Forecasting Medicaid Costs and Risks

Beginning Jan. 1 of next year, able-bodied adults earning up to 138% of the Federal Poverty Limit (FPL) will be eligible to enroll in Virginia’s expanded Medicaid program. The financial impact on Virginia taxpayers will depend in large measure upon the percentage of eligible recipients that decide to enroll. A lot of people have taken a lot of guesses, but no one will know the financial impact until the expansion goes into effect and people either enroll or don’t.

A new Old Dominion University study, “The State of the Region; Hampton Roads 2018,” has taken a close look at the numbers. “Every estimate is fraught with uncertainty,” write the authors. “The best course of action is to present a range of outcomes.”

The percentage of the eligible population that enrolls is referred to as the “take- up” rate. In 2016, the Urban Institute estimated a take-up rate of 56.8% for a potential Medicaid expansion in Virginia. In 2017, the Virginia Department of Medical Assistance Services estimated that of 370,000 qualifying Virginia adults, 239,000 would enroll in Medicaid and 60,000 would transfer from other health insurance plans — effectively a take-up rate of 64.5%.

The ODU economics professors writing the study took their own crack at estimating the take-up rate for Hampton Roads. Drawing upon the experience of two neighboring states that expanded Medicaid in 2016, Maryland and West Virginia, they estimated a take-up rate of 44% for people under the poverty line and 55% above. Recognizing the uncertainties of any forecast, they estimated 20,000 newly eligible adults on the low side and 27,000 on the high side. Based on those forecasts, they estimated that costs to the Commonwealth for new enrollees in Hampton Roads will run between $16 million and $22 million by 2021.

The authors consider the expansion a net economic gain for Virginia and the region: improving health incomes for lower-income Virginians, reducing the level of bad debts and uncompensated care, and improving the financial health of hospitals.

But, just as continued increases in military spending in Hampton Roads is contingent upon the condition of the federal budget, the authors caution that the modest state share of the expanded Medicaid program — only 10% for new enrollees — is likewise contingent upon the condition of the federal fisc.

Interest expenditures on the national debt are projected to climb from $316 billion in FY 2018 to $992 billion in FY 2028, crowding out other categories of funding. “An economic downturn that places significant pressure on the federal budget could result in a retrenchment of Medicaid eligibility and an increase in the uninsured rate,” the authors warn. “While history may be a guide, it’s not a promise.”

If the federal government reduced its reimbursement rate for new enrollees from 90% to 50%, the financial liability to Virginia would increase five times.

Medicaid expansion is a done deal. There’s no point in re-litigating that case. But Virginia has to live with the fiscal consequences. And one of the things that happened when the General Assembly passed the expansion bill is that the Commonwealth assumed a risk that the federal government will not renege on its 90% promise. We have no way of knowing what will happen over the next decade — we don’t even know for sure how much Medicaid will cost us next year. But we can identify risks and prepare for them. The question is, will we? Or will we stumble forward blindly on the assumption that all will be well?

Update: Response to this post from the Department of Medical Assistance Services can be viewed here.

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3 responses to “Forecasting Medicaid Costs and Risks

  1. How can this even be a question? The MSM and Democratic politicians have said expanding Medicaid will save taxpayers money (money spent on indigent health care can be transferred to fund other programs) and insurance ratepayers (who will see premium reductions in real terms).

    But I doubt we will ever see the promises come true. After all, lying to advance a “progressive program” is always acceptable.

  2. It’ll take time to find out but there are few things that could deliver even more than “promises”.

    First, pay attention to how Virginia intends to deliver health care to those on MedicAid – Managed Care which means different medical providers will be sharing the same medical record which also means the record is portable if the person moves from one area to another – something particularly endemic to those in those income ranges.

    Second, their insurance is portable if they change jobs – which actually could give those folks employment/opportunity advantages over those who have insurance tied to a particular employer.

    Third – there is no reason to not have the insurance since it is portable. That means people who get it – will keep it.

    Not sure if the undocumented are “coverable” although pretty sure their kids are grandfathered but then we’ll probably see higher percentages of undocumented at the ERs since citizens will get Medicaid and presumably darken the ER doors less often. We may actually be able to turn them away if we know they have access to primary care especially if they have chronic medical issues.

  3. Comment posted on behalf of Christina Nuckols, media relations manager for the Virginia Department of Medical Assistance Services:

    The DMAS forecast enrollment figures that you used are outdated at this point. We have been working with the Department of Social Services and federal partners to gather data on specific populations that will include many eligible adults. This includes information on GAP members, Plan First members, parents with children who currently receive Medicaid coverage, SNAP recipients and some individuals with insurance plans on the Marketplace. All of that work will be reflected in the new forecast, which will be released next month.

    I also wanted to point out that the state share of Medicaid expansion is being funded through a provider assessment. I believe you have written about that topic in the past. The expanded eligibility will actually result in a net state budget savings forecast at $355 million for fiscal years 2019-20.

    Finally, the state budget includes language requiring the new eligibility rules to be rescinded if the federal government fails to pay at least 90 percent of the costs.

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