Oops, We Did It Again

What a shock! Virginia’s Medicaid expansion isn’t working out as planned. Today we learn that Virginia’s private hospitals, which are paying a tax to defray the state’s 10% share of expansion (Uncle Sam pays the rest), is on track to receive only 78% of the Medicaid revenue they expected, reports the Richmond Times-Dispatch.

The big question is whether the shortfall is a one-time event caused by a slower-than-expected rollout of the program or a permanent feature of the healthcare landscape.

Department of Medicaid Assistance Services (DMAS) estimated that the influx of 300,000 to 400,000 Medicaid patients would increase hospital industry revenues by $247 million in the second half of the 2019 fiscal year. So far, the actual net increase is on pace for $192 million for the six-month period. The hospital lobby agreed to the tax in the expectation that a surge in Medicaid revenue would more than offset it.

“We’re rolling out a little bit more slowly than anticipated,” said Chris Gordon, chief financial officer for DMAS. “We’re continuing to monitor and adjust our forecast. We continue to learn from experience.”

This missed forecast follows an even bigger snafu in which DMAS discovered late last year that it had underestimated regular Medicaid program costs by $462.5 million, requiring a major rewrite to the budget.

DMAS and the hospitals say it’s too early to draw definitive conclusions about the shortfall in hospital revenues. One reason for the lower-than-forecast revenue number might be that a smaller number than expected of newly enrolled Medicaid recipients sought medical care, suggests Julian Walker, spokesman for the Virginia Hospital and Healthcare Association.

Another possible reason, he said, might be that some of the people newly enrolled in Medicaid left the Affordable Care Act (ACA) marketplace. Medicaid pays less than do private insurers participating in the ACA marketplace.

Wouldn’t it be something if Medicaid expansion worked to undermine the Affordable Care Act marketplace? I mean, who could have possibly foreseen the possibility that lower-income Virginians in the Obamacare marketplace, who had to pay for their medical insurance (albeit at subsidized rates), might choose to enroll in the free Medicaid program instead?

If Walker’s suggestion is true — and it’s only a hypothesis at this point — the numbers will be reflected by a commensurate and “unexpected” loss of Virginians enrolled through the ACA marketplace. The migration to Medicaid could be a good thing or bad thing for those remaining in the ACA marketplace, depending upon whether those making the switch are sicker (thus costing more) or healthier than other ACA enrollees.

I predicted problems based on the shortage of physicians in Virginia willing to take Medicaid patients. (Medicaid pays so little that it is a money loser for physicians.) If Medicaid recipients can’t find a doctor to provide primary care, they are less likely to be referred to hospitals. On the other hand, sick Medicaid patients might be more likely to seek treatment in hospital emergency rooms where they can’t be turned away — a trend that in theory should be possible to track by monitoring emergency room admissions.

One can only hope that someone in a position of authority is considering the full range of possibilities and tracking the numbers so policy makers can figure out what is happening. As a rule, public policy based on on reality is preferable to public policy based on wishful thinking.

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10 responses to “Oops, We Did It Again”

  1. Steve Haner Avatar
    Steve Haner

    Don’t forget, the 2018 General Assembly action also greatly enhanced reimbursement rates for Medicaid to make it more attractive to providers. In fact, the action to improve the reimbursement rates involved more dollars than the action to expand eligibility. As to the story, I suspect it is just a slower than projected start to utilization. It will accelerate. The migration from ACA to Medicaid was projected and reported a year ago. https://www.baconsrebellion.com/medicaid-can-cost-taxpayers-less-than-aca-plans/

  2. LarrytheG Avatar

    I think with just about ANY “forecast” – public or private – it’s often not dead on – Virginia’s budget forecasts are an example, VRS, a multitude of forecasts that take time to calibrate …

    So this may take a couple of years to get right. A bigger question – not addressed here is where the Fed money actually comes from and if THAT forecast is good or not…….

  3. TooManyTaxes Avatar

    Is forecasting perfect? No. But it needs to be accurate. Assumptions must be reasonable and, if the forecast affects taxpayer money, made public. Medicaid expansion was just the like the ACA, a scheme to buy votes.

    Some of the Democratic legislators I know have been telling me for years that Medicaid expansion would enable the state to shift dollars from reimbursement of indigent care that, in turn, would allow more money to be spent on other programs without tax increases and that the real cost of private health insurance (irrespective of payor) would go down as the reimbursement of indigent care costs would be reduced. I guess those results are still on the horizon.

    We need to hold government projection makers to the accuracy of their projections. 100% no but certainly better than we get today. Try making and missing an important projection in the private sector. Bye-bye employment.

  4. LarrytheG Avatar

    TMT – you’d think that forecasts should be “accurate” but they are often not – both public and private sector. Companies go out of business on a regular basis due to “bad forecasts”. The Wall Street Journal is rife with reports of “bad” forecasts.

    We just had a post in BR about how the Long Term Insurance guys came to ask for rate increases because they had “underestimated payout costs”.

    It happens. We DO value those like Layne who pay attention but even Layne has admitted that there is “risk” in forecasts so it’s not like he should be fired because he admits that forecasts are not perfect -by any stretch of the imagination – it worries him.

    Virginia has more often than not – “badly” forecast how much sales tax and income tax they would collect each year. VRS has made boo-boos on forecasting returns on invested money.

    Medicaid – not the expansion but the original Medicaid – which is decades old – missed forecasts this year on people signing up for basic Medicaid – had nothing to do with the expansion.

    I don’t excuse it but the reality is that it’s often NOT that accurate and when we say we are “holding govt accountable” for those forecasts -what does that whole mantra of “holding accountable” really mean ?

    In BR – it more often than not means whatever excuse can be conjured up to blame government for what goes wrong…

    1. TooManyTaxes Avatar

      We are on the same page. Forecasters need to do a good job or be replaced whether they work in the public or private sector. Perfect? Of course not. But they do need to reasonably accurate all the time. If there are key assumptions supporting those projections, they need to be stated clearly. And, of course, if the assumed facts don’t occur and they are crucial to the accuracy of the forecast, one must accept a bad forecast.

      Otherwise, we will see gamed forecasts in the interest of politics. And if we could reduce the number of gamed forecasts, we’d have less political animosity. We’d have a lot more honesty in government.

      Here’s a real live example. Fairfax County is purposely using forecasts of expected returns on public pension investments that are regarded as unreasonably optimistic. Returns that have not and will not be obtained. Using the bad forecasts avoids the question of: What should be done with pension funds that are underfunded? Should taxes be raised? Should other programs be cut? Should more dramatic pension cuts be made for new hires? For those not yet vested? For those not near retirement age? Or all of the above. Good government requires good forecasting. Perfect? No but much better than we get today. And if you don’t believe that, look at all the companies that failed because of bad forecasting.

      1. Dick Hall-Sizemore Avatar
        Dick Hall-Sizemore

        I agree with you on the need for reasonably accurate forecasting. I have no direct knowledge of what Fairfax County is doing, but if it is “purposefully” using forecasts that are generally regarded as unreasonably optimistic, that is irresponsible management.

  5. Dick Hall-Sizemore Avatar
    Dick Hall-Sizemore

    Forecasts are based, in large part, on past experience. For a new program, it is inherently difficult to forecast results–little experience to use in the assumptions. For medical expenses, the problem is harder. A few very sick folks can drive up medical costs dramatically and it is really difficult to predict how many or few really sick folks one is going to get in any specific year. DMAS needs to be cut a little slack at the beginning of a brand new, complicated program.

    It is not clear to me from the article, but it seems that we are talking about “net” receipts. So, it seems that hospitals are making money on the Medicaid expansion, just not as much as had been expected. At least, not yet.

    As for the private sector, corporations miss their profit projections often. I don’t hear of mass firings due to these missed projections.

    1. TooManyTaxes Avatar

      Not mass firings. But the person/group/consultant that makes a bad forecast when the assumptions play out is/are often gone quickly in the private sector.

      And “yes,” Fairfax County is playing games with its pension plan earnings forecasts.

  6. LarrytheG Avatar

    On forecasts, if the standard is that you get fired if your forecast is not accurate enough – then you’re going to affect who will be willing to do that job.

    Some forecasts are not easy – especially when new things are involved that were not before.

    Yes, we’d all like a world where forecasts are just like any other “job” that has known performance expectations.

    Again – I do not excuse bad performance but when it comes to forecasts – even Mr. Layne has expressed concern that it’s not an exact science even though a lot of things depend on the accuracy of it.

    Some forecasts are based on simple and known things, others like the forecasts for tax revenues in a changing economy has so many moving parts that it’s often at best an “educated” guess.

    But we can’t just be firing people because they did not provide an accurate “enough” forecast. You won’t improve the process.. you’ll just be turning over personnel every times the forecasts are not as wanted.

    In terms of others in decision-making capacities manipulating the interpretation of forecasts – welcome to the real world – public and private.

    Finally – on of the things that Virginia does that they do deserve credit for is the requirement that every locality generate annually, a standardized comprehensive financial report that can be compared to prior years as well as other jurisdictions on an apple-to-apple basis.

    Those reports provide multi-year trendlines that ought to allow validation of forecasts that differ from the trendline. Doesn’t mean they are wrong but puts everyone on notice that things are not the way they were before.

    Government is no different than the private sector in that people staff the jobs and we have very good people and we have folks that are less so. That’s the human condition.

    But if TMT says that Fairfax are engaged in political machinations – I’m SHOCKED – SHOCKED… Both Steve and Dick have provided similar accounts. It’s the nature of the beast and it’s why we depend on media and elections to have citizens weigh in on these things.

    Here’s the thing – some folks -no matter where they live – will have a dark view of government. They’ll focus on the bad stuff – which is ALWAYS present rather than having a wider view that accepts the good, bad and ugly – and acts when things go too far off the tracks.

    I just don’t think having a basic view that govt is bad and cannot be trusted leads to even worse things because there are so many different views that there is no way that govt or individual office-holders can do what everyone wants when the public has conflicting views.

    So the folks with dark visions of govt – they basically don’t like govt itself – because they think it will always fail.

    I call it the half-glass thing. No govt is perfect or ever will be – but do the trains run on time most of the time? Do you get your pay check or pension check? Do the lights stay on? is there bread and milk at the grocery? etc, etc.. Don’t laugh – if you think these are “givens’ get yourself to one of the countries on this earth that are called 3rd world or developing world and the things alluded to above are not givens at all.

    We are very very fortunate to live in this country – warts and all… and those who would tear it down over some idea of keeping govt “accountable” are not among my favorite things.

    1. TooManyTaxes Avatar

      Let’s see we’ve had federal and state controlled health care programs since at least the 1960s with Medicare and Medicaid. I guess forecasting in this area is just too new for the public to insist on accuracy. But somehow I believe that insurance companies, pharma, hospitals, medical device manufacturers have all been forecasting in the same 50 plus years and that they hold their forecasters’ feet to the fire. Again, I’m not arguing that a forecast must be accurate when an important and stated assumption doesn’t come true. But one can draw a reasonable conclusion that someone is gaming the system when projections, especially cost projections, are off by a significant margin.

      Gaming is good politics but it’s not good government. And we don’t need more gamers in government.

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