Governor Charlie Baker, backing away from a showdown with Democratic lawmakers, said Tuesday that he will sign legislation that imposes $200 million in higher fees on businesses to fund health care for the poor, even though the measure omits his plans for reining in the state’s Medicaid program.
Baker’s decision means he is shelving — for now — his plans to curb the rising cost of MassHealth, including one approach that would have moved 140,000 adults from the program onto commercial health plans. Lawmakers have twice rebuffed that proposal, most recently last week after the administration had urged them to approve it and the employer fee as a package.
His decision is likely to please health care advocates but anger business groups, which had said they would agree to higher fees only if the state began to reduce the cost of MassHealth, which accounts for $16 billion in annual spending, split between the state and federal governments.
Asked how he would respond to employers unhappy that he agreed to higher fees without the cost savings, Baker said, “I believe this is the best way for us to ensure that they and we and the Legislature get what we all want, which is a sustainable MassHealth program.”
Baker also said he hopes to continue to work with lawmakers to develop a plan to control spending on MassHealth, which provides benefits for 1.9 million low-income, elderly, and disabled residents. He said he hopes both sides can reach an agreement by the fall.
“The Legislature told us they would work with us on this, and we’re going to take them at their word,” Baker said at the State House.
“They’re acutely aware of the fact that, if we can’t come up with a way to manage this program effectively and continue to cover people here in the Commonwealth, it will crowd out opportunities to invest in education, in transportation, and other areas that are important,” he said.
Some lawmakers have indicated they are interested in developing health care legislation but they have not unveiled any detailed plans. Last month, however, lawmakers rejected, by a veto-proof majority, the governor’s plan to shift some MassHealth recipients onto commercial plans and sent him a stripped-down version imposing the $200 million in higher fees on businesses.
Baker could have vetoed the legislation and told lawmakers he would not sign it without cost-savings attached. But he opted to sign the measure and try to work more collaboratively with lawmakers in the fall to craft a plan.
The bill Baker plans to sign increases a fee that most businesses already pay, called the employer medical assistance contribution, or EMAC. Beginning Jan. 1, the fee would increase from $51 to $77 per employee. That would raise $75 million in annual revenue for MassHealth.
But employers whose workers currently receive public health insurance benefits would pay as much as $750 more per worker. That would raise $125 million in annual revenue. Both fees will end in two years.
By agreeing to higher costs on employers without additional cost savings, Baker risks denting his reputation as a business-friendly executive. He has generally resisted raising taxes, but his administration has argued that the employer fee was important to help ease the state’s budget crunch caused by rising health care costs.
He said the proposal is built on the idea that there are currently hundreds of thousands of residents who work and have access to health insurance through their employers yet are covered by MassHealth. Asking employers to help the state pay for their workers’ coverage, he said, “is not an unreasonable expectation.”
Baker’s MassHealth proposals would have shifted 140,000 adults, including 100,000 parents, onto subsidized health plans on the state’s Health Connector.
Those adults would not have to pay premiums, but they would be hit with higher out-of-pocket costs — on average, about 3 percent of their income. They also would have to pay extra for dental benefits, unless they sought dental care at community health centers.
The change would apply to adults just over the poverty line, earning between $16,240 and $21,600 a year for a household of two.
Health care advocates and Democrats had argued that moving residents off MassHealth would hurt low-income families. Baker has opposed his party’s efforts to repeal the federal health care law.
“My expectation is there will continue to be federal discussion and debate about health care generally and we will continue to have to do what we need to continue to advocate for Massachusetts,” he said.