Mass. Taxpayers Foundation Responds To Critics On Health Reform Spending

By Michael J. Widmer
Guest Contributor

A new Massachusetts Taxpayers Foundation (MTF) study finds that in fiscal 2011, the state's share of spending attributable to the 2006 health reform law was $453 million, or 1.4% of the $32 billion budget. And, when you look at the first five years of state spending for health reform, the annual increase, year-to-year, averaged about $91 million. In short, health reform hasn't been a “budget-buster” as some critics have claimed. Pretty good news, right? Well, the Pioneer Institute's Josh Archambault and Amy Lischko aren't so sure. While they largely accept the way MTF calculated the cost of health reform, they've applied some creative accounting to challenge the report's conclusions.

A little background might be helpful: With our focus on the state budget, tax policy, and the Massachusetts economy, MTF's engagement in health reform goes back many years. Prior to enactment of the 2006 law, we concluded that the state would have to increase spending by about $100 million a year to achieve the goal of nearly universal health insurance coverage. In 2008, with implementation well underway, some critics of the law began predicting “massive cost overruns” – up to $2 billion over ten years – with “back-breaking costs to the taxpayers.” So, in 2009, and again this year, MTF decided to take a look at the numbers and report on what was really going on. Specifically, we wanted to know how the health reform law was affecting state spending over time. Where has spending gone up because of the law and why; where has it gone down; what has been the net change year-over-year; and is it manageable in the context of the overall state spending?

Now, with the rate of uninsured in Massachusetts dipping below 2%, we have some answers. The amount Massachusetts spends to help low-income, uninsured residents gain access to needed health care has increased from $1.04 billion before the law was enacted to $1.95 billion after five years of reform. Since the federal government picks up approximately half the cost, the state's share of the increase was $453 million. In separate blogs, Archambault and Lischko have raised a series of questions about how the spending figures should be interpreted.

For instance, why didn't MTF calculate the cumulative cost of reform and average that over five years? My answer is that, although the answers to their questions can be easily derived from the report's detailed spending chart, they aren't meaningful in the context of sound budget analysis.

Let me illustrate what I mean with an example: I've made a commitment to heat my home, so I have to buy heating oil. Let's say that in 2010, my oil bill was $1,000, in 2011 it was $1,250, and in 2012 it rose to $1,600. In order to maintain my commitment to a heated house, I had to budget $600 more in 2012 than in 2010. In other words, on average, I've had to add $300 to my heating oil budget each year. With this knowledge, I can decide if my budget is manageable. The methodology suggested by Archambault and Lischko would have me add the difference between 2010 and 2011, which is $250, to the difference between 2010 and 2012, which is $600, for a total of $850. Divide by two years and you have an average of $425. As Lischko says in her blog, “Huh?"

The MTF analysis of increases and decreases due to the law is factual and transparent, and our calculation of the average annual change in state spending – $91 million – is a valid and accurate way to look at the budget impact. MTF has been doing this work for decades, and we've earned the trust of policymakers, politicians, and advocates representing many different viewpoints. We'll stick to the basics and continue to provide sound, objective budget analysis.

Michael J. Widmer is President of the Massachusetts Taxpayers Foundation.