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PERSPECTIVEMassachusetts Reform Plus President Bush’s Tax Credits: A National Model?
The Massachusetts health reform offers an important opportunity for a new federal-state strategy to cover the uninsured. President George Bush’s proposed health insurance tax credits could be added to the Massachusetts health reform. The combined plan would include Medicaid expansions; offer workers affordable coverage through competitive insurance markets; and provide federal, state, employer, and individual financing. Many other states might be interested in similar federal-state partnerships for the forty-five million uninsured Americans. Ending the national impasse on coverage needs this kind of bold initiative.
AUTHORITATIVE ACCOUNTS of the Massachusetts legislation to provide basic health insurance for nearly all state residents have been ably written by John McDonough and his colleagues and by John Holahan and Linda Blumberg.1 This initiative is a historic political breakthrough in resolving difficult issues of expanding coverage. The legislation has now been signed into law and has received Medicaid waiver approvals from the U.S. Department of Health and Human Services (HHS). It will start to go into effect in July 2007. With national financing support, it could become a national model for covering the forty-five million uninsured Americans. The Bush administration is proposing a national program of tax credits to assist uninsured people in purchasing health insurance. Its fiscal year 2007 budget request includes $156 billion for these credits (FY 2007–2016). The tax credits are designed to be the major federal contribution in federal-state initiatives to cover the uninsured.2 These tax credits could provide the national financing support to demonstrate a "Massachusetts health reform plus tax credits" strategy.
The bipartisan Massachusetts initiative includes key design elements from many of the leading proposals for expanding health insurance coverage. For example, it includes Medicaid expansions—MassHealth—for about 92,500 residents. Mostly it is designed to expand and improve the private health insurance market. It creates a new program of public subsidies for the purchase of private health insurance—the Commonwealth Care Health Insurance Program (CCHIP)—that will assist about 207,500 uninsured residents in buying at least basic coverage. It requires all residents to purchase affordable insurance coverage as of 1 July 2007 and includes financial penalties, enforced through the tax code, if they do not. Employers with more than ten employees are required to provide health insurance or make a "Fair Share" payment; they also must offer a "cafeteria plan" so workers can purchase health care with pretax dollars. The legislation creates a Health Insurance Connector for individuals and small businesses with fifty or fewer workers to purchase health insurance, which will allow each person to select coverage from among competing health plans.3 The major features of the Bush administration’s tax credits to subsidize purchase of private insurance match up well with the Massachusetts health reform. It thus seems feasible to add tax credits to the Massachusetts plan so that new federal contributions will assure the affordability of good private health insurance benefits as well as finance Medicaid expansions. Like the Bush administration’s tax credits proposals, Commonwealth Care is designed for uninsured people who are not in Medicaid, and it is intended to subsidize their premiums for the purchase of private health insurance. Thus, the basic eligibility and intent for tax credits and Commonwealth Care are well matched. Commonwealth Care’s income-related subsidies also match up well with the Bush administration’s health insurance tax credits. CCHIP will offer its greatest subsidy to people earning up to 100 percent of the federal poverty level, phasing out at 300 percent. The Bush administration proposes federal tax credits of $1,000 per adult up to 150 percent of poverty, also phasing out at 300 percent. Commonwealth Care’s administrative system for determining eligibility, calculating subsidies, and making payments could also handle both state and federal assistance as an integrated operation. For example, in applying for Commonwealth Care and its income-related subsidy, an individual could also apply for his or her tax credit, and in selecting a plan, he or she could "assign" the tax credit, as well as the state subsidy, to the health plan. State administration would be a major benefit for the Internal Revenue Service (IRS), which does not have its own administrative system for enrolling, verifying income, and paying monthly premium tax credits for tens of millions of uninsured people who do not file tax returns. From a state perspective, Massachusetts would apply to the IRS for an advance of the total estimated tax credits for CCHIP enrollees and then settle up the books with the IRS after it processes the applications and makes the payouts. A "Massachusetts health reform plus tax credits" demonstration could produce important practical lessons for the IRS, state governments, HHS, the Centers for Medicare and Medicaid Services (CMS), state Medicaid programs, employers, insurers, and national decisionmakers for consideration about taking similar models "to scale" for national coverage of forty-five million uninsured Americans.
For Massachusetts, a federal contribution of up to $1,000 per adult will help make good private health insurance coverage more affordable for lower-income uninsured people, most of whom are in working families. President George W. Bush is already proposing to provide these tax credits to Massachusetts residents, as part of his national plan for assisting the uninsured. If he now added his support and tax credits of up to $1,000 per person to the Massachusetts plan, it would help create political consensus for this bipartisan, public/private, federal/state approach to expanding health insurance coverage. In terms of budget costs, the federal tax credit amounts would add about $150 million per year to the Massachusetts health plan’s financing.4 For the federal budget, this is a relatively inexpensive national demonstration initiative, in that Massachusetts, its Medicaid program, its residents, and employers are shouldering most of the costs.
It would be desirable to have Massachusetts and the federal government agree soon on a tax-credit demonstration. The tax credits will need to be available for the program’s start (as noted before, by 1 July 2007), and low-income people should know about federal and state premium subsidies well before this date so they can select affordable insurance plans. Also, Gov. Mitt Romney’s term will be ending after the November elections. Since the Massachusetts reform plan was enacted with strong bipartisan support, has already been signed off on by the Bush administration, and matches up well with the Bush tax-credit proposals, a tax-credit demonstration could be put together rapidly through a high-level political negotiation between Massachusetts and the Treasury Department, with HHS participation. It is not yet clear whether the federal government would need new demonstration authority and appropriations. If so, broad political support for a Massachusetts health reforms plus tax credits demonstration, including Governor Romney and Massachusetts legislative leaders, Senators Edward M. Kennedy and John F. Kerry, and President Bush should be able to expedite passage of needed legislation.
Lynn Etheredge (lyneth1{at}aol.com) is a consultant for the Health Insurance Reform Project at the George Washington University in Washington, D.C. The Robert Wood Johnson Foundation provided support for this paper through a grant to the George Washington University.
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