The Medicaid Steamroller

Obamacare is a fiscal juggernaut bearing down on state government. The Patient Protection and Affordable Care Act will expand access to the health care sector by enrolling millions of Americans in Medicaid. In Virginia, Medicaid spending will increase from 14% of General Fund expenditures in 2009 to 21% in 2012, projects the Virginia Hospital and Healthcare Association.

Obamacare will pay for the expansion of the program for three years but reimbursements will taper off after that to 90%, leaving states with a 10% share. As Larry Sartoris, president of the VHHA, said in a chat with me yesterday, “Even 10 percent is a big number.”

Many states are turning to managed care as a way to hold down Medicaid costs. The idea is to turn over large populations of patients to private insurers and pay a fixed rate per patient (a capitated rate). The hope is that the Managed Care Organizations (MCOs) will keep patients healthy by encouraging preventive care and contain costs by discouraging unnecessary procedures. (Read this article in Stateline for details.) Unfortunately, MCOs won’t provide much of a buffer from Obamacare in Virginia — the commonwealth has already resorted to managed care as a cost-containment strategy, which is one reason our Medicaid spending is relatively low compared to that of other states.

As Sartoris explains it, there are three main categories of Medicaid beneficiaries: (1) poor women and children, (2) the blind and disabled, and (3) impoverished elderly in nursing homes. Managed care is most easily implemented for the poor women-and-children category. And about three quarters of that population is already enrolled.

Few people realize that the most costly piece of Medicaid consists of the blind and disabled, Sartoris says. This group accounts for 20% of the Medicaid population at present but 47% of the cost, as seen in the chart to the right. (Click on chart for more legible image.) A lot of the money is spent on dealing with mental health issues. To date, managed care has made few inroads in this group.

As Medicaid increasingly stresses state budgets, Sartoris fears that politicians will put the squeeze on hospitals, physicians and other providers. But Medicaid is already a money loser for the medical community. Providers will try to make up the shortfall by jacking up fees to privately insured patients. That will make private insurance more unaffordable, which means more people will drop out. Many of them will wind up on state-subsidized health exchanges or… on Medicaid. And the vicious cycle will spin round and round.

Share this article


(comments below)


(comments below)


Leave a Reply