Boomergeddon in Virginia: Medicaid Spending

Budget analysts have warned for years that state Medicaid spending eventually would grow so big that it would crowd out other budget priorities such as K-12 education. They don’t need to sound the warning anymore. That day is here. Unfortunately, the crowding out will get worse.

As the authors of the “Report of the State Budget Crisis Task Force” state forcefully, when Medicaid was only a small part of state spending, the states were able to fund its fast-growing budget. “But Medicaid is now such a large part of state spending — 24 percent of total funds and 16 percent of state general funds — that the imbalance (or structural budget gap) can no longer be absorbed without significant cuts to other essential state programs like education or unpopular tax increases or both.”

The spending increases are unavoidable, first, because health care costs will continue to increase faster than the general inflation rate, and, second, because the Affordable Care Act (also known as Obamacare) has mandated a huge expansion of the program to households above the poverty line. The latest official estimate is that total Medicaid spending in the decade of 2011-2010 would increase 6.6 percent yearly without the Medicaid expansion and 8.1 percent yearly with it. While state governments will be obligated to pick up only 10% of the ongoing cost of the expanded program after a phase-in period, many are worried that even a modest additional state obligation will be a budget killer.

Regarding Virginia specifically, the study states:

Virginia’s Medicaid program is conservative regarding eligibility, basically limiting coverage to the minimum federal requirements. As a result, the state ranks 48th in Medicaid enrollees as percentage of the state population, at 11 percent. However, optional benefits to enrollees are quite generous; 62 percent of the Medicaid spending in the state is for optional services, above the national average of 60 percent. Also, payment rates to providers are unusually high – 90 percent of Medicare’s rates, compared with a national average of 72 percent. As a result, the average cost per enrollee in Virginia, $5,758, is higher than the national average and higher than that of California, Texas, or Illinois though lower than that of New Jersey or New York.

Unlike many other states experiencing fiscal pressures in recent years, Virginia has not attempted to reduce rising costs by eliminating optional benefits and services. However, it has implemented several provider-based cost saving policies, freezing or reducing various components of delivery and expanding managed care. The most recent biennial budget proposed by Virginia Governor Robert McDonnell includes proposed Medicaid savings of $260 million in fiscal year 2013 and $438 million in fiscal year 2014. If achieved, these proposals would reduce Medicaid costs by three percent in 2013 and five percent in 2014.

Bottom line for Virginia:

Because our eligibility requirements are already so close to the federal minimum, we have no leeway to cut spending by rolling back the enrollments. Budget crafters do have some room to reduce optional benefits and squeeze providers but such cuts would meet massive political resistance.

Virginia is experimenting with controlling costs by better managing care, a potentially win-win proposition. It remains to be seen, however, if the anticipated savings actually materialize. In the long run, the only hope for restraining Medicaid spending is to orchestrate a productivity- and innovation-driven health-care revolution in which providers deliver more value (superior medical outcomes at lower costs). No such revolution is in the offing, although there are hints that a private-sector driven health care evolution may be taking place. I am dubious, however, that those improvements can deliver results big enough and fast enough to make a difference to state budgeteers.


Special thanks to injury lawyer Thomas Soldan for his support of Bacon’s Rebellion.

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  1. Peter Galuszka Avatar
    Peter Galuszka

    Ok, once again we learn that services are expensive. So’s everything. But you don’t explain what can be done to make sure the poor have health care. We obviously need to protect them — most humane societies do. Just cutting their benefits won’t do much good — too Scrooge like. You talk about the state experimenting with cutting costs with more efficiency, but again, no explanation.
    Trust me “concierge” medical services won’t work with the poor. The only clear option is a single payer service, without the for-profit managed care insurers gaming the system to their advantage.
    Any ideas?

    1. Any ideas? Yes, read my next post.

    2. DJRippert Avatar

      Here’s a suggestion – increase the taxes on cigarettes. The 30 cents per pack tax in some parts of Virginia is the lowest in the US.

      How much of the Medicaid costs are smoking related? How much of that cost could be avoided by increasing the taxes on a pack of cigarettes to the national average?

      Why should residents of Northern Virginia (where we have doubled the state tax on cigarettes) subsidize the areas of Virginia that bend over backwards to make it cheap to smoke?

  2. single-payer? MedicAid IS Single Payer – right?

    I agree, MedicAid is a huge threat to state budgets but it’s part of a bigger problem of health care costs on all fronts.

    We seem to be gravitating to a system where if you have employer-provided health care – you’re golden – and if you do not – too bad… if you or your spouse or kids get sick, too bad, you’re gonna die.

    that’s a crude sound bite of what many folks essentially advocate because they never offer an intelligent reform alternative – just throw “the costs are killing us” dead mackerel on the table.

    You can say what you want about ObamaCare (and RomneyCare) but the simple truth is they actually tried to do something – as opposed to the opponents who blather on about the “free market” solutions such as tort reform which CBO says is about 1.5% of total costs.

    When you get right down to the nitty gritty of it the opponents are just that – opponents – and not particularly interested in real solutions.

  3. Over 50 countries “cover” their poor and they do it at about 1/2 the per capita costs that we do.

    So what do we do? We deny.

    We cannot and will not have a “socialist” system of health care but we WILL pay twice as much per person and advocate less and less care for the poor.

    and what would we do with ObamaCAre?

    well, we’d repeal it of course. Not reform it – and certainly not “Replace” it.

    and what do we get from “leaders” in terms of telling Americans the truth about their health care system?

    well.. they blame Obama and they blame the govt, of course.

    they advocate a “free market” based system of which there is no existing example in the entire world other than 3rd world type “free markets”.

    so our leaders basically feed to the folks who can’t deal with realities their favorite sound-bite “denier” words… for instance… we won’t ration health care like they do in those nasty socialist countries.

    Nope… we’ll just deny coverage so we won’t have to “ration”.

    this is what passes for “thinking” these days on issues such as health care – in this country.

  4. Social Security, Medicare and Medicaid are all government programs and they are all in financial difficulty. Why would anyone assume a single-payer health care system would turn out differently?

    1. DJRippert Avatar

      TMT asks a good question. Why, indeed, should a government entitlement program be expected to succeed in the US? It seems like the entitlement programs are all failures. Once a politician realizes he or she can get votes by giving aware the store, they give away the store. This was as true for GW Bush and his Medicare prescription drug plan as it was true for Lyndon Johnson and the Great Society.

      The only way this will ever change is through amendment to the US Constitution. Specifically, a balanced budget amendment. The founders understood that checks and balances were critical. So, they implemented a lot of checks and balances. State vs federal, Bill of Rights, three branches of government, etc.

      If a balanced budget amendment were passed and if the accounting were done properly, the current crop of politicians would not be able to sell out future generations in order to get votes now – which is exactly what they have been doing.

      If the current crop of politicians wanted more benefits, they would have to raise taxes in order to pay for them. I doubt many of the current crop would be around next term if they decided to do that.

      We can have Scandanavian style health care. It just costs a lot of money. Ditto with unemployment benefits, workman’s comp, etc.

      The problem with liberals is that they are only too happy to mortgage the future by over-spending today. Of course, that may be preferable to the conservatives who simply have no plan at all.

      We also need to take the money out of politics. The democracies where people seem willing to bear high social costs are also democracies where there is a lot of respect for politicians and government. There is no respect for politicians and government in the United States nor should there be any respect. Harry Reid is in the papers today pushing Nevada to generate “green electricity” by buying solar power equipment from a Chinese company represented by his son’s law firm. Typical. Of course Americans don’t want to give more money to the government when the government can’t be trusted.

      So, two constitutional amendments:

      1. Balanced budget other than for war funds during times when an officially and legally declared war is being fought (no “police actions”).

      2. Strict campaign contribution limits including “soft money”, PACs, etc.

  5. TMT asks a good question. Why, indeed, should a government entitlement program be expected to succeed in the US? It seems like the entitlement programs are all failures. Once a politician realizes he or she can get votes by giving aware the store, they give away the store. This was as true for GW Bush and his Medicare prescription drug plan as it was true for Lyndon Johnson and the Great Society.

    why does every single industrialized country in the world have universal health care and they provide it for 1/2 what we do?

    the answer to “why the govt” is what are you going to do when kids die on ER steps. Are you man (or woman) enough to say “tough crap, your dad is a worthless human and you will suffer and die because of it”.

    you blame this on “politicians” but I ask you – are you prepared to watch kids die from a lack of medical care because a good portion of MedicAid is for kids (and their moms).

    so you tell me. Would you do what every other industrialized country in the world does or would you do what the right wing blathers on about?

    batter up. Give me your answer.

    are you a man or a wimp?

  6. the REAL answer for MedicAid is to reform it and model it after our own VA system where drugs are bought on bulk discount, patients have electronic medical records and yes – you cannot get all the care you want as quick as you want or sometimes even need but that’s pretty typical for most single-payer health care in most every country that has universal health care.

    but we continue to pretend that no health care is better than that old nasty “rationed” health care.

    We’ve let the right wing put us in a box on this without really seriously considering what health care would actually look like in the US if we adopted the right wing recommendations.

    It’s not what the American people would ever sign on to. They want changes but anyone who actually believes the American people would agree to abolish MedicAid is just not playing with a full deck.

    And yet – we hear their talking points – even here in BR – blathered over and over… as if the person speaking them would actually agree to totally get rid of MedicAid and watch kids die or for that matter the elderly (Medicare does NOT cover long-term nursing care so MedicAid pays for a lot of it if the recipient can show they are essentially penniless).

    and the irony here is that often the elderly are penniless because they have transferred their assets to their children heirs – and the same time they are passing on to those same kids the taxes to pay for “free nursing home care”.

  7. Darrell Avatar

    In FY2010 approximately 8.4 million of the 23.1 million living veterans in the nation were enrolled in the VA health care system.

  8. I’ve heard good things about the VA, but it is also a terrible bureaucracy to battle. My Dad was a Navy veteran from both WWII and the Korean “Conflict.” He had circulatory problems in old age, such that he lost both legs above the knees. He was in an assisted living center and was “eligible” for additional services from the VA. We applied on his behalf for the services in late 2009-early 2010, but didn’t get things resolved when he died in January 2011. We are still fighting with the VA today. They lost the paper work twice. They are working on his claim. We’ve gone to his Congresswoman and still nothing. While this is anecdotal evidence, I’m not sure any federal bureaucracy is the answer to much of anything.

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