How Romney paid for Romneycare, with federal help

September 21, 2012

Republican presidential candidate Mitt Romney told Univison in an interview Wednesday that he did not mind when President Obama called him the "grandfather" of Obamacare when referring to the program Romney instituted when he was governor of Massachusetts. Quite the opposite. Romney  thought other states might take a page from the Massachusetts playbook.

We didn't have to cut Medicare by $716 billion. We didn't raise taxes on health companies by $500 billion, as the president did. We crafted a program that worked for our state. I believe the right course for health care reform is to say for each state we're going to give you the Medicaid dollars you've had in the past, plus grow them by 1 percent. And you, as the states, are now going to be given targets to move people to insurance, and you craft programs that are right for your state. Some will copy what we did; others will find better ideas.

Romney is right: The state of Massachusetts did not cut Medicare to finance health care (nor could it have, as states don't have a say in the federally financed entitlement budget). Whereas the Affordable Care Act levies a tax on insurance companies and makers of medical devices, the Massachusetts law has no similar provision.

But could a state with a capped Medicaid budget, as Romney has proposed, copy what Romney did in Massachusetts and end up with universal coverage? Romney's own experience suggests probably not: His state a special pot of federal money, alongside a preexisting assessment on hospitals and insurers, to expand insurance coverage to 98 percent of its population.

Way back in 1985, under then-Gov. Michael Dukakis, Massachusetts set up a program called the Uncompensated Care Pool. Much like the name suggests, the pool is used to finance health care for those without insurance. Massachusetts financed the plan largely through assessments on hospitals and insurers. Under Romney's administration In 2004, each industry paid in about $157 million to keep the pool running. That plan still operates today -- under the name Health Safety Net - and covers health care needs that Massachusetts residents cannot afford.

Since the late 1990s, Massachusetts has also received additional Medicaid funds to enroll populations that other states traditionally do not cover. In 2005, when Romney was governor, the federal aid amounted to $550 million. As former Romney adviser John McDonough explains in his book "Inside Health Policy," the funds were crucial to laying the foundation for universal health coverage. He takes us back to 2005, when the George W. Bush administration was getting ready to end that special funding arrangement:

"In Masachusetts, $350 million is a lot of money, and the news set off alarm bells. Governor Romney reached out and formed a partnership with Senator Kennedy to scheme how to keep the extra federal dollars coming. At that moment, the state's mundane desire to retain federal dollars merged with the policy goal of universal coverage to create a new policy imperative. Romney and Kennedy proposed that Massachusetts keep receiving the extra payments and in return the state would shift the use of those dollars [to] subsidies to help lower-income individuals purchase health insurance coverage."

Ryan Lizza recounts a similar version of events in his New Yorker article on Romneycare. That state ultimately secured three years of additional Medicaid funding, $1.05 billion, which largely financed the Massachusetts expansion. Both accounts suggest that it was a special commitment from the federal government, rather than a capped budget, that spurred Massachusetts' success.

Since then, employers and individuals have chipped in to keep the universal coverage program afloat. The Blue Cross Blue Shield Foundation of Massachusetts saw spending by both of those groups increase in the year after Romneycare became law, which they attribute to rising medical costs and the insurance expansion.

Five years later, it's largely federal funding that keeps Massachusetts' universal coverage afloat. Since 2005, the state has twice renewed that federal waiver -- the one Lizza and McDonough wrote about -- to provide additional Medicaid dollars to the state.

The most recent renewal was last December 2011, when the state secured $26.75 billion in federal funds over the course of three years. It will, among other programs, continue to finance the universal coverage program.

"The milestone agreement also ensures the ongoing success of Massachusetts’ historic health care reform initiative, through which more than 98 percent of the Commonwealth’s residents, and 99.8 percent of children, have health insurance," Massachusetts Health and Human Services Secretary JudyAnn Bixby wrote at the time. "The waiver fully funds our ongoing health care reform implementation."

So Massachusetts used not just federal Medicaid money but federal dollars above and beyond that Medicaid money to finance their health reforms. It is difficult to see how Romney's proposal to cut Medicaid spending and hand that reduced share over to the states would allow other states to follow Massachusetts' example. It might not even permit Massachusetts to continue following Massachusetts' example.

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Brad Plumer · September 21, 2012