (Plenty of evidence, reaching as far back as the Canadian province of Quebec’s guaranteeing universal coverage in 1971 shows emergency departments see more patients, not fewer, after such a reform.)

Insurers were crushed by skyrocketing claims. The state insurance commissioner refused 235 of 276 rate hikes for April 2010 and demanded that plans rebate premiums that had already been paid. Massachusetts' health plans hemorrhaged cash, and a senior regulator described the situation as a "train wreck” (Robert Weisman, “State Acts to Oversee 3 Insurers, Boston Globe, June 11, 2010).

What these taxes and fines and penalties and growth in welfare really accomplish is feeding more unaccountable money into hospitals and other health services facilities. From January 2008 (the national high-water mark of employment before the Great Recession) through December 2016, Massachusetts added 302,000 nonfarm civilian jobs. However, 164,000 – more than half – are in education or health services, which grew 26 percent. Non-health jobs grew only five percent. This is surely way out of whack.

I respect Governor Baker is responding to ballooning health costs that are partially the result of Obamacare. Nevertheless, hiking taxes on businesses to pay for a failed decade old state health reform that paved the way for Obamacare is not a good sign for Massachusetts’ ability to respond to Congress’ imminent repeal of Obamacare in favor of state-regulated insurance markets.