Medicaid: the Program that Ate the Budget

Budget forecasters have under-estimated the cost of the Medicaid program by $202 million this year and $260.3 million next year, a total of $462.5 million in the biennial budget, reports the Richmond Times-Dispatch.

Finance Secretary Aubrey Layne was at pains to explain that the added costs were not related to Medicaid expansion covering an estimated 400,000 near-poor Virginians beginning in the new year. “This isn’t about expansion. This is about the base Medicaid forecast.”

Medicaid is growing by 6.2% compared to an estimate of 2.5%. For years, the $11 billion healthcare program for the poor has been crowding out spending for K-12 education, higher education, mental health, the environment, and other priorities. In rough numbers, the program now accounts for $5 billion of state spending in a $21 billion General Fund budget.

State officials had hoped that herding Medicaid patients into managed care programs might slow the rate of spending increases. They blamed a forecast based upon assumptions generated by an actuary, who has since been canned. The actuarial analysis overestimated the savings gained by switching from traditional fee-for-service to Commonwealth Coordinated Care Plus, a program that relies upon private insurance companies to provide managed care for 215,000 elderly and disabled Virginians. 

Doug Gray, executive director of the Virginia Association of Health Plans, said it’s not unusual for states to make mistakes in their forecasts when they move from a system based on provider billing to managed care. “When you first start a program like this, you’re guessing based on coming from fee-for-serve experience,” he said.

But officials also cited an unforeseen jump in the number of children enrolled in Medicaid ($52.8 million), delayed payments to hospitals for uncompensated care ($26 million), and updated hospital rates for serving children under the Medallion managed care program ($25.5 million).

If it’s any consolation, Layne says that Medicaid expansion actually will save the state money. How’s that possible? First, because the federal government will pick up 90% of the tab for the expanded program, as opposed to the 50% for the legacy program. Second, because expanded Medicaid will cover populations for which the state spends money in other programs.

That’s assuming, of course, the actuaries guess right on what the expanded program costs.

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13 responses to “Medicaid: the Program that Ate the Budget”

  1. Steve Haner Avatar
    Steve Haner

    I don’t suppose the ejected outside consultant was named Rosie Scenario….that firm is always a popular choice with the government. It is obvious that nobody trusts the numbers related to the new expansion, either, especially since the Democrats have used the “Lucy and the football” maneuver again and are trying to undercut the work requirement that was essential to bipartisan support.

    1. Lucie and the football is an apt description.

      Higher costs will be revealed in dribs and drabs and will not be attributed to Medicaid expansion, making it hard for taxpayers to connect the dots.

    2. FWIW, I love the PacMan graphic with this posting, Jim.

  2. Is this why we need to conform to the new Federal tax laws? Whereas “conform” is the new emphemism for unannounced state income tax increase?

  3. LarrytheG Avatar

    well no, it’s not the expansion, it’s the original medicaid and Layne is saying that the money we receive from the 90% funding for the expansion will be used to cover these increase original MedicAid increases.

    From what I understand – there is a certain number of people who are eligible for MedicAid that for a variety of reasons don’t get enrolled until later.. it’s called the “coming out of the woodwork” effect. That’s the black art of actuarial “science”!

    I still think Virginia’s managed care approach is better than fee-for service and here’s how it works:

    Understanding Capitation
    Patrick C. Alguire, MD, FACP
    Director, Education and Career Development

    Capitation payments are used by managed care organizations to control health care costs. Capitation payments control use of health care resources by putting the physician at financial risk for services provided to patients. At the same time, in order to ensure that patients do not receive suboptimal care through under-utilization of health care services, managed care organizations measure rates of resource utilization in physician practices. These reports are made available to the public as a measure of health care quality, and can be linked to financial rewards, such as bonuses.”

    1. TooManyTaxes Avatar

      Why would any sensible person or group of people decide to expand what they cannot afford today? Either we have a big tax increase or Medicaid starts crowding out other state programs, including state aid to education. That, in turn, will result in lawsuits, the end of which will require more taxes.

      Virginia is going to hell in a handbasket.

  4. Steve Haner Avatar
    Steve Haner

    Ha! This morning’s TD brings the news that the new expansion is already running hot, signing up more people more rapidly than expected. But fear not! They will just increase the hospital provider taxes! It won’t cost us anything! This from the same economic geniuses who ordered the SCC to build a wind project with the most expensive cost of energy you could ever imagine. Of course those taxes will find their way through complex hospital accounting and end up costing patients. And of course the federal deficits funding the rest of it will destroy the futures of our grandchildren.—but/article_2980fcc5-90a6-5fef-829f-574afc471467.html

    1. TooManyTaxes Avatar

      I’m not persuaded the hospital provider tax can necessarily be recovered by hospitals by increasing their prices across the board. Despite the lack of strong competition, most of these organizations negotiate prices with insurance companies. The various plans that insure federal employees and retirees probably can and do get favorable prices. I doubt those prices include an equal share of any state tax.

      Their list prices likely go up but I’ve also heard that more health care providers are offering the insured price to those not covered by insurance when they can pay the bill.

      I do, however, expect that finding the details would be challenging.

      1. Steve Haner Avatar
        Steve Haner

        It does remind one of the shell game with the pea…..but if the patients/insurers are not providing that half-billion dollars a year, who is? The only two other choices are the employees/providers themselves or stockholders, and the non-profit element of the health care industry has no official shareholders. Maybe the CEOs and other high-paid execs will eat it? Hahahahahaha.

        1. TooManyTaxes Avatar

          I do suspect that the taxed hospitals will recover less than the full amount of taxes paid. I think that they have sufficient market power to push prices upward but not necessarily to recover the full amount the extra costs. They face big insurance on the other side. And government funded programs (Medicare, Medicaid) make limited payments.

          It reminds me of a study done in California in the early 1990s. The state imposed development impact fees and the builders claimed the fees would be passed on to buyers. A study was done and two interesting findings made. One is that builders were much less able to pass on the cost of the fees to buyers of less expensive housing than they could for higher priced housing. And while the builders were forced to eat some of the fees, they were able to pass along a portion of the costs in the form of lower prices for raw land.

          As I often write, it’s the economic incidence of taxes and regulations that is important not just the legal incidence.

  5. LarrytheG Avatar

    hmm…. are we reading the same RTD?

    ” Virginia is enrolling more people in its expanded Medicaid program faster than expected, so the costs are going up, too, but not in the state general fund budget.

    State Medicaid officials say they expect to enroll 360,000 people in the program in the first year after it begins on Jan. 1, or almost 60,000 more than originally expected. The faster pace reflects expanded state outreach to a population it already knows through limited Medicaid services and other public assistance.

    The projected enrollment growth will increase Virginia’s share of the cost by about $80 million in the biennium, but a new assessment on hospital revenues will pay for it, not state taxpayer money.”

  6. LarrytheG Avatar

    Here’s the funny thing about the issue in general.

    We (all of us, taxpayers, etc) are NOT going to deny health care to folks who need it and don’t have insurance.

    Anyone who believes that is living in LA LA Land. We do not deny care to people who have serious health problems.

    The real question, once we get past this foolish belief that we can deny care, it becomes a question of how we pay and, as important, how much.

    So then we argue about how and how much… on and on…. basically as a non-ending complaint that we just repeat over and over – without ever really reaching a consensus about how and what to pay… we just blather on incessantly about the bad aspects of the different options!

    Yes… and like a lot of other things – we’d just put it off altogether forever since we never can agree on how to go forward!

    There is no truly “elegant” solution to how we pay for folks who can’t.

    But pretending we are not going to pay – and that we actually will deny care to say a 7 year old or someone’s mom who is 77 is inelegant as hell also.

    So… what we want is to pay what we must and will – in the most cost-effective way possible.

    The ancillary argument from the never-say-die folks is that since we cannot come up with a truly cost-effective approach – that we should just not doing anything until we can… just let folks get turned away at the ERs until we can figure this thing out.

    Well.. that doesn’t work either!

    So in a way, we’re sorta like 5-years old who don’t like any of the options and so we’d prefer to choose none….

    And as I’ve always been taught – if you are not part of the solution – YOU…are the problem!

    So it’s really not a “liberal” or “conservative” argument. It’s basically what is the best way that we can – deliver some basic level of healthcare that is far from perfect to folks who don’t have it and need it?

  7. LarrytheG Avatar

    re: passing on the cost to buyers or “eating” it.

    This is sort of like saying than ANY increase in cost for anything – whether it’s an impact fee or a higher price for toilets or granite counters is or is not “passed on” to the buyers or if the provider will simply “eat” that cost.

    I’m not seeing it.

    All developers and providers have costs they have to pay and how much profit they make and if something costs them more – like increased costs for sheetrock or simply anything they have to pay for to provide to you – they’re going to pass that cost on to you …. in one fashion or other. Otherwise they go broke. And that’s exactly what has happened to more than a few rural hospitals but it also happens to a lot of businesses who simply cannot offer a product or service at a price that people are willing to pay so that product or service just goes away.

    Providers of products/services don’t “eat” costs or if they do not for long and certainly not on any longer-term sustainable basis… The more productive providers – the ones that now how to cut costs and still deliver quality and quantity will prevail while the ones that don’t do that will go out of business.

    but at the end of the day – it donj’t matter where the increased cost comes from – whether it’s an impact fee or increased fuel costs. They’re not going to “eat” those costs and still stay in business.

    That’s Econ 101.

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