By Jennifer Levitz and Melanie Evans

BOSTON -- The first state in the nation to require residents to carry health insurance is grappling with escalating Medicaid rolls, but a fix floated by Massachusetts' Republican governor is drawing pushback from employers.

Gov. Charlie Baker will propose in his annual budget on Wednesday a $2,000 penalty per worker on businesses that don't shoulder enough of the health-insurance cost. The governor is aiming to solve what he sees as a flaw in the national health law: Medicaid ends up being more appealing to low-income workers than insurance offered by employers, raising the costs for the state.

As employers shift toward lower-cost, high-deductible plans that require bigger out-of-pocket outlays for employees, some lower-income workers in Massachusetts have opted instead for Medicaid, which offers more traditional health coverage and lower upfront costs.

In Massachusetts -- whose 2006 health-care overhaul, adopted under then-Gov. Mitt Romney, served as the model for key planks of the Affordable Care Act -- near-universal health coverage is generally a point of pride, yet the state is struggling to manage the fiscal price of health coverage for the 1.9 million Massachusetts residents on MassHealth, the state version of Medicaid. MassHealth consumes nearly 40% of the Massachusetts budget, even with state unemployment below 3%.

The issue arises at a tricky time for governors who are trying to estimate budget outlays for the coming fiscal year when the future of federal funding for expanded Medicaid is in question as Republicans in Washington seek to repeal and replace the health law.

There haslong been tension over the best way to provide health insurance, through more regulation or market forces. Republicans have generally favored proposals that lean on the private market. In a December letter to governors, House GOP leaders asked for input on what Congress can do to preserve employee-sponsored coverage.

Employers in Massachusetts are opposed to the proposed penalty, saying it would punish them for a problem they didn't cause. They believe the state could drive down premiums by doing more to reduce health-care tabs, including steering people away from the state's most prestigious hospitals for routine care and rolling back legislation that has mandated insurers to cover a range of specialty services and products. Mr. Baker also will propose a series of cost-curbing strategies Wednesday, including a moratorium on the types of new insurance mandates that employers are worried about, an adviser to the governor said.

"It's not the fault of employers that we have exploded the Medicaid budget," said Jon Hurst, president of the Retailers Association of Massachusetts, a trade organization.

Under the governor's proposal, which needs legislative approval, employers with more than 10 full-time workers would be penalized if they pay less than 60% of employees' premiums and cover less than 80% of their workforce.

Initially Massachusetts fined similar employers that didn't provide health insurance, but repealed that rule in 2013 in light of a parallel ACA employer mandate for larger companies. That ACA mandate was delayed, and while it is now technically in effect, businesses aren't yet seeing bills or enforcement, said Kathryn Wilber, senior counsel for health policy at the American Benefits Council, a trade organization.

And while the Massachusetts law disqualified people who had access to adequate workplace insurance from Medicaid, the ACA didn't includethat restriction. Massachusetts amended its law to comply with the ACA.

As a result, an additional 118,000 people who work full time and most who were offered insurance at work, enrolled in MassHealth between 2011 and 2015, according to Mr. Baker's administration.

Around the country, the workplace is still the most common way people under age 65 access health insurance, a trend aided by tax benefits for employers who offer it. But employers say rising premiums are driving them to choose high deductible plans that shift costs to employees -- who are then choosing Medicaid.

"People are making rational decisions," said Richard Lord, the president and chief executive officer of the Associated Industries of Massachusetts, a 4,500-member employer association. "If it's going to cost them less and they are eligible for a subsidized product, they are choosing to do that."

Hospitals, however, appear to be on Gov. Baker's side. That's because Medicaid reimburses hospitals less than private insurers and is a growing share of hospital revenue, according to Massachusetts Health & Hospital Association President Lynn Nicholas. Ms. Nicholas said Massachusetts' original plan called for everyone in the private sector to take responsibility toward financing health care.

Data from the Center for Health Information and Analysis, an agency that monitors the state's health system, show Medicaid accounted for 17% of hospital revenue in 2015, up from 14% two years earlier, when Massachusetts repealed its employer penalty. At the same time, private insurance declined as a share of hospital revenue to 37% from 39%.

Mark Keroack, CEO of Baystate Health in Springfield, Mass., said he hadn't yet seen the governor's proposal, but said policymakers should address the burden faced by hospitals that essentially are subsidizing Medicaid's growth because payment rates don't cover hospital costs.

"If employers get to move patients to Medicaid without any consequences, the hospital winds up footing the bill," Dr. Keroack said.

(END) Dow Jones Newswires

January 25, 2017 05:44 ET (10:44 GMT)

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