Financially Risky for the Commonwealth

EDITORIAL : Apr 10, 2018
Free Lance-Star

MEMBERS of the Virginia General Assembly return to Richmond today for a special session in an attempt to do what they failed to do during their regular 60-day session: pass a biennial state budget. Then and now, the main sticking point is Medicaid expansion, which Gov. Ralph Northam has made a centerpiece of his legislative agenda.

This is a tall order, since the House and Senate versions of the budget contain seemingly irreconcilable differences.

In a nutshell, the House budget would extend full Medicaid coverage to 300,000 low-income, childless non-disabled adults at a cost of $306 million after the federal share, which drops from 94 percent in 2018 to 90 percent in 2020. The state’s share would be paid by a “bed tax” on Virginia hospitals, which would inevitably be passed on to taxpayers in the form of higher hospital bills and insurance premiums, while some of the federal expansion money would be spent on other programs. The House budget also requires new Medicaid recipients to work or participate in a work-training program, and would dis-enroll them if the federal expansion funds are ever reduced or terminated.

In contrast, the Senate budget takes a more cautious, and we believe fiscally more responsible, approach. It caps Medicaid eligibility at 20,000 new enrollees and takes $187.5 million from the General Fund to target coverage to 60,830 low-income individuals and 2,296 with developmental disabilities currently on a waiting list, with the federal government picking up 50 percent of the tab.

The Virginia Hospital and Healthcare Association, whose members would be on the hook for the state’s share of expansion costs, told the Free Lance-Star that expanding Medicaid coverage would help reduce their unreimbursed charity care expenditures. But the group opposes the $306 million “bed tax” unless certain conditions are met, none of which are contained in either of the budget proposals.

Virginia’s current Medicaid program—which covers one in eight Virginians, including pregnant women, low-income parents, children, the elderly and the disabled—already consumes nearly a quarter of all General Fund expenditures. Costs are expected to rise by another $575 million over the next two years even without expansion.

According to its 2016 Actuarial Report on the Financial Outlook for Medicaid, the latest one available, the Centers for Medicare and Medicaid Services predict that between 2018 and 2026, per capita expenditures for the able-bodied expansion population will actually grow faster than the per capita costs of covering the more vulnerable Medicaid enrollees—and the increase is expected to be more than 50 percent higher than CMS’ own 2013 projections.

This is the fiscal equivalent of a runaway freight train. It is simply not sustainable.

For example, Massachusetts—which was a national leader in health care reform and one of the 32 states that expanded Medicaid under the Affordable Care Act—asked CMS last September for a waiver to reduce its MassHealth rolls (which includes Medicaid and the Children’s Health Insurance Program) and limit beneficiaries’ access to certain drugs because state spending on the program jumped more than 30 percent in just three years and is now consuming 40 percent of that state’s budget—with no end in sight.

Nonetheless, two top Senate Republicans in Virginia—Sens. Emmett Hanger (Augusta) and Frank Wagner (Virginia Beach)—have recently indicated their willingness to break ranks with their party and vote for Medicaid expansion.

However, Hanger opposes the bed tax and Wagner says he wants tax breaks for middle-income Virginians whose insurance premiums are skyrocketing in exchange for his vote. Fulfilling one—or both—of those demands would leave a multi-million-dollar hole in either budget and require a major reshuffling of spending priorities.

Looming over the budget battle is a warning by several credit agencies that Virginia could lose its coveted AAA bond rating if its Rainy Day Fund is not replenished, leaving the commonwealth vulnerable to a major stock market correction, a recession or even a hike in the interest rate. The Senate budget takes that warning somewhat seriously; the House budget does not.

Bottom line: While the House plan to expand Medicaid is more politically popular than the Senate version, it is also far more financially risky for the commonwealth. Gov. Northam and Virginia legislators should take care not to repeat Massachusetts’ painful mistake.

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