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?


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19 responses to “Medicaid Expansion Cost Still Off-Budget, Elusive”

  1. Anonymous3444 Avatar

    “If the answer is to raise taxes, which ones and how much? If the answer is to cut spending, what categories and how much?”

    Boy, I would love to get as clear and straightforward an answer to that question out of any candidate’s campaign in NoVa as Steve Haner is imagining. What I generally get has been a flat denial that there is a problem, or that there ever could be a problem, period.

    James Howard Kunstler offered the best succinct name for this (nationwide) phenomenon in the title of a book from a few years ago (well worth reading for unrelated reasons); _Too Much Magic_. Our budget strategy (here in Virgina and nationally) is to simply deny that economic slowdowns ever occur. All growth, all the time, forever, or else. When this turns out to be false, as it has proved every time and everywhere anyone has been foolish enough to believe it, there is hell to pay.

    1. LarrytheG Avatar

      Budgets in Virginia have to be balanced -they cannot have deficits, and so they are inevitably about choices and priorities – and, in fact, Virginia has done bare-bones budgets before in recessions and distressed economic times – on a fairly regular basis UNLIKE the Federal Govt which these days pays for tax cuts by borrowing more money!

      1. Anonymous3444 Avatar

        Single-budget balancing is not what is being discussed here, as the repeated mention of _predictions_, _projections_, and _forecasts_ should make clear. This is about whether we are planning effectively for future generations, not for the coming year or two, nor about whether Virginia has ever had budget cuts. As a former multi-decade employee of the state, I well remember lean years. They occurred under very different political conditions and don’t prove that we are either ready or willing to cut now.

        Of course budgets are about choices and priorities. That has been true for thousands of years. What Steve is clearly pointing out is that we aren’t willing to make choices or enforce priorities in a reasonable or transparent way.

      2. djrippert Avatar

        Not really true. A truly balanced budget would include a mandatory payment of the actuarially calculated need for all pension plans. Remembering back to the McDonnell Administration … payments to the pensions were reduced or deferred in order to maintain the level of school spending.

  2. LarrytheG Avatar

    This is essentially promoting further purposeful confusion between the two MedicAid programs – original Medicaid which is funded 50-50 between the Feds and the State and the Expansion Medicaid which is funded 90-10 federal/state and the 10% is paid for by hospital fees and savings for beneficiaries like prison inmates.

    We cannot have an informed discussion about issues like this when they continue to be misrepresented by organizations who are opposed to the CONCEPT of MedicAid itself and advocate against it – in myriad ways in which the distinction about the funding is made muddy.

    The increase in Original Medicaid costs is coming from what is called the “woodwork” effect which is people who were already qualified to receive Medicaid but had not applied because they did not know they were eligible. When the Expansion was approved – they applied thinking they were eligible for the Expansion Medicaid but, in fact, they qualified for original Medicaid.

    so ironically, the Expansion has caused an increase in original Medicaid costs for additional qualified folks.

    It’s explained here:–%20Medicaid%20Expenditure%20Growth%20and%20Implications%20for%20Expansion.pdf

    Why do the TJ folks continue to misrepresent the issue when they undoubtedly KNOW the facts or certainly should if they are going to write “analyses” and advocate positions?

    Virginia DOES have to ability to EXCLUDE some benefits for original Medicaid – in other words – they have voluntarily chosen to provide higher level benefits than the Feds mandate; a good example is how they pay for nursing home care for people who have substantial assets when they COULD require that the house be converted to a reverse mortgage to pay for the nursing home care.

    I “get” what TJ and their cohorts are all about but I think arguing in disingenuous ways is a disservice and for me it’s undercuts them as a legitimate player in such debates.

    Argue on the merits. the facts. don’t mislead and misinform.

  3. Steve Haner Avatar
    Steve Haner

    Larry, the largest block of money in the “expansion” went to increasing the payment rates to docs, hospitals, etc. That is not a federal 90-10 split. The eligibility expansion is a 90-10 split for now (not forever), but don’t we both also pay federal taxes? Should we just pretend magic money pays the bills?

    The indisputable point is that as Medicaid grows, every other aspect of state government is fighting over left overs. The next state budget may be a bear.

  4. I’m glad Layne is sounding the fiscal alarm, because no one else in the political establishment is. And thank you for this reporting, Steve, because I haven’t seen this information anywhere else.

    The pressure to increase state spending with other peoples’ money is relentless.

  5. djrippert Avatar

    Maybe one of you wonk-masters can help me understand this …

    In FY17 (before expansion in Virginia) Virginia was tied for 4th among the 50 states in percentage of general fund monies spent on Medicaid.

    Why should Virginia be a such a high percentage before expansion?,%22sort%22:%22asc%22%7D

    1. Dick Hall-Sizemore Avatar
      Dick Hall-Sizemore

      It is likely a function of how general funds are defined and counted. The Virginia budget process has a feature that distorts the amount of general fund expenditures. GF expenditures are shown as fund 1000 on the state’s books. However, GF appropriations to higher education institutions are converted to fund 3000 before expenditure. Therefore, those expenditures would show up as something other than GF, thereby undercounting the state’s overall GF expenditures. Note that on the table in your link, Va.’s Medicaid expenditures are 12% of “GF and other”. That is probably too low for true GF, because that “other” includes true nongeneral funds, such as gas taxes. The best way to determine Medicaid’s share of the GF budget is to look at appropriations.

  6. djrippert Avatar

    “Those revenues are still curiously off-budget, not showing up in the Northam Administration’s monthly financial reports.”

    No surprise. Harry F Northam, Jr doesn’t want or need to share those numbers with his inferiors in the electorate.

    Want to bet a beer or cocktail that the amount being raised from the hospital tax is less than what is being spent? LarrytheG?

    1. Steve Haner Avatar
      Steve Haner

      No, I don’t think so. It’s basically a “sum sufficient” figure. They did report on the year just ended, and said any left over “assessment” dollars would be caried forward, but were not forthcoming on the year to come. But the dollars are being tracked internally, and if you have access to the state’s accounting system can see them. They just need to compile and report for those of us without that access. Last time I was told the projection it was in the $700 million range for the FY we are now in.

  7. TooManyTaxes Avatar

    For all the puffing about the need for sustainability in the environment, one would think more people would think about the sustainability of government. First, we need government but not all the government we have. Second, we all need to pay taxes to fund the government. So I’m not arguing about eliminating government or abolishing taxes.

    But government spending and programs must be sustainable or they need to be cut. Fairfax County has twice reviewed every function it performs and program it operates with the stunning conclusion that nothing cab cut. B.S.

    Government cannot raise taxes and fees at a rate that exceeds growth in personal income, state GDP, growth in population and inflation or other traditional measurements on a long-term basis. There won’t be enough money for private sector growth but there will be a decrease in the quality of life for taxpayers. Neither one is a good result.

    Medicaid is eating up state budgets. It has to be tamed. Part of the taming should include tightening up on the asset/income limits for people to get Medicaid payments for nursing homes, as Larry has long advocated. I don’t know where to draw the lines but line drawing is necessary. Similarly, there needs to efforts to incentivize behavior changes for Medicaid recipients. We need to push better eating habits, curbing smoking and drug use and alcohol abuse. I am not offering a specific program.

    And government needs to impose substantial taxes on those employers who hire people not eligible to work in the United States. The ability to hire workers at below-market rates gives the employers excess profits while pushing costs on taxpayers and legal U.S. workers. I’ve argued for limiting the deductibility of worker compensation by the IRS. Others have advocated imposition of a large flat-rate tax (say $10K) for every undocumented worker.

    I’d also strip the tax exempt status from any non-profit that spends money directly or indirectly to influence government policy or public opinion. Drain the Swamp. It would also take a lot of cars off the road as lots of lobbyists would be looking for real work.

  8. Dick Hall-Sizemore Avatar
    Dick Hall-Sizemore

    First of all, it is disconcerting, but not surprising, that attendance by the committee members was “spotty” and a “bust”. After all, everyone is now in full campaign mode and that is the highest priority. You would hope that the members would want to be as informed as possible regarding the state’s fiscal condition.

    In addition, I am not sure what purpose the Medicaid “targets” serve. The Governor’s budget recommendation is going to be what it is going to be, regardless of any targets. Besides, the assumptions that went into developing the targets presumable will be the assumptions used to develop the actual dollar proposal. Steve is correct; the Medicaid expansion component is not included in the targets, presumable because it is too soon after implementation to make projections. But, if that major component is not included, the targets seem useless. It does seem that the expanded provider payment were included in the target development, but that conclusion is based on the slides and not being at the meeting and hearing the discussion.

    As usual, state agencies seem to think good times will continue. The budget requests submitted to the Dept. of Planning and Budget total $1.7 billion for each year of the upcoming biennium. These amounts seem to not include the funding needed for the SOL adjustment or for increased Medicaid costs. Almost $270 million of each year’s GF request is for base budget adjustments; these are items that pretty much have to be provided for each agency, based on past policy decisions, such as continued funding for the employee salary increases that were provided for FY 2019.

    1. Dick Hall-Sizemore Avatar
      Dick Hall-Sizemore

      The totals for the budget requests include general fund requests only. I meant to stipulate that in the post, but did not do so.

  9. Steve Haner Avatar
    Steve Haner

    Dick, are you basing that on public documents or websites (DPB, etc.), or do you still have access to the working systems? (Kept your password, did you?) 🙂 I didn’t think those summaries and decision memos were public yet.

    1. Dick Hall-Sizemore Avatar
      Dick Hall-Sizemore

      They are available to the public. One just needs to know where to look. DPB does not make it obvious. Here is the path:

      1. Go to DPB website
      2. Blue Block on left–Click on “Documents, Instructions, and Publications”
      3 Scroll down the selections to “Agency Operating and Capital Budget Submissions” (at the Oct. 12, 2018 level)
      4. There you will find links to Agency Operating and Capital submissions
      The links are to DPB’s main database. They now default to the upcoming biennium, but can be used for previous years, as well. One can get all submissions (lots of data) or submissions for selected agencies. The interface is fairly intuitive.

      Bear in mind that only the submissions are available to the public. What you will not be able to see are DPB’s recommendations, descriptions, and comments.

  10. Steve Haner Avatar
    Steve Haner

    Still, a veritable gold mine, like the SCC website, if you are willing to dig…..

  11. […] some other recent state reports, the JLARC summary does capture and include the first six months of Medicaid expansion, adding more […]

  12. […] hospital assessments are taxes or fees is debatable, but they will continue to grow rapidly and remain missing as an income item on most state budget summaries.  At $1 billion plus per year they will rank among the four or five […]

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