Center Issues Statement on Governor’s Proposed Healthcare Tax

Summary: Explanations by the Raimondo administration about the Governor’s proposed surcharge on health insurance premiums appear to be misleading. The truth about the new tax expose four major concerns about how it is NOT comparable to the would-be federal exchange tax.
March 17, 2015
Truth about the proposed HealthSource RI Tax
Is Not Commensurate in Scope to Federal Exchange Tax:
Tax Base, Tax Levy, Tax Certainty, and Next Steps are Considerably Different

Providence, RI — Explanations by the Raimondo administration about the Governor’s proposed surcharge on health insurance premiums appear to be misleading. Designed to raise money to partially fund continued state operation of the controversial HealthSource RI exchange, the tax is being positioned by administration officials as comparable to the fees that would be charged if the exchange were to be returned to the federal government.

However, as broached in a recent post in The Ocean State Current, there are a number of major differences between the federal tax and Governor Raimondo’s proposed tax:
First, who gets taxed? Under a federally run exchange, only those who purchase a policy through the exchange, or who purchase an identical policy outside of the exchange, would be taxed. But, as the Center has been projecting for years, because of Rhode Island’s small size and low enrollment numbers, not enough revenue can be raised without charging exorbitant per policy fees.
Under Raimondo’s plan to pay for HealthSource RI’s high projected costs, there would be an assessment on ALL individual and small business policies in the state, whether purchased inside or outside of the exchange.
Also of note, vocal special interest groups, such large corporations and union shops, would appear to be exempt from the tax; yet another special interest handout?
Second, how much tax? Under the federal plan, it was estimated that the 3.5% federal rate assessment based on the 30,000 or so who are currently purchasing insurance through the exchange, would result in about $5-6 million in fees. The Governor’s tax is projected to raise an ‘initial’ $6.2 million in half a year, or about $12 million in annual revenues, making it at least twice as expensive for Ocean State policyholders as the federal option.
Additionally, the proposed 3.8% and 1% tax on individuals and small employers, respectively, is significantly higher than similar 1.35% and 2.5%-3% taxes in Connecticut and Massachusetts, which can afford the lower rates, as they can be spread across a significantly higher number of policy holders.
Third, a fixed tax rate? Use of the term ‘initial premium assessment’ indicates a potential slippery slope. In fact, if HealthSource RI’s expenses rise, or when federal funds disappear, the health and human services secretary is empowered to raise rates for this tax in future years, while the federal plan is statutorily fixed.
Fourth, a stepping stone to state control? Maintaining the exchange under state operation also maintains the threat of further state control over Rhode Island’s healthcare industry, with separate legislation in 2014 (H7819) and 2015 (H5387) already seeking to give government unprecedented new powers. A single-payer system, such as that advocated for by the new HealthSource RI Director, has long been a goal of progressive lawmakers. Under a federal exchange, this threat is virtually eliminated

Stenhouse OpEd & Testimony Video re. Bill to Socialize Healthcare in RI (H7819)


See related OpEd in the Providence Journal, July 3, 2014 


State of the State

Center’s CEO discusses the recently passed FY-2015 budget, BIG QUESTIONS for gubernatorial candidates, and the state of the state on “State of the State” cable TV.

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THEY KNEW! 2009 Brief Advised Against Healthcare Exchange for RI


They Knew!

Ignoring the advice of her own specially convened study process, Lt. Gov. Elizabeth Roberts became one of the leading figures in promoting a complex, costly health insurance exchange for Rhode Island. Further,

HealthSourceRI officials and supporters continue to tout a cost containment goal that the process advised is not achievable according to a little known 2009 Issue Brief provide to Ms. Roberts and other state officials! Our Center’s analysis of this Brief can be downloaded by clicking the button below:

Analysis: They Knew in 2009!


MEDIA RELEASE, June 3, 2014: Specifically advised “Do not pursue” in 2009 by her own specially convened study group, regarding formation of a state-based health insurance exchange, as it would not be fiscally viable and would not meet its primary objective of cost containment, Lieutenant Governor Elizabeth Roberts of Rhode Island nevertheless pressed for the formation of a state-run ACA exchange and has remained one of its most outspoken advocates. This according to the Rhode Island Center for Freedom and Prosperity, a nonpartisan think tank, which today published an analysis of a little known Issues Brief funded by the Robert Wood Johnson Foundation and presented to state officials years ago. 
“There has never been a rigorous public debate about the pros and cons of a state-funded exchange for the Ocean State. With tens of millions of dollars now at stake, we need a renewed discussion today,” commented Mike Stenhouse, CEO for the Center, referring to the abbreviated process that saw related legislation fail in the General Assembly in the spring of 2011, only to have the exchange authorized without advance public scrutiny later that fall by Executive Order of the Governor. “Revelation of this Brief raises many questions. Why was this information not brought to light in 2011? Why do State and HealthSourceRI officials continue to tout claims that their own study advised are not feasible? We must have answers to these questions before we spend $15 million in next year’s budget.” 
The findings in the Brief validate many of the specific concerns raised by the Center in recent reports. In additional to clearly indicating that the study group’s number one preferred objective – to drive down healthcare costs – was not achievable via a state exchange, the 2009 document also advised that Rhode Island’s economy was not strong enough, that there was not a large enough insured population, nor was their a complex enough insurance provider/product market that required coordination, to justify the “establishment of a new administrative structure” to operate an exchange. Further, the Brief advised that because of these characteristics a “health insurance exchange may not generate sufficient volume to be cost-effective.”
“As a state, we are now facing the precise sustainability problems that our Center projected two years ago, that this Brief advised against five years ago, and that has been empirically supported by results from Massachusetts for the past six years,” added Stenhouse. “The small business sector in our state has been deceived into supporting a massive bureaucracy that, sadly, will not reduce their health insurance costs.”
Links to other related information about this issue, including two reports by the Center and a analysis, can be found on the Center’s home page for the health exchange issue at

THEY KNEW! Lt. Gov. Roberts advised in 2009 that state exchange not viable!

Ignoring the advice of her own specially convened study group, Lt. Gov. Elizabeth Roberts and HealthSourceRI officials continue to tout a cost containment goal that the group advised is not achievable! The Center provides an analysis of this buried 2009 report.

Analysis: They Knew!

Center’s Testimony Shoots Down HealthSourceRI’s Major Claims to Justify Continued State Operations


CEO Mike Stenhouse’s full written testimony can be viewed here.



Following a House Finance Committee hearing Wednesday on H7817 that would send the state’s health insurance exchange to the federal government, Mike Stenhouse, CEO for the RI Center for Freedom and Prosperity, commented that “virtually every major claim made by HealthSourceRI in defense of its own costly existence was shot down by well-researched testimony.”

State Funds on the Hook? HealthSourceRI officials claimed that no local funds would be required for FY2015: the Center countered that $15 million is indeed allocated in the Governor’s proposed budget for the closely related UHIP project, an expense that would be eliminated by passage of the bill.

Federal Fee Exaggeration. They previously claimed that a transfer to the federal government would cost Ocean State policyholders $17.3 million in federal fees: testimony by both the Center and by the House Fiscal Advisory Staff put the actual figure under $5 million. The Center further noted that the costs of maintaining operation of the exchange in Rhode Island would be significantly higher, and that it is disingenuous to talk about only one side of the coin.

A True Success Story? They also claimed that theirs is one of the most successful state-based exchanges in the nation: the Center questioned whether it truly should be considered a success when HealthSourceRI has met less than one-third of its original enrollment projections; has see abysmal business sector participation; has no sustainability funding plan; and will cost the state an additional $50 million per year in higher Medicaid costs.

Health Insurance Premiums kept rising, even after Massachusetts passed its exchange law in 2006. Why would anyone think that RI's exchange could do better?

Health Insurance Premiums kept rising, even after Massachusetts passed its exchange law in 2006. Why would anyone think that RI’s exchange could do better?

Local Control to Reduce Costs? They further claimed that loss of local control would inhibit the likelihood of reducing healthcare costs in the state: however testimony from Josh Archambault of the Foundation for Government Accountability, a national healthcare think tank, noted that after seven years of operating its own exchange, the cost curve has not been bent-down in Massachusetts, which had similar cost-reduction hopes, and that HealthsourceRI’s claims to be able to accomplish this may be over-played. (See “They Knew in 2009” analysis)

Illegal Use of Funds? HealthSourceRI official also proclaimed that the federal government, in reaction to recent news coverage, expressed a willingness to work with HealthSourceRI to help fund its ongoing operations: the Center testified that such use of federal funds may be illegal, being specifically prohibited both by the ACA law and Governor Chafee’s executive order that established the exchange in 2011.

“HealthSourceRI officials all but admitted that they have no idea how to pay for the high expense of the exchange in future years. The fact that the federal government called local officials to try to save the exchange, shows that even its own advocates here and in DC understand the challenge of justifying its continued costly existence, and that they are willing to violate their own law,” concluded Stenhouse. “It is an obvious choice to let the federal government pay for its own federal mandate; a choice that other states are making, and a choice that will not adversely affect any current or future policyholder in Rhode Island.”

Stenhouse’s full written testimony can be viewed here.

In the past week the Center has published two reports supporting the transfer of the state’s costly health insurance exchange to the federal government; $38 million or Zero? and Moving HealthSourceRI Forward to the Feds. Each of these reports, as well as links to other related information about this issue,can be found on the Center’s home page for the health exchange issue at

Related News Stories:

Associated Press –

$38 million or Zero? Why RI should transfer its Exchange to the Feds

TWO NEW REPORTS by the Center and a recent analysis re. why the Ocean State cannot support its costly health benefits exchange.

[button url=”” target=”_self” size=”medium” style=”royalblue” ] Report: $38 million or Zero?[/button] [button url=”” target=”_self” size=”medium” style=”royalblue” ] Report: No Legal Barriers[/button]

RI Health Benefits Exchange Costs Exceeding Even Center’s Projections

Implementation of the Affordable Care Act (ACA) in Rhode Island, with both the health benefits exchange (called HealthSource RI) and the expansion of Medicaid to cover able-bodied low-income adults, has been a lesson in government operation. The policies were put into place — and over $100 million in federal tax dollars were spent — without significant public discussion and with no plan to cover the costs, and we’re now learning that projections of costs were wrong in several critical aspects.

The total cost to the state in fiscal year 2015 (FY15) could be as much as $100 million.


When the General Assembly declined to create a health benefits exchange through legislation, now-Democrat Governor Lincoln Chafee did so by executive order. In the text of that order, issued September 2011, the governor explicitly decreed that “No state general revenues shall be used for purposes of the [exchange], and no liability incurred by the [exchange] or any of its employees may be satisfied using state general revenues.”

The order mentions the possibility that funds would come from “insurers or other entities,” so it’s probable that the governor’s office expected the exchange to be self-sustaining, as a government-run start-up company.

A grant application to the federal government in March 2011, by Deb Faulkner, the state’s Exchange Project Coordinator, projects that 2014 would find 127,000 Rhode Islanders enrolled in private health plans through the exchange, with 32,000 of them paying the full cost of their coverage, with no state or federal subsidies. Another 77,000 people were expected to be enrolled through the business-focused component of the exchange, called the Small Business Health Options Program (SHOP).

Under those circumstances, the governor may have expected small transaction fees to be sufficient to cover the cost of the exchange.

In May 2013, another grant application, this one from HealthSource RI director Christine Ferguson, cites a projection developed in cooperation with MIT economics professor Jonathan Gruber. Five months before the launch of the exchange, the state was still expecting 64,000 private enrollees, with 20,000 of them paying the full cost, plus 17,000 in SHOP.

Local news reports cite an “unofficial” memo from the U.S. Centers for Medicaid and Medicare to say that actual enrollment is “far above federal targets.” However, the results are well below the more-official expectations in the applications. As of March 8 of this year, the exchange had enrolled 19,690 people (17% of whom had not yet paid and arguably should not be included until they do), with only 2,284 paying the full cost, plus 795 in SHOP.

The following chart compares the May 2013 projections with HealthSource RI’s results thus far.


In total, the projection was almost four times higher than the results that the exchange had achieved by March 8. Looking at just the full-cost individual plans, the projections were overly optimistic almost by a factor of nine times. This leaves the exchange’s annual budget of nearly $25 million up in the air.


As if the failure of the exchange’s cost structure weren’t bad news enough, the results from the Medicaid portion of the ACA make matters worse.

According to a report by Philip Marcelo, in today’s Providence Journal, the state had expected 51,000 people to enroll in Medicaid within the first 18 months after the introduction of the Medicaid expansion and the health benefits exchange. In actuality, six months into that period, Medicaid enrollment is already up by 48,602.

The following chart shows the trends in each category of enrollee, as HealthSource RI has reported them (roughly month to month). The dark red area represents Medicaid recipients.


After an initial surge leading up to the deadline to receive coverage starting January 1st, enrollment in paid programs has tapered off considerably, while growth in the Medicaid population has remained strong.

The number of people enrolling in paid insurance plans may experience another boost during this month, as the open-enrollment period comes to a close at the end of the month. The flip side of that possibility, however, is that there is no enrollment deadline for Medicaid, so costs may continue to balloon beyond what the RI House Fiscal staff projects.

Multiple calls and emails to various parties for clarification of House Fiscal’s findings have received no reply, as of this writing, but the circumstances may be more dire than is being reported.

According to Marcelo, the House Fiscal staff expects the cost of the Medicaid expansion — which the state government appears to have accepted as an administrative decision, with no public debate at all — to affect the state’s general fund budget for the first time in fiscal year FY17, with an expense of $14.2 million (on a total cost of the expansion of $570 million that year). That amount grows each year, as the state’s contribution phases up to 10% of the $719 million total, or $71.9 million, in 2021.

That isn’t the whole story, however.

Secretary of Health and Human Services Steven Costantino credits the state’s taxpayer-funded public awareness campaign with the high number of Medicaid enrollees. As individuals visit the HealthSource RI Web site, the system tells them whether or not they are eligible for Medicaid. Many of them would have been eligible without the expansion.

According to a HealthSource spokesperson, 33.3% of all Medicaid enrollments through the exchange as of February 8 (or 11,916) would already have been eligible for the public welfare program without the expansion. The federal government only picks up 50-55% of the cost for these Medicaid recipients.

It isn’t clear how (or whether) these enrollees factored into the House Fiscal staff’s analysis, but their cost in FY15 — the budget under consideration right now — could be around $74 million.

In a press conference announcing the Medicaid expansion on the day the Supreme Court ruled the ACA constitutional, in 2012, Costantino estimated that the expansion would only apply to 6,000 to 7,000 people. Even less optimistic estimates made by the RI Center for Freedom & Prosperity at the time put the total cost of the ACA much lower than now appears probable.

As Costantino acknowledges, although insisting it’s an outcome of which to be “proud,” as the state engages in an aggressive campaign to bring in new paying customer’s, it’s not attracting them, but rather new recipients of government handouts.

The people of Rhode Island were never given a chance to fully debate, much less vote on, these changes to government policy. Even now the layers of government spin and incomplete reportage leave them — even their elected representatives — with little understanding of how significant the costs are going to be, especially in comparison with the program they were sold.


Featured image: Stephen Costantino, Lt. Gov. Elizabeth Roberts, and Christine Ferguson at the June 28, 2012, press conference concerning the exchange and the Medicaid expansion.

Center Recommends Transfer of HealthSourceRI to Federal Government

FOR IMMEDIATE RELEASE; January 16, 2014                              

Providence, RI – Following the Governor’s Wednesday night address and after initial review of his 2015 budget, where it is obvious that state funds will soon be needed to continue operation of the state’s healthcare exchange, the Rhode Island Center for Freedom and Prosperity, a nonpartisan public policy think tank, today called on public officials to consider termination of the state’s operation of the HealthSourceRI exchange, and instead transfer its management to the federal government, which currently operates exchanges in dozens of other states.

The exchange was originally formed in Rhode Island by executive order by Governor Chafee as part of the implementation of President Obama’s Affordable Care Act, which made federal funds available for its construction through the end of 2014. It is anticipated that subsequent operation of HealthSourceRI could cost Ocean Staters over $20 million per year.

“The exchange is a federal mandate, it is very expensive to operate, and it is clear that we cannot afford it once federal funds expire. Our own General Assembly rejected operation of the exchange in the first place, so how can we justify burdening Rhode Island taxpayers with footing the bill,” asked Mike Stenhouse, CEO for the Center, which plans to conduct further research into exploring the feasibility of executing this transfer.

The Rhode Island Center for Freedom and Prosperity, a nonpartisan public policy think tank, is the state’s leading free-enterprise advocacy organization. The Center works to make a profound, positive impact on the lives of every family and business in the state through the rigorous exchange of market-based ideas and reform solutions aimed at restoring economic competitiveness, educational opportunities and – ultimately – hope for a brighter future.

Health Benefits Exchange Surge of Enrollments, Still Expensive

HealthSource RI has published its enrollment numbers from its opening to January 4, after the deadline to enroll for January coverage.  In continuation of our series putting the number in context, we herein present them with reference to the federal millions that taxpayers provided in order to create an online government broker for Rhode Island’s extremely limited health insurance options.

According to the Center for Consumer Information & Insurance Oversight, under the federal Centers for Medicare & Medicaid Services, the federal government has given $134.7 million in grants aimed, at least in part, at getting Rhode Island’s Affordable Care Act health benefits exchange, HealthSource RI, up and running. Of that, $99.1 million went directly to the Rhode Island government.

As the following chart shows, even with the last-minute rush for plans, U.S. taxpayers have spent $10,011 in direct grants for each of the 9,902 Rhode Islanders who have officially enrolled (having paid their initial premiums).


Adding in the 1,868 people who have completed the application but not yet paid an initial premium, the per-person subsidy decreases to $8,422.

The largest group of enrollees, however, includes the 24,252 Rhode Islanders who used the subsidized health insurance exchange to discover that they are eligible for free healthcare, through Medicaid or the state’s RIte Care program. (Rhode Island opted to follow the Affordable Care Act in expanding the categories of people who are eligible for Medicaid, to include able-bodied, childless young adults.)

That’s 67% of the 36,022 who have completed the application process, a percentage that’s unchanged from last month.  It’s impossible to know how many of those enrollees are new to Medicaid or were already eligible before the Affordable Care Act, but it would appear that the state is well on its way to the 41,185 new people dependent on the government for health insurance that the Kaiser Foundation predicted by 2019.  As the Center pointed out when the state was deciding how to respond to the Affordable Care Act, this expansion could cost Rhode Island taxpayers nearly $60 million per year (and almost half a billion dollars in state and federal spending).

On the other side of the spectrum, only 1,545 (like last month, 4%) are enrolling in plans without claiming additional taxpayer subsidies in the form of financial assistance on their premiums and other expenses.