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Medicaid Expansion Crowds Out Other Spending in Virginia

February 25, 2019

For most of the past decade, Medicaid has been overwhelming Virginia’s budget to the point where the state is now expecting a $462.5 million shortfall over the next two years and lawmakers are torn over how to make up the difference.

In the fall of 2018, Virginia Secretary of Finance Aubrey Layne blamed unexpected costs on inaccurate cost projections and higher enrollment than the state government had forecasted.

Layne told the Richmond Times-Dispatch Medicaid expansion had nothing to do with the anticipated budget hole. Medicaid expansion went into effect in Virginia on January 1, 2019, and the state officials revealed the cost projections in a revised budget forecast on November 2, 2018, the day enrollment opened for the expanded program.

Virginia is one of 37 states to expand Medicaid. Under the Affordable Care Act, the federal government promises to cover 90 percent of the costs for the first five years, a much higher reimbursement rate than the states receive for the base Medicaid program for the neediest recipients.

‘She Saw Dollar Signs’

Dr. Deane Waldman, a physician and distinguished senior fellow for health care policy at the Texas Public Policy Foundation, says Virginia is making the same mistakes as New Mexico did in expanding Medicaid. He reviewed an analysis of New Mexico’s Medicaid expansion plans by the state’s legislative budget commission and found serious problems with the state’s projections.

Although the revenue projections seemed accurate, the forecasters were wrong in ignoring the reduction of care that would result from a rapid increase in enrollment, Waldman said. Waldman says he concluded the supply would not meet the rapidly rising demand.

“The governor didn’t believe me,” Waldman said. “She looked at a minimum estimate of three billion additional dollars and all these people who would have coverage who didn’t have it now.

“So she implemented it just the way Virginia did, and probably for the same reason,” said Waldman. “She saw dollar signs and saw more people insured.”

More Enrollees, Less Access

Forecasting the effects of Medicaid expansion is like planning for any other major project, Waldman says.

“You never talk about revenue without talking about cost, and you better talk about net,” Waldman said.

“First, [New Mexico] underestimated the enrollment volume by several hundred thousand people, Waldman said. “By 2017, 42 percent of the state’s population was covered by Medicaid. Unfortunately, the costs of federal insurance mandates—both benefits and the expanded bureaucracy—exceeded contributions from Washington by $417 million.

“To deal with its shortfall, New Mexico Medicaid had to cut reimbursements to providers,” Waldman said. “In other words, the only way they could balance their state budget was to reduce access to care. End result of Medicaid expansion was more people with insurance and fewer people who could get in to see a doctor.”

Coverage, Not Care

Lawmakers commonly make the mistake of assuming coverage, such as health insurance, means the same as health care, and the current highly regulated model, which often uses managed care, saves money by not giving care, Waldman says.

“The same way the insurance companies use ‘3-D’ offense to delay, defer, and deny, the less they spend, the more profit they make,” Waldman said. “As long as insurance is a prepayment plan, we’re going to continue to be in this mess. I have been pushing to get third party [payment systems] out of health care and return it to where it needs to be: an exchange between doctor and patient.”

‘Tearing Down the Walls’

Virginia state Sen. Ryan McDougle (R-Hanover) introduced a bill in the current legislative session to move responsibility and oversight of Medicaid from the Department of Medical Assistance Services to a new state agency to be called the Office of Medicaid Fiscal Oversight.

"The purpose of my bill is to ensure what happened last year doesn’t ever happen again,” McDougle told Health Care News. “The nearly $500 million debacle that we are having to confront in the current budget is unacceptable. The Office of Medicaid Fiscal Oversight and Accountability will take politics out of the equation. The Office will have the ability and authority to prevent this from happening in the future, which is especially important as we are already learning about inaccurate projections and other fiscal dangers related to Obamacare’s Medicaid expansion."

The proposed office would issue a cost forecast, provide monthly oversight of Medicaid expenditures, and review the impact policy changes might have. The office would employ actuaries who would determine projections for growth in managed care rates. It is expected that the office would employ five to seven full-time people, including an economist and a data information analyst.

Current federal matching dollars would cover 50 percent of the new agency’s expenses. According to a fiscal statement on the bill, however, it is not clear whether an independent office would be eligible for federal reimbursement. The Department of Medical Assistance Services would still exist to maintain current activity, such as federal reporting and provider rate setting with the Centers for Medicare and Medicaid Services.

Calls for Deregulation

Deregulation is the path to success in health care policy, says Ben Knotts, Virginia grassroots director for Americans for Prosperity.

“With an expanded population on Medicaid, we must be focused on lowering the cost of health care for everyone,” said Knotts.

“Lawmakers can only lower the cost of care by tearing down the walls between patients seeking care and the qualified providers who wish to give it. By removing these barriers, we increase the supply of health care for patients to access, and we can provide more accessible, affordable health care to Virginians across the board,” said Knotts

Virginia is also seeking a work requirement waiver from CMS. That application is pending.

 

Ashley Bateman(bateman.ae@googlemail.com)writes from Alexandria, Virginia.

 

Internet Info:

Virginia Senate Bill 1352,”Medicaid Fiscal Oversight and Accountability”

https://lis.virginia.gov/cgi-bin/legp604.exe?191+sum+SB1352

Author
Ashley Bateman writes from Alexandria, Virginia.
bateman.ae@googlemail.com