Three years ago, the Commonwealth of Massachusetts enacted a far-reaching health reform law that politicians and the media hailed as a model for other states and the federal government. That law has become the major blueprint for health system change on a national scale, and its advocates, with Sen. Edward Kennedy at the top of the list, are aggressively marketing some variation of the Massachusetts plan as the reform of choice. Until recently, there has been little analysis of how the law has worked. This is the fourth in an occasional series of posts that will explore the Massachusetts law, with an eye toward helping the press and the public understand the flashpoints as legislation based on the Bay State’s experiment winds its way through Congress. The entire series is archived here).

The last few weeks have not been great ones for the Massachusetts health reform law. As Congressional committees issue draft legislation calling for reform resembling Massachusetts’s Grand Experiment, the ghosts of cost controls—or, more aptly, the lack thereof—are beginning to haunt. In Part III of this series, we showed how controlling the cost of medical care in the nation’s most expensive state was not even an afterthought when the widely acclaimed law sailed through the Massachusetts legislature. Nancy Turnbull, a professor at the Harvard School of Public Health who was present at the law’s creation, told Campaign Desk that cost controls were never an active part of the conversation.

Now, Massachusetts doesn’t have enough money to maintain the “universal” coverage that was the health reform bill’s primary goal. The whittling down process has begun.

A New York Times headline summarized the predicament: “Massachusetts Takes a Step Back From Health Care for All.” The story explained how the new, extremely tight state budget eliminates health coverage for about 30,000 legal immigrants—those who have had green cards for less than five years—to help close the deficit. Recent immigrants were previously eligible for Commonwealth Care, the state’s subsidized insurance program that has helped bring coverage to some 97 percent of the state’s residents. Cutting them off, however, saves $130 million, and the state is desperate for savings. Gov. Deval Patrick, who at least a year ago saw the train wreck coming, is trying to restore $70 million of those cuts to provide some kind of coverage for that group. So far, the legislature is saying no.

Other cost trimmings will affect residents, especially poor ones. In June, the Connector Authority, which runs Commonwealth Care, reduced its costs by 12 percent, or about $115 million, in an effort to slow the surge in applications. It’s no surprise that people who have lost their jobs and their insurance have flocked to Comm Care, as it’s called, for new coverage. The Connector, however, has decided to stop automatically enrolling 18,000 people who get fully subsidized care but who forget to “choose” a health plan. Now they’ll have to remember to select their plan in order to get coverage. This will help slow down the growth of the program, which is estimated to increase from about 177,000 members now to 212,000 next year. The state did this after getting the go-ahead from the Obama administration’s Medicaid agency.

These cuts come on top of other measures Massachusetts took last year to shore up financing. The state raised tobacco taxes as well as copayments and premiums for those receiving some subsidized coverage. At the time Leslie Kirwan, the state budget director and chair of the Connector Authority, said: “We have closed some of the fiscal gap here, but we have not closed most of it.” This year the gap got bigger, prompting these important questions: What further measures will be needed? Will other currently eligible residents be dropped, and how will the state decide who is more deserving? Will the tax penalties, now about $1,000 a year for those without coverage, kick in—compounding the financial woes of people already in distress?

Then there’s the problem with the safety net hospitals, which did not find themselves in the winner’s circle after health reform passed. Last week, the Boston Medical Center, which serves Boston’s poorest neighborhoods—half of its patients make less than $20,400 per year—filed a suit against the state, which hospital officials call “a cautionary tale for national federal health care reform.” The suit alleges that Massachusetts has underfunded the medical center by not adequately covering the cost of care for patients on Medicaid, Commonwealth Care, and those who remain uninsured. One third of the Center’s patients are on Medicaid, a rate higher than other state hospitals.

Last winter I interviewed the Center’s vice president, Tom Traylor, who told me of the hospital’s reluctance to speak against the law, but said that the time had finally come to do just that. Now, with the suit, the hospital is speaking louder. The hospital is facing a budget gap of $180 million because promised funds did not come its way, and because Medicaid reimbursements and money from the state’s free care fund simultaneously decreased. Instead, Traylor says, some of that money was used to subsidize insurance policies for poor people, in a kind of robbing Peter to pay Paul arrangement. “We’re Peter,” he says. “Basically, it’s shifting money around.”

That sounds like a solution some hospitals floated a few weeks ago for national reform. They proposed cutting payments to hospitals that serve a disproportionate number of poor patients. But since the law passed, as the Boston Medical Center has learned, hospital admission rates have increased, as have outpatient visits—and patients aren’t any less costly to treat. A cautionary tale, indeed!

The turmoil in Massachusetts is reminiscent of Tennessee’s bold attempt to provide health care coverage fifteen years ago. TennCare, which provided coverage to poor people and those who were uninsurable because of preexisting health conditions, eventually collapsed under the weight of rising costs. Four years ago, the state summarily dropped coverage for thousands, rationing prescription drug coverage for those who remained.

Things have gotten so bad in Massachusetts that Philip W. Johnston, chairman of the Blue Cross Blue Shield of Massachusetts Foundation—the birth mother of reform and its chief advocate—has now said that the state needs a dedicated revenue stream to protect its growing child. That’s the same point Traylor made to me months earlier. While Traylor says the law “is not working and needs new revenue,” he also says there’s no appetite for further tax increases. The legislature just hiked the sales tax from 5 percent to 6.25 percent.

The financial mess in Massachusetts shows why Social Security and Medicare have survived over the decades. Both programs rely on dedicated payroll taxes that everyone pays, giving everyone a stake in the program. Sure, they’ve had some funding problems along the way—but these problems have always been fixed, and most neutral experts believe they can be fixed again. FDR knew that payroll taxes were as much a matter of politics as of economics and later proclaimed: “With those taxes in there, no damn politician can ever scrap my Social Security program.” So far, no one has.

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Trudy Lieberman is a fellow at the Center for Advancing Health and a longtime contributing editor to the Columbia Journalism Review. She is the lead writer for The Second Opinion, CJR’s healthcare desk, which is part of our United States Project on the coverage of politics and policy. Follow her on Twitter @Trudy_Lieberman.