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Research & Commentary: Virginia Medicaid Costs Exceeding Projections Post-Expansion

May 2, 2019

In this Research & Commentary, Matthew Glans discusses the rapidly rising cost of Virginia's Medicaid program and how Medicaid expansion is exacerbating the problem.

In November, Virginia became one of the latest states to expand Medicaid, despite growing concerns about rising costs and the long-term viability of the program in many of the states that have previously expanded their programs.

Under the new expanded Medicaid program, about 395,000 Virginians qualify for benefits. The new requirements make Medicaid available to anyone who earns up to 138 percent of the federal poverty level, or about $33,948 for a family of four.

Contrary to expansion supporters’ depiction of newly available federal funds as “free money,” Medicaid expansion is expensive. It creates significant costs for states that the federal government doesn’t cover or will not cover forever, leaving state taxpayers on the hook for liabilities.

Virginia’s Medicaid funding problems did not begin with its recent expansion, funding the traditional Medicaid program has been a growing concern. As in many states, Virginia’s Medicaid program costs have continued to grow each year. In 2015, Virginia spent 17.5 percent of its budget on Medicaid, a 1.4 percent point increase from 2010. In fiscal year 2017, federal and state spending for Virginia’s Medicaid program totaled approximately $9 billion, according to the Kaiser Family Foundation.

Over the past year, Virginia has experienced rising Medicaid costs, including costs associated with people who are not newly eligible under the expansion provisions. According to the Richmond Times-Dispatch, the cost of Virginia’s Medicaid program has increased beyond initial estimates by a whopping $462.5 million. These increased costs are not related to expansion and arose due to rising expenses associated with treating elderly and disabled Medicaid recipients in the state’s new managed-care program.

In addition to the increased cost for Virginia’s traditional Medicaid program, costs were also higher than expected for new recipients in the expanded Medicaid program. According to the Department of Medical Assistance Services, Medicaid expansion in Virginia has already exceeded estimated costs by over $80 million.

Medicaid expansion is poor policy. It increases costs without providing substantial health improvements. While it is too late to stop Medicaid expansion in Virginia, there are ways to reform the state’s Medicaid program that would help manage costs and return the program to its original purpose, a safety net for the truly needy. Section 1115 waivers are an essential tool that give lawmakers the power and flexibility to institute free-market reforms that will increase access to high-quality, affordable health care without growing state budgets or the national debt.

One of the most important strategies is enacting work requirements. Lawmakers approved Virginia’s Medicaid expansion in 2018 with the condition that the state applies for federal permission to introduce work requirements. While Virginia’s work requirements waiver is still awaiting federal approval, some opponents have continued to push back against these necessary changes.

Work requirements are desperately needed because Medicaid rolls are expanding faster than the program can handle. The number of able-bodied adults enrolled in Medicaid rose rapidly from 2013 to 2015, from fewer than 133,000 to more than 633,000. A large portion of these Medicaid recipients can work but are choosing not to. More than 60 percent of Medicaid beneficiaries are able-bodied, working-age adults, and half of this group does not work, according to a 2018 study by the White House Council of Economic Advisors.

Medicaid should focus on encouraging able-bodied recipients who enroll in these programs to become more self-sufficient and less dependent on government aid. States can request waivers for many kinds of positive reforms, including the implementation of payment enforcement mechanisms to encourage cost-sharing, such as co-pays; reforms to allow states to deploy incentives for enrollees to engage in healthy behaviors; the creation of time limits on coverage; and the creation of monthly income verification and eligibility renewals.

The following documents examine Medicaid reform and expansion in greater detail.
 

Government Report Finds Obamacare Medicaid Enrollees Much More Expensive than Expected
http://www.forbes.com/sites/theapothecary/2016/07/20/government-report-finds-that-obamacare-medicaid-enrollees-much-more-expensive-than-expected/ - 75a85aba2dd0
Brian Blase wrote in Forbes the costs for newly eligible adults were not decreasing as expansion supporters predicted they would.

Work Requirements Are Working for Kansas Families: How Welfare Reform Increases Incomes and Improves Lives
https://thefga.org/wp-content/uploads/2017/07/Work-Requirements-are-Working-for-Kansas-Families.pdf
In this study, Nic Horton and Jonathan Ingram of the Foundation for Government Accountability examine Kansas’ welfare reforms and how recipients fared after leaving the program.

Don’t Wait for Congress to Fix Health Care
https://www.heartland.org/publications-resources/publications/dont-wait-for-congress-to-fix-health-care
In this Policy Brief, Heartland Senior Policy Analyst Matthew Glans documents the failure of Medicaid to deliver quality care to the nation’s poor and disabled, even as it drives health care spending to unsustainable heights.

The Arizona Medicaid Expansion Experience: Beware the Peddlers of Cost-Shifting Claims
https://goldwaterinstitute.org/wp-content/uploads/2018/08/ArizonaMedicaidExperience_FINAL.pdf
This study, written by Naomi Lopez Bauman, Angela Erickson and Christina Sandefur examines the effects of Medicaid expansion on health care costs and whether it has cut down on the high cost-sharing borne by the insured.

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Health Care News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state, or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Lindsey Stroud, a state government relations manager at The Heartland Institute, at lstroud@heartland.org or 312/377-4000.

Author
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance. In 2012, Glans was named senior policy analyst.
mglans@heartland.org @HeartlandGR