BOSTON — In a sign that the state is preparing for federal policy shifts, Gov. Maura Healey is proposing a new state-funded reserve to cushion Massachusetts healthcare programs from deepening federal funding losses.
Healey’s newly filed $2.24 billion closeout supplemental budget would create a Health Care Stabilization Fund, giving the state a new reserve it could tap when federal cuts or other shocks put pressure on three sizeable programs: MassHealth, the Massachusetts Health Connector or the Health Safety Net Fund that covers uncompensated care.
The potential new wrinkle on healthcare funding comes as Massachusetts prepares to lose $3.5 billion in federal healthcare dollars annually once all provisions of the federal One Big Beautiful Bill Act take effect.
State officials project thousands of residents could lose insurance through MassHealth or the Connector: around 310,000 MassHealth members will be subject to new work and education requirements, and tens of thousands of residents enrolled in the Health Connector plans are expected to lose federal subsidies in 2027 due to their immigration status.
An Executive Office of Administration and Finance official said the administration estimates about $250 million would flow into the new healthcare fund from “excess” capital gains revenue after other obligations are paid, unless lawmakers change the governor’s proposal.
The bill establishes three steps for fiscal 2026 excess capital gains — a volatile revenue source tied to investment gains that state officials have often warned against using for ongoing expenses.
First, $600 million would go toward pensions and retiree health obligations, as already contemplated in the fiscal 2026 budget. Remaining excess capital gains could then be directed to the General Fund to close any fiscal 2026 budget deficit.
Money left after those obligations are met would be divided, with 85% going to the new healthcare fund and 15% to the state’s rainy day fund. The administration projects that would produce roughly $250 million for healthcare and $50 million for the stabilization fund.
Every dollar needed to close a budget deficit would reduce the amount available for the healthcare reserve. The amount ultimately deposited therefore depends on how fiscal 2026 closes and whether the Legislature agrees to Healey’s plan, or changes it.
The proposal comes as federal changes reshape healthcare financing. Much of the lost federal money stems from new limits on how states finance Medicaid, including restrictions on provider taxes and state-directed payments that Massachusetts uses to draw federal matching dollars for hospitals, nursing homes and community health centers.
Some losses have already begun. About 36,000 immigrants lost healthcare subsidies Jan. 1, while another change taking effect in October will end comprehensive MassHealth eligibility for some lawfully present immigrants. Beginning in January 2027, roughly 310,000 MassHealth members ages 19 to 64 will face new work or education documentation requirements, with many also subject to more frequent renewals.
The financial pressure is also expected to hit the Health Safety Net Fund, which reimburses hospitals and health centers for care provided to uninsured and low-income patients. The program had a $300 million shortfall last year and is projected to face a $150 million gap in fiscal 2026. Administration officials have warned that the hole could reach $600 million by fiscal 2028 as coverage losses mount.
The Massachusetts Health and Hospital Association said the proposal could help hospitals absorb those pressures.
“The struggling Health Safety Net program has become one of the most urgent pressures challenging our hospitals in recent years, and every bit of support will help ensure providers can carry out their mission as coverage losses continue and uncompensated care multiplies,” the association said.
Massachusetts Fiscal Alliance criticized the proposal as another use of state money to preserve existing benefit programs rather than implement changes sought by the federal government.
“One-time and volatile revenues should not become Beacon Hill’s piggy bank whenever politicians refuse to make difficult spending decisions,” MassFiscal Executive Director Paul Craney said. “Massachusetts should be protecting its reserves and structural financial integrity, not creating new ways to spend money before it ever gets there.”
Craney also criticized Healey’s opposition to federal Medicaid changes involving eligibility, work requirements and reimbursement for certain immigrants.
When enhanced federal premium tax credits expired at the end of 2025, Healey found $250 million in the existing Commonwealth Care Trust Fund to stave off premium spikes for one year. That money helped about 270,000 residents earning under 400% of the federal poverty level and brought total ConnectorCare funding to $600 million.
While the Health Care Stabilization Fund is not earmarked specifically for ConnectorCare, Healey’s filing letter identifies the Connector alongside MassHealth and the Health Safety Net as potential beneficiaries.
The timing makes the new reserve a possible tool for the next round of coverage losses, even though its projected balance would be roughly equal to the state’s one-year ConnectorCare backstop. The fund would also face competing demands from the Health Safety Net and MassHealth.
State officials have acknowledged the limits of state government replacing federal money.
“We’re facing a situation where we’re about to lose all the federal funding for healthcare in October. October is when the big bill takes effect, and there are estimates of huge amounts, as high as 300,000 folks are going to either lose insurance or lose insurance support,” House Speaker Ron Mariano said Thursday, pointing to estimates that as many as 300,000 people could lose insurance or insurance support.
Asked previously how Massachusetts could fully prepare for or replace the loss of a major federal budget partner, Mariano said: “You don’t. There is not much you can do.”
He has also described replacing federal benefits with state dollars as “impossible for state government to replace them.”
Lt. Gov. Kim Driscoll in June characterized the fiscal pressure as “federal headwinds” that felt like a “federal hurricane.”
The stabilization fund does not solve that gap. It is instead a new financial cushion the administration hopes to establish before more federal changes take effect.
The proposal now goes to the Legislature, where lawmakers will determine whether the fund is created and how much money it receives. The House sent the governor’s spending bill to the House Ways and Means Committee on Thursday.
Sam Drysdale is a reporter for State House News Service and State Affairs Pro Massachusetts. Reach her at sdrysdale@statehousenews.com.