Medicaid Is The Story With State Budget

New hospital taxes collected from Virginia private hospitals in this budget cycle, and the federal matching Medicaid dollars they draw down. The larger portion covers higher payment rates, not coverage of new patients.

The General Assembly’s key money committees gathered in their annual end-of-year financial retreats last week to talk about Medicaid.  Sure, the state’s multi-billion-dollar budget delves into plenty of other areas that were mentioned, and the Amazon location announcement grabbed headlines, but the meetings were about Medicaid.

The explosive and uncontrolled growth of Medicaid is all but eliminating any new dollars for those other areas of state responsibility, and existing dollars are under pressure.  There is no point in talking about anything else.  The opportunity for tax reform due to windfall revenue may be short-circuited by Medicaid.  If the rosy projections of new state money from Amazon come to pass, every dollar may be needed for Medicaid.

Every year the Joint Legislative Audit and Review Commission (JLARC) does this dry report about the growth in state spending.  The simple bottom-line fact it has demonstrated over and over is that Medicaid is squeezing everything else out.  It looks back at a ten-year period and during the ten years leading up to and including 2017, 60 percent of all General Fund growth went to for Medicaid.

JLARC: 60 percent of the growth in state spending over ten years has gone to Medicaid (Department of Medical Assistance Services). The was before the 2018 expansion.

At the beginning of the period the state’s allocation to localities for public schools was the top expenditure, but it dropped down to second by Fiscal Year 2017.   During that same ten-year period, from FY 2008 through 2017, the Department of Education didn’t even make the list of the ten agencies with the highest growth in General Fund dollars.

Right behind Medicaid’s 60 percent of the new money over the decade was the Treasury Board (debt payments) and the Department of Behavioral Health and Developmental Services, the other state agency providing major direct medical services to citizens.  A similar chart from the 2009 report, looking at 2000-2009, had Medicaid getting 19 percent of the growth revenue, and the Department of Education 39 percent.  A healthy share of growth dollars going to education may never happen again.

Medicaid (DMAS) and Department of Education have switched places on JLARC’s latest report on state spending. This includes state and federal shares.

The figures in the JLARC report, of course, do not include the impact of the expansion of the program to an estimated 375,000 more recipients by July 2020.  Nor do they include the $463 million in cost overruns announced since the budget was adopted (several months late, remember) in the existing pre-expansion program.  Those will not show up in a JLARC look-back report until the 2020 report on Fiscal Year 2019.

That would be after the next election.

The state’s economy is improving and an additional $600 million or more in tax dollars are expected this year and next, the committee staffs reported, but about 75 percent of those new dollar will be needed for that overrun.

A good overview of what is going on with Medicaid is provided in a Senate Finance Committee presentation from Friday from staff analyst Mike Tweedy.  The latest estimate is that the hospital provider taxes which are funding the state share of the expansion cost will collect just over $1 billion during this two-year budget cycle, which includes only 18 months of the expanded benefits.

That impressive figure was never uttered aloud during the General Assembly debate earlier this year. For that matter, the phrase “provider tax” was hardly being mentioned above a whisper.  No, not that word! It’s an assessment.

Once again, as you can see in Tweedy’s chart at the start of this story, the claim (dream? hope?) is that the hospitals will just absorb that $1 billion because it is being used to draw down $2.6 billion in federal (deficit) dollars to their accounts (and of course even more federal dollars for other Medicaid providers).   The hospitals will use that net $1.6 billion to treat their Medicaid patients and no additional cost comes to the rest of us.

The provider taxes on those hospitals (not all of them pay) amount to 1.7 percent of patient revenue for this year and 3.3 percent for next year, Tweedy reported.  The federal rules allow states to tax Medicaid providers up to 6 percent to fund the required state match.  If not the next biennium, Virginia will be there within two.

One of the very discouraging facts reported by Tweedy, and it is not news, is that Virginia may have to rebate $117 million to Medicaid because Piedmont and Catawba hospitals were not certified as psychiatric facilities.  He also includes three slides (16-18) on things the state might do to improve forecasting or reign in the growth of Medicaid.  None are likely to bend the curve much in the absence of a major federal push to control costs of Medicaid or of health care in general.

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19 responses to “Medicaid Is The Story With State Budget

  1. There’s a lot of info in this blog post – but I cringe a little when original MedicAid and the Medicaid expansion are inter-mixed in the narrative.

    For instance, the top chart is with respect to the expansion but the narrative right below it is about original Medicaid:

    ” The explosive and uncontrolled growth of Medicaid is all but eliminating any new dollars for those other areas of state responsibility, and existing dollars are under pressure. There is no point in talking about anything else. The opportunity for tax reform due to windfall revenue may be short-circuited by Medicaid. If the rosy projections of new state money from Amazon come to pass, every dollar may be needed for Medicaid.”

    A lot of the dialogue these days tends to conflate the two rather than clarify.

    The expansion is pretty much paid for by the Feds – from earmarked taxes not general revenues except for 10% the hospital provider tax pays for. So those costs will not expand unless or until the Feds change the 90-10 formula which is not likely anytime soon.

    So the real 600lb Gorilla in the budget room is not the Expansion even though it gets implicated in the discussion unless one is reading carefully and does understand that original MedicAid and the Medicaid Expansion are very different programs with very different recipients of benefits.

    Medicaid Expansion is for able-bodied folks who work whereas the original Medicaid is for children, the disabled, those who cannot work and the elderly.

    Original Medicaid for the state is VOLUNTARY -the state is not forced to participate but if it does, unlike the Expansion, it is responsible for 50% of the costs incurred and it is THAT 50% that is eating the budget!!

    So why are costs growing so fast ?

    the answer is in the slides:

    “Woodwork Effect from Medicaid Expansion•Outreach efforts will likely result in individuals currently eligible but not enrolled to sign-up for the program.•

    These are traditional enrollees funded at a 50% state match.•

    The 2018 forecast only assumes 1,000 woodwork individuals over the biennium will enroll.•

    In a September 1, 2017 report to the General Assembly, the Department of Medical Assistance Services estimated 28,000 adults were eligible but not enrolled in Medicaid.

    •2016 data* from the U.S. Census Bureau indicates as many as 42,000 children care uninsured with family income at 200 percent or less of the federal poverty level.

    so here’s the chart that shows what groups are sending Original Medicaid costs up:

    https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcTJQ6ZefKtzSre3O0e1piMRXCn3eBmGRUHjB23DG4N7e9tFvFuE

    So this is important because in my view – the narratives are usually about the “unacceptable” increase in costs for Medicaid – but almost no recommendations as to how to actually reduce the costs.

    The narratives are so general as to only suggest that the costs are through the roof, eating the state budget – and then nothing about what specifically could/should be done to reduce the costs.

    here’s the numbers:

    In its 2017 annual report, the state agency that manages Medicaid described four groups who receive coverage — 642,391 children from low-income families; 363,643 parents, caregivers and pregnant women; 79,815 seniors; and 227,501 children and adults with disabilities.

    that’s more than a million people. So who would we cut from the rolls?

    Is it our responsibility to pay for health care for all these folks?

    serious question.

  2. Is this a national problem that all states are dealing with? or does Virginia have a special problem for some reason? If so what is different about Virginia in this regard?

    • @TBILL – that’s an excellent question and deserves an answer!!!

      and here is one:

      to view the entire PDF – google : Commonwealth Institute Virginia Medicaid

      • That was BEFORE the recent expansion, Larry. That’s all changed now.

        • Apples to Apples Steve – Original Medicaid to Original Medicaid.

          The Expansion is not what is causing the overruns – it’s the original Medicaid.

          The only thing the expansion is involved with in the hospital provider fees.

          All the other stuff is not the expansion.

  3. This certainly seems to be a nationwide problem.

    I had a law school professor, Glen Robinson, who used to be an FCC commissioner. He would always say “Every tub must sit on its own bottom.” It was one of the best things ever taught to me.

    For society, any society, to function effectively, each member must support him/herself. Every tub must sit on its own bottom.

    Of course, not everyone can support himself or herself. We have infants, children, elderly and disabled people. But we also expect parents to care for their children; elderly people to have saved something for their retirement and have paid Social Security taxes; and, to the extent possible, disabled people working to the extent they can. American society has stepped in to assist those who cannot support themselves. We provide public schools. We offer TANF to qualified families. We provide assistance to certain elderly and disabled individuals.

    But at the same time, the costs for supporting others becomes a national overhead. (And “yes” Larry, these dollars spent on support are spent and go into the economy.) But, just as with a business, overhead is a cost that burdens society. Big overheads mean high levels of taxes, debt and debt service costs and lower growth.

    Moreover, many of these costs don’t stay with the person or business paying taxes or complying with regulations, they are often passed along to those with less power in the economy. Sometimes they result in higher prices, making goods and services less affordable. Sometimes they result in lower wages or fewer jobs. Sometimes they don’t.

    Subtract those who cannot support themselves. We still have way too many people who are physically, mentally and emotionally able to support themselves being supported by the taxpayer. It’s draining the economy. How do we get people responsible for themselves? Or do we go the way of Rome? Bread and circuses and then collapse? We need to sit on our own bottoms.

  4. Thanks for the great reporting, Steve. Like I’ve been saying for years, Medicaid is the program that ate the state’s budget. People have been warning that the program would crowd out all other spending. That day is not in the future anymore. It’s now.

    For the past generation, the political class has focused on one aspect of the healthcare debate and one alone: Who pays? The only way to get out of the fiscal disaster we have created is to focus on how to bolster productivity, innovation and quality. Otherwise, we’re sunk.

    • Productivity, innovation, quality and responsibility! This ties in with your earlier report about obesity and diabetes, a true epidemic that is about 99 percent preventable.

      • True on the responsibility. Looks like some places in Virginia need mandatory early morning exercise classes.

        Lowest obesity rating? Arlington County, 18%
        Fairfax County? 20% (next to lowest)
        Henrico? 28%
        Chesterfield? 27%

        Given that downstate politicians ‘Taint payin’ fer no NoVer roads, maybe NoVa’s attitude ought to be ‘Taint payin’ fer no RoVa fatties.

          • Don – as in the oft-quoted Pogo cartoon. “We have met the enemy and he is us.”

            NoVA Senators and Delegates often are part of the winning margin to enact laws and budgets that ship big bucks from us downstate. And so long as NoVA developers get their crony capitalism welfare, the business community cheers them on.

            Maybe it’s just getting older but I think Northern Virginia’s glory days, even with Amazon, are behind her. We are on a trajectory to become a high tax state with a declining quality of life. And the ungodly traffic will soon make the Amazonians think they were crazy to work here. Even with billions in new roads and transit, traffic congestion is only going to get worse.

            Decades of bad land use decisions have dug a Grand Canyon of transportation problems. And the cost to fix them is probably close to the costs to fill in the real Grand Canyon.

        • Apparently we (in NoVA) are paying…that’s why Virginia is “conforming” to the new Federeal tax laws, in a manner that hits NoVA hardest for extra tax dollars to Va. treasury. I think that is what Steve is saying above…

  5. Entitlements, particularly healthcare, and increasingly interest on the debt, will be the beasts that eat every single budget if we don’t change trajectory. For some reason I am reminded of a scene in Apollo 13, after the onboard explosion, where everyone is talking about all sorts of things to do but one bright analyst persists and brings their attention to the fact that they will run out of electrical power if they don’t make changes fast and there would then be a 100% probability of mission failure. In that case, the team was persuaded by facts, made changes, and brought the crew back alive. I don’t see the same recognition or action in our politicians.

    https://youtu.be/Ju-OBU7uTyc

  6. re: ” But at the same time, the costs for supporting others becomes a national overhead. (And “yes” Larry, these dollars spent on support are spent and go into the economy.) But, just as with a business, overhead is a cost that burdens society. Big overheads mean high levels of taxes, debt and debt service costs and lower growth.”

    “overhead” is sort of a generic term for costs associated with doing business. Like paying for utilities or taxes or FICA for employees , i,e. the cost of doing business.

    I agree… but the bigger point on this particular issue is – are taxpayers going to pay for healthcare for people who cannot?

    The argument here seems to be that it’s way too expensive and we must do “something” but I never hear what that ‘something” is … does it mean we won’t cover people as a group or we won’t pay for their diseases or sickness?

    See that kind of discussion leads nowhere… it’s just a lament about the costs but we never hear anyone actually advocate – for instance – that Virginia get out of the Medicaid program altogether – as it IS voluntary…

    so all the Caterwauling where does it actually lead in terms of what to do instead?

    See – we wail about “productivity” but how “productive” is it to go on and on about how MedicAid is eating the budget but we never get to ” we should do this” ?

    It does not help that people conflate original Medicaid with Medicaid expansion. If you got out of original Medicaid but stayed with the Expansion only – the cost would be what … 1/10th of the cost right now?

    so what about it? what should Virginia do about MedicAid besides the incessant Caterwauling ?

    • Perhaps, the hospitals benefiting could condition granting privileges to doctors with a requirement to handle some reasonable volume of Medicaid patients, new and existing. There are a lot of things that can be done to drive out costs but someone other than taxpayers would have to “pay” something.

      • A lot of the cost of health care is not hospitals but providers and MedicAid already has very low reimbursement rates anyhow.

        Much if not all of MedicAid in Virginia is converting to Managed care which ought to reduce costs further. Right now – MedicAid recipients cost an average of about 7K a year.

  7. It’s not the expansion. In year one, you are absolutely correct. But one needs to assume the costs for the newly covered will increase over time at a rate comparable to rate for the program overall. And no one has an answer to this.

    Perhaps, Medicaid should have a time limit. X number of years of coverage. Then it’s gone. Maybe that could be expanded for people who stop smoking, excessive drinking, illegal drugs and who work to address their obesity. The left would scream this is blaming the victim. Earn your way to longer coverage.

    But we need to get to reinstituting the social contract and put an end to the notion that the social contract is one-way. People pay taxes to cover the costs of other people’s actions or non-actions. And no one asks for a change in behaviors or decision-making. Is it really too much to ask people getting Medicaid coverage to take actions that reduce risk to their health?

    • re:

      ” It’s not the expansion. In year one, you are absolutely correct. But one needs to assume the costs for the newly covered will increase over time at a rate comparable to rate for the program overall. And no one has an answer to this.”

      for the expansion – yes – but no matter how many enroll in the future – the Feds still cover 90% – as opposed to original Medicaid where the Feds only cover 50%.

      “Perhaps, Medicaid should have a time limit. X number of years of coverage. Then it’s gone. Maybe that could be expanded for people who stop smoking, excessive drinking, illegal drugs and who work to address their obesity. The left would scream this is blaming the victim. Earn your way to longer coverage.”

      If you’re talking about original MedicAid – it already is limited in various ways. For instance, when kids grow up – they no longer will be covered. Same thing for the parent – after kids are grown up – coverage stops.

      But anyone who thinks that the way to save costs is to deny care for “bad habits” … it’s just not going to happen. This is the kind of thinking and discussion that just does not go anywhere at all and indicates an inability to deal with the realities and thinking that way instead of other ways – looks as if folks who say that are truly not serious in things that CAN be done. My view – no disrespect.

      “But we need to get to reinstituting the social contract and put an end to the notion that the social contract is one-way. People pay taxes to cover the costs of other people’s actions or non-actions. And no one asks for a change in behaviors or decision-making. Is it really too much to ask people getting Medicaid coverage to take actions that reduce risk to their health?”

      We are not going to deny care to someone who has massive cardiovascular problems due to smoking or obesity or diabetes.. Anyone who ran for office promising to do that would get slaughtered in the election.

      So how would you actually be able to implement such policy is there are no elected , much less a majority, who would do that?

      The approach we ARE taking is to get these folks to a doctor and treat them by getting them to stop smoking, lose weight, and manage their diseases like diabetes. By doing that, we reduce costs downstream – it’s far cheaper to convince someone to quit smoking than to do a lung transplant or a heart bypass…..

      I’m just of the view that people are (justifiably) frustrated with MedicAid but it’s costs per person are much lower than regular insurance or even Medicare.

      But I am appalled that over a million people of Virgina’s 8.5 million receive MedicAid. Another 1.3 million receive Medicare. Of the 8.5 million – about 3 million are under 18 and do not work. That leaves about 3 million to pay for MedicAid!

      This is why I support doing anything and everything we can to provide every kid and especially low-income, cycle-of-poverty kids with an education sufficient for them to find work in the 21st century economy.

      those are not “flowering” words… I’m totally serious.

      We are not going to deny health care to people no matter how many times folks complain and suggest it. It’s just not going to be supported by a majority of people.

      So we end up with 2 things that must happen:

      1. – reduce costs as much as we can through things like Managed Care (which is no silver bullet but it DOES coordinate care among multiple providers) Means test everyone that receives MedicAid. Make them pay their fair share to the limits of their ability to do so. I support that also for people in nursing homes who did not save enough money for their retirement so if they own homes – those homes should go to pay for their care with whatever is left over going to their heirs.

      2. – education – as said above. We have to stop looking for scapegoats for that problem as excuses to bail out of that responsiblity and that includes racial scapegoating that we see here in BR and other places. People of color are of different cultures – and yes language. What we are saying is that we only want to do a good job at education teaching White Americans and all the rest of that is someone elses problem – even though those folks are going to grow up, not be employable and get MedicAid. How dumb is that? We are our own enemy on this stuff.

      we do not deny health care to people and because we do not take education seriously – we are just fine with kids growing up to be unemployable and get “free” health care.

  8. re: ” Maybe it’s just getting older but I think Northern Virginia’s glory days, even with Amazon, are behind her. We are on a trajectory to become a high tax state with a declining quality of life. And the ungodly traffic will soon make the Amazonians think they were crazy to work here. Even with billions in new roads and transit, traffic congestion is only going to get worse.”

    Maybe I’m a cynic but NoVa in terms of being a high tax place and awful traffic is pretty much no different than every other urban area in the country.

    Show me a list of low cost , wonderful traffic cities in the US… NOT!

    “Decades of bad land use decisions have dug a Grand Canyon of transportation problems. And the cost to fix them is probably close to the costs to fill in the real Grand Canyon.”

    Isn’t this how most all urban areas function now? I’m sure DJ has been around the country and I have been to at least 50 of the urban areas and they all seem to have the same issues with traffic, taxes and affordability – which drive a lot of people to the exurbs to live but at a concomitant cost to the transportation network. Most of the interstate highway system around our major urban centers are unfit in terms of affording a timely transit for folks travelers from outside that region trying to use the interstates to get through that region. I don’t care if it is Atlanta or Kansas City or Houston or NoVa – it’s the same story. All this talk about “walkable” urban in the context of the auto-centric realities is funny.

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