Healthcare overhaul could add financial burdens to state

Depending on how the healthcare bill is structured, Congress could have to come up with more than $1.5 trillion over the next 10 years to help pay for sweeping legislation that would help cover the 47 million Americans who are uninsured. Yesterday, Senate Finance Committee chairman Max Baucus, Democrat of Montana, laid out a set of options for financing the healthcare bill for his committee to debate as it assembles the legislation over the next month.

The policy options would either tinker with Medicare payments in hopes of wringing waste and inefficiency out of the system, or would limit healthcare-related tax benefits, such as health savings accounts.

The document also proposed new tax rules that could affect major Massachusetts institutions, including requiring nonprofit hospitals - Boston has some of the nation's best-known - to meet minimal charitable obligations to keep their tax-exempt status, and reducing or eliminating major tax deductions for nonprofit Blue Cross and Blue Shield plans. The trade association for the insurers said the companies were committed to health reform and were reviewing the proposals.

Edmund F. Haislmaier, a research fellow in health policy study at the conservative Heritage Foundation, said the original purpose in giving the Blues tax-exempt status was to compensate them for insuring those who could not buy insurance anywhere else.

But if Democrats tighten and standardize the insurance regulations so all insurers would have to accept everyone and could not discriminate against the sick, "why give these guys a special tax break for being the insurer of last resort?" he said.

The most dramatic plan - and the one that could yield an enormous amount of money - is taxing some portion of healthcare benefits employees and their employers now purchase tax-free through work. Critics of the current system say the benefit goes disproportionately to the wealthiest employees and encourages overuse of healthcare services, since those with the most expensive and generous insurance plans get the most benefit.

Because Massachusetts residents typically earn more money and have better insurance than most Americans, limitations on that tax exclusion could disproportionately hurt them. Workers at companies with older employees, whose insurance is therefore more expensive, could also be at a disadvantage. But Jonathan Gruber, a health economist at the Massachusetts Institute of Technology, said the limitations could be structured to adjust for those factors.

"These are not insurmountable problems, they're just problems that require a more sophisticated policy approach," he said.

Democratic leaders say they hope to find as much money as they can by eliminating wasteful spending, primarily in Medicare. The options released yesterday included updating Medicare payments for highly profitable home care and reducing Medicare payments for imaging services, which are expensive.

Another goal is to trim spending by reducing regional variations in the cost of healthcare. Studies have found the cost of care varies greatly across the United States for reasons that cannot be attributed only to obvious reasons such as differences in the cost of living or quality of care. In Massachusetts, possibly because it has a substantial number of top specialists, the cost of care is far higher than in states like Minnesota or New Mexico.

The Senate Finance Committee is examining reductions in Medicare reimbursement rates in Massachusetts and other states where the cost of healthcare is disproportionately high, in hopes of evening out those geographical variations.

Edwin Park, a senior fellow at the Center on Budget and Policy Priorities, said a similar approach was recommended by the Commonwealth Fund's Commission on a High Performance Health System, a highly regarded group of health leaders that have been working on recommendations for policy changes for several years, and any changes would probably be gradual.

"Reducing the geographic variation is going to take a fair amount of time," he said.

The committee is also looking at a few other tax changes that do not involve Medicare or tax benefits, including new taxes on alcohol, soda, and other sugary drinks. Senate policy writers call these "lifestyle tax proposals" because they contribute to obesity. (Beacon Hill is also considering taxes on unhealthy beverages as a revenue source.)

"We think it makes sense to both improve public health and raise these revenues," said Brian Rosman of Health Care for All in Boston.

But taxing those items will be a political challenge because of the powerful food and drink industry lobbies behind them.