Medicaid Expansion Cost Still Off-Budget, Elusive

By Steve Haner

All the signs point to trouble. The next state budget, a two-year plan to be proposed in December, adopted by March and implemented in July, may be caught between stagnant revenue and soaring spending.  The spending charge will be led once again by Medicaid.

Just how much the decision to expand Medicaid will cost in the future remains elusive.

The state’s fiscal prospects were explained to the General Assembly’s money committees September 16 and 17 by Secretary of Finance Aubrey Layne.  The highlights are summarized in this article for the Thomas Jefferson Institute for Public Policy, using the image of a strand of worry beads.  The article is being distributed today. 

The same experts who have correctly forecast six of the last three recessions are using that word again, but Layne told the legislators in attendance (it was spotty) he is more worried about other signs of slowing in the national and state economy, including manufacturing data.  Even a slight slowdown puts in jeopardy the 4% revenue growth needed to meet the current year budget.  The worry beads continue into the year that follows.

There was another key meeting September 17, focused directly on Medicaid.  For the first time, the Joint Subcommittee on Health and Human Resources met to set an official target for Medicaid growth in the two fiscal years covered by that coming budget.  The meeting was a bust due to poor attendance.  The staff went ahead and recommended a growth target of 5.8% for FY 2021 and 6.4% for 2022. The staff slides are here.

Had the full committee voted to endorse those, it would have been fiscal sleight of hand.  The growth target was based on Medicaid as it existed two years ago, during the previous forecast.  It ignored the 2018 General Assembly’s decision to expand the number of recipients by about 30% or more, and to increase the payments made to providers who see Medicaid patients.  The failure to fold in the program changes directly contradicts the state budget language that called for a target (here).

What those expansion decisions are going to cost this year, next year or the year following was not part of the presentations September 16 and 17.  New hospital provider “fees” (read taxes) provide the state share of covering the new patients and paying the medical providers more.  Those revenues are still curiously off-budget, not showing up in the Northam Administration’s monthly financial reports.  (Including them seemed like a good idea when I suggested it back in April.)

The forecast growth of 5.8 and then 6.4% is concerning enough when near term revenue might be fairly flat, but the real number – including the hundreds of thousands of new Medicaid recipients and the higher provider payments – would grab headlines.  Nobody wants those headlines until after November 5.

Medicaid is just one of the worry beads.  The next budget must include the new standards of quality calculation, pumping additional state dollars into local schools.  The Virginia Retirement System may have unrealistic investment success projections, also requiring added tax dollars.  The Lottery is bleeding cash to others offering competing (and equally misleading) promises of quick riches.  Hey, those are our suckers!

Here are some additional worry beads not listed on Layne’s presentation.  The push is still on to make the Earned Income Tax Credit refundable at the state level, meaning some low-income working families would get a cash EITC grant.  It’s an idea with merit, but it has a cost.  And there is a strong push brewing to add additional benefits to Virginia’s Medicaid program, the most expensive being dental care for adult recipients.

So, keep all these in mind when the candidates come calling with promises of more and better government.  Ask them instead what their “go to” move will be when revenues are not sufficient to meet existing commitments.  If the answer is to raise taxes, which ones and how much?  If the answer is to cut spending, what categories and how much?