Budget Woes and the Cost of Health Care
Massachusetts is in a terrible financial pickle, like many other states. Tax revenues have plummeted, and Governor Deval Patrick has identified more than a billion dollars of budget cuts. There is genuine worry that this might not be enough.
I’ve done an informal review of state budget cuts, and I identified about $380 million of cuts that are health related. That’s about a 4% cut in the $10 billion the state spends on health care. (My spreadsheet is available on request -- I am having trouble posting it at this point.) I find the openness of the state government heartening, and I’m surprised these details have not been reported in greater detail in the Globe and the Herald.
These budget cuts will be painful. State employees and contractors will lose their jobs, and patients and clients will lose services they have depended upon. In this post, I’d like to review what these cuts might mean for health care costs in Massachusetts?
1. Some cuts in state spending trigger similar cuts in federal matching (such as Medicaid). So, for instance, decreasing Medicaid spending by $152 million will lead to a loss of provider income of about twice that amount. If providers can cut their capacity and costs, this could lower overall spending. Many times, decreases in public reimbursement lead to higher bills rendered to private payers. In addition, the $2.5 million on Medicaid enrollment (71% budget cut) can lead to far fewer federal dollars coming into Massachusetts, although the Patrick administration intends to get funds for enrollment programs from other "off budget" state agencies (The Connector and the Mass Health and Education Facilities Authority).
2. Some cuts in state spending shift cost to other payers. For instance, childhood immunizations are one of the few medical interventions that actually save money – but the state will cut its funding by $6 million, or 12%. This is especially worrisome at a time where newer vaccines are pricey (especially chickenpox and HPV vaccines). If the state cuts mean that private insurers pick up the tab, this should mean higher health insurance premiums going forward. The state also benefits from its bulk purchasing and substantially less billing transactional infrastructure – so it might be more expensive to deliver vaccinations paid for by private insurance. Massachusetts historically has the highest childhood immunization rate in the country. If our immunization rates go down, this is likely to raise overall costs.
3. Other budget cuts are take-backs from state employees, such as the $31.7 million decrease in benefits offered to state employees through the Group Insurance Commission. (4%) This could lower overall health care costs if state employees, now more price sensitive, decrease their utilization of health cars. See my last post for evidence this is happening in the DC area.
4. With the overall financial meltdown, there is increasing interest in the social benefit of regulation. The budget necessarily diminishes resources for state employees and consultants who regulate the medical, nursing, and pharmacy professions, and cuts staff from state agencies tasked with improving accountability in health care delivery.
5. Some programs can actually lower costs – such as an academic detailing program to counter the pharmaceutical representatives who encourage use of expensive brand name medications. This program was cut by $200,000 (40%). I don’t know if the state has current data on the cost effectiveness of the Massachusetts program.
6. The state is prioritizing programs it just can’t stop – and there are many casualties among newer programs or those with a less active constituency. For instance, there will be painful cuts in senior home care case management ($28 million, 69%) and secure treatment for opiate abuse ($5 million, 100%). A demonstration project for elderly and disabled will lose $13.5 million (68%).
7. There’s been a laudable effort to cut out specific earmarks that seem more related to a legislator’s influence than a dispassionate review of community needs .
This is a painful time. The state must balance its budget each year, and decreased state revenue means less opportunity to make investments in the health of our commonwealth. There are times when state budget cuts could paradoxically lead to higher overall health care costs in the future.
