Massachusetts faces huge costs from health law: Moody's

BOSTON (Reuters) - The costs of Massachusetts' pioneering health-care are rising at an unsustainable rate, ratings agency Moody's Investors Service said on Thursday, two years after the state became the first in the nation with near-universal health insurance.

The higher-than-projected costs mark a setback for a law that Democrats and Republicans alike once touted as a possible national model to reverse a trend that has left more than 47 million Americans uninsured, as traditional employer-based coverage shrinks in the United States.

Commonwealth Care, the state's subsidized health insurance plan, is projected to cost $869 million in the current fiscal year that ends on June 30, 2009, Moody's said in a report. That's up 41 percent from last year.

"Costs related to the (Massachusetts) commonwealth's 2007 health-care reforms are increasing far more rapidly than initially projected," said Moody's.

"While this represents success in terms of increased enrollment of previously uninsured residents in health-care plans, the costs are rising at an unsustainable pace."

The report comes two days after state officials announced that 439,000 people had obtained health insurance since the law went into effect in June 2006, putting the state closer to its goal of covering nearly all residents.

Before 2006, surveys showed that up to 600,000 residents lacked health insurance.

Moody's also sounded caution over a projected 28 percent rise in spending on the fund that pays hospitals for treating patients who still lack health-care coverage, known as the Health Safety Net Trust Fund.

Spending on the fund would reach $453 million this year compared to $353 million budgeted for fiscal year 2008, it projected. But one-time payments could mean that the actual 2008 costs are substantially higher -- at around $467 million.

The law makes coverage mandatory through an "individual mandate" that requires virtually everyone to have health insurance or face tax penalties. For those earning less than the federal poverty level of $9,800 a year, coverage is free.

Those earning up to three times the poverty level can get subsidized plans, according to the legislation, which was signed into law by former Massachusetts Gov. Mitt Romney, a Republican, and backed by the state's top Democrats.

A federal government waiver allows the state to reallocate how it spends money from Medicaid, the joint federal-state health insurance programs for the poor and elderly.

But the legislation has been heavily criticized. Some health-policy experts have questioned whether it can be sustained because it depends heavily in the long term on slowing growth in health-care costs, a prospect that some doubt will happen given the steady rise in costs in recent years.

More than 250 Massachusetts doctors also knocked it, signing a letter this year that said public funds for care of the poor that previously flowed directly to hospitals and clinics now flowed through insurers with higher costs.

(Editing by Kenneth Barry)