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Taxpayer group weighs in on health reform as conferees remain stalled

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BOSTON — Any proposal to extend health insurance to all state residents should slow the growth of Medicaid from what has been proposed, include a mandate for individuals to purchase insurance, and be phased-in over several years, a new report recommends.

The analysis, released Thursday by the Massachusetts Taxpayers Foundation (MTF), also concludes that a payroll tax approved by the House in its version of health care reform would produce roughly half the revenue lawmakers predict. The new employer assessment is a large source of revenue for the House in its plan to cover 95 percent of the state’s population within three years.

The business-backed MTF further calls on lawmakers, currently negotiating the final terms of health care legislation, to reject the payroll tax, saying it would undermine the intent of the legislation — to expand coverage.

A six-member conference committee is currently hammering out the details to how the state will expand access to affordable health insurance for the more than 500,000 residents that currently do not have it. According to a recent US Census report, 11 percent of Massachusetts residents are uninsured, or 748,000 people.

Lawmakers are also under a federally imposed deadline to approve a plan that complies with the terms of a $385 million federal waiver. In a letter to the state this fall, US Centers for Medicare and Medicaid Services Director Dennis Smith suggested that a minimum of 120 days would be needed to review the Massachusetts proposal in order for its provisions to be implemented by July 1, 2006.

House Speaker Salvatore DiMasi, who has come under fire from business groups since first proposing the assessment in late October, was quick to dispute the foundation’s findings, saying the House proposal is aimed at leveling the playing field for businesses. The current system, he said, essentially requires employers to subsidize businesses that don’t offer insurance to their employees through the free care pool.

The payroll tax included in the House plan would apply to any business with more than 10 employees not offering health insurance. The plan weighs health care costs against the tax liability owed.

Massachusetts Institute of Technology economic professor Jonathan Gruber, who consulted with the House on its plan, agreed with DiMasi that the payroll tax will not result in the loss of employer coverage, calling it an “absolutely crazy notion” because businesses would be more inclined to offer insurance, rather than face a penalty, he said.

“It makes no sense at all,” Gruber said. “That is really just bad economics.”

According to the foundation’s analysis, the five or seven percent payroll tax — depending on the company’s size — would bring in $175 million in new revenue, roughly half the $356 million relied on in the House plan.

MTF argues the payroll tax will likely be passed on to consumers and require employers to cut wages and reduce their staff. Additionally, the foundation says employers could opt to drop health insurance for their employees because the assessment would be a cheaper alternative.

“That argument makes no sense whatsoever because people are not required to do anything right now and they cover their people, and their employees with health insurance,” DiMasi said. “So why would that change anything? Are they going to desert their employees now? It’s cheaper to do nothing now.”

John McDonough, executive director of the consumer advocacy group, Health Care For All, said there are “big financing issues” in both plans that need to be addressed, but declined to be more specific. McDonough also criticized MTF for not proposing sufficient revenues to support the expansion of affordable health insurance to all residents.

“This is a day late and a billion dollars short,” he said, noting the Urban Institute report that concluded roughly $900 million in new state money was needed to provide health insurance to residents currently without.

MTF recommends the state earmark an additional $200 million over the next three years to expand coverage, an amount the group calls “the upper limits of affordability for the state budget.” Additionally, the foundation urges lawmakers to “err on the side of caution” when expanding the Medicaid program, since the program is funded with federal matching funds and could put the terms of a federal waiver at risk.

The House and Senate plans invest millions of new dollars in expanding Medicaid eligibility, a proposal lawmakers say will help insure more residents.

MTF says expanding eligibility could result in some residents dropping their private insurance coverage for the state-sponsored, and less expensive, Medicaid program.

According to MTF, an individual mandate on residents to purchase health insurance would be “vital” to achieving universal coverage because it is the most likely incentive for younger, healthier residents to obtain coverage. Gov. Mitt Romney and the House both included an individual mandate in their health care reform plans.

The foundation also backed an independent mechanism, like an exchange, as a way to provide private scaled-back insurance using pre-tax dollars.

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