This article summarizes the consequences of the November 2012 election on tax policy and health care cost containment implementation in Massachusetts and the potential ramifications on McDermott clients.

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Most casual observers would suggest that the election of 2012 will have little impact on the State Legislature in one of the “bluest” states in the United States.  They would be wrong.

Although the composition of both chambers of the Massachusetts State Legislature will remain relatively unchanged for the 2013–2014 Legislative Session, the policy discussions set in motion by the current leadership will be executed in force during the first few months of the new year.  Because the legislature is typically more willing to take on controversial issues, like raising taxes on individuals and corporations, in a non-election year, it is clear that the legislative agenda will be dominated by the fiscal policy of the state, including recent recommendations of the Tax Expenditure Commission.  This 11-member, bipartisan commission concluded that every tax incentive and program in Massachusetts needs to be re-evaluated and justified as an appropriate expense of the state.   

In addition, the so-called federal “fiscal cliff” and lower than expected state revenue receipts for the current fiscal year will necessitate immediate action by those who control the purse strings in the Commonwealth.  As of the end of October 2012, revenue receipts are $256 million below the benchmark set for the first four months of the fiscal year.  As a result, the need to fill the gap through increased revenue or programmatic cuts will dominate the discussions on Beacon Hill.  And the election virtually guarantees that the top leaders in each branch will continue to control their respective houses (barring any unusual occurrence between now and January).   

Issues that will guide policy discussions at the state level include the financing of a near-bankrupt transportation system, the administration of a negligent state-funded drug testing laboratory and the implementation of an ambitious health care payment reform plan.  All of these matters will have a significant impact on the fiscal affairs of the Commonwealth and will likely cause intense debate on the subject of increasing the tax burden of individuals and businesses on a wide scale and broad base.

More specifically, the state will embark on an extensive process to rein in spending associated with health care.  In August, the governor signed an omnibus health payment reform bill that will impact every health care provider, insurer and consumer, and the details of how to implement the envisioned reforms are continuing to unfold through the drafting and promulgation of regulation at the newly formed Health Policy Commission.  This issue will have a major impact on the fate of the state in the immediate and distant future.

Therefore, no stone will be left unturned, no person or business will be left unscathed, as the State Legislature and Governor decide how to advance their respective policy agendas while avoiding a potential fiscal disaster in a state whose leaders cannot yet say that Massachusetts is comfortably on the road to economic recovery.  Now, more than ever, it is crucial for businesses and industry sectors to identify a strategy for continued success in a rapidly changing marketplace and political environment.  Failure to appreciate the fact that policy considerations at the state level will play a significant role in this process will lead to unfortunate consequences for individuals, businesses and government entities alike.