What’s This? Medicaid Expansion Pays for Itself?

Reversing its long-standing opposition to Medicaid expansion, the House Appropriations Committee yesterday adopted a budget proposal that would accept more than $3 billion in federal funds to provide Medicaid coverage for more than 300,000 uninsured Virginians.

Here’s the remarkable thing: You can read the news accounts of the Richmond Times-Dispatch, Washington Post, and Daily Press and never discover that the state of Virginia will save more money from “Medicaid Transformation” than the state share of supporting the state-federal program will cost.

I started out this blog post trashing House Appropriations for capitulating on Medicaid expansion. But after absorbing this report of the Health and Human Resources Subcommittee, I had to delete everything I wrote and start all over. It appears that House Appropriations has figured out how to eliminate the biggest objection to the program’s expansion, namely that it would constitute a big, ongoing drain on the General Fund. This turn-about is so extraordinary that I have to say that I, a long-time foe of Medicaid expansion on fiscal grounds, feel compelled to support it now.

Medicaid Transformation would provide coverage to adult Virginians up to 38% above the federal poverty line, injecting billions of federal dollars into Virginia’s health care system. The federal government will provide a 94% match in 2018, 93% in 2019, and 90% in 2020. The state share will level out at 10%.

The estimated cost of the program to Virginia will be $80.8 million in FY 2019 and $226.1 million in FY 2020. But  the state expects to save $101.3 million and $269.7 million respectively from programmatic cost reductions.

Where do the savings come from? Primarily from cutting indigent care funding to hospitals, and from reducing expenditures on state-funded community behavioral health, prison inmates, the FAMIS program for pregnant women, and the GAP program for the seriously mentally ill.

The proposed legislation also includes a 0.5% assessment on hospitals’ net patient revenue in FY 2019 and 1.4% assessment in FY 2020 on the grounds that Medicaid expansion will reduce indigent care costs (charity care and bad debts), resulting in significant improvements to hospital bottom lines. I’m not sure why this tax is necessary if the Medicaid Transformation results in a net savings to the General Fund without it. The hospital lobby opposes it, and for once I can sympathize.

I still have long-term concerns. The United States entitlement state is unsustainable, and the recent round of federal tax cuts and spending hikes has done nothing to change my opinion. At some point, the federal government will experience a fiscal crisis that will force it to shift the cost burden of Medicaid to the states, in which case Virginia will have to shoulder a much bigger share of the cost at hideous expense or dump hundreds of thousands of Virginians from the Medicaid rolls. But that’s 15, 20, or 25 years from now. And participating in the program will inject billions of dollars in federal funds into the Virginia health care system and economy right now.

I also question how much Medicaid expansion will actually improve medical outcomes. There’s still a physician shortage, many physicians refuse to take on Medicaid patients, and most add-on patients likely will continue seeking treatment in emergency rooms. But any improvement to the public health, even if marginal, is better than nothing. And it seems foolhardy to reject billions of federal dollars that cost the state nothing.

House budget writers are at loggerheads with their counterparts in the Senate Finance Committee, who propose a budget without Medicaid expansion. But if the House numbers stand up to scrutiny and Virginia can actually save money from the expansion, I don’t know how the Senate can resist. Medicaid expansion looks like a done deal.

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23 responses to “What’s This? Medicaid Expansion Pays for Itself?”

  1. LarrytheG Avatar

    These are the very same “it pays for itself” numbers that have been around since it was first proposed – years ago.

    I’m amused.

    The numbers have not changed but now the opponents suddenly “believe them”?

    For how many years have the opponents, including Bacon been saying that the numbers were wrong and that the costs would skyrocket once new folks were accepted in MedicAid.

    Talk about a turn-about! I think Jim should have shown a graphic for this post of him eating his HAT!


    1. Larry, you should be halfway through a large haberdashery based on the comments I’ve seen you make. . .

      1. LarrytheG Avatar

        Oh I DO have my share AND I will usually admit it! Unlike some others.. including Bacon!

  2. My basic distrust of the government Axis of Weasel leads me to agree with Larry, at least partly. Jim, are we sure the Fed money doesn’t stop after some period of time? It all smacks of “free lunch”, and I am a staunch opponent of same. If the state is not on the hook, then the Feds pay, and the deficits and debt get larger and larger, adding immeasurably to our future pleasure.

  3. djrippert Avatar

    Great. That’s a $25.5m savings in FY19. There are 8 million people in Virginia so everybody saves $3.18 per year in FY19. The 5 people in my family are owed $15.90 for 2019. The savings swell to $43.9m in 2020 which is $5.48 per person. My family is owed $27.40 for 2020. That’s $43.30 over two years. Excellent. When it gets to $100 should I expect a check from the General Assembly?

    I’ll need to invest that money wisely because one sunny day (sooner, rather than later) Congress will just cut the payments to the states. The Imperial Clown Show in Richmond (a wholly owned subsidiary of Dominion Resources) claims that the law will end the expansion program if the Feds stop paying. Ha ha. That’s almost comical. The tears of the liberals in Arlington, Charlottesville and (let’s face it) Henrico will wash the streets clean if anybody ever even says, “end the expansion”.

    I’ve always wondered what a mouse thought when it saw a lump of cheese sitting on the trigger of a mousetrap. Your article helped me understand things from the mouse’s perspective. Yeah, Jim – grab that cheese. What could happen?

  4. LarrytheG Avatar

    what’s not generally known is that the Medicaid Expansion is NOT funded from general revenues and does not add to the deficit and debt at all and the funding won’t “go away” unless the earmarked taxes are removed.

    Notice also that the GOP Congress COULD have completely gutted Obamacare AND the MedicAid expansion if they had repealed all the taxes that fund it.

    Where Does the Money Come From? Besides the Individual Mandate penalty/tax, there are numerous NEW or INCREASED taxes and fees to fund all that is required by this law.

    +.9% Increase in Medicare Tax Rate (plus next item…)

    3.8% New Tax on unearned income for high-income taxpayers= $210.2 billion ($200,000 for individual and $250,000 for joint filers)

    New Annual Fee on health insurance providers = $60 billion (For calculation – Sec 9010 (b) of the PPACA.)[1]

    40% New Tax on health insurance policies which cost more than $10,200 for an individual or $27,500 for a family, per year = $32 billion (inland tax as opposed to an importation tax)

    New Annual Fee on manufacturers and importers of branded drugs = $27 billion (For calculation – Sec 9008 (b) of the PPACA)[2]

    2.3% New Tax on manufacturers and importers of certain medical devices = $20 billion

    +2.5% Increase (7.5% to 10%) in the Adjusted Gross Income floor on medical expenses deduction = $15.2 billion

    Limit annual contributions to $2,500 on flexible spending arrangements in cafeteria plans (plans that allow employees to choose between different types of benefits) = $13 billion

    All other revenue sources = $14.9 billion
    10% New Tax imposed on each individual for whom “indoor tanning services” are performed.

    3.8% New Tax on investment income. Includes: gross income from interest, dividends, royalties, rents, and net capital gains. Investment income does not include interest on tax-exempt bonds, veterans’ benefits, excluded gain from the sale of a principle residence, distributions from retirement plans, or amounts subject to self-employment taxes. (The lesser of net investment income or the excess of modified Adjusted Gross Income over a the dollar amount at which the highest income tax bracket, typically $250,000 for married filing jointly and $200,000 filing as an individual).

    1. Steve Haner Avatar
      Steve Haner

      Larry – fill in the blanks. Even at the federal level, “Money is _ungible.” I don’t think there is a trust account marked “Unused VA Tax Dollars” sitting around to be drawn down as Virginia joins in. I suspect the prior year’s money is long gone….

      1. LarrytheG Avatar

        Steve – while I’ll agree with you – and yes..in theory, money can be taken from earmarked accounts like social security, the highway trust fund or other trust funds – they typically and historically have not so you ought to be treating THIS earmarked fund no different than you’d treat the others in terms them TAKING money from the general fund.

        The plain fact is that the expansion is funded NOT from the general revenues and as such will NOT impact the deficit and debt – UNTIL or UNLESS some other changes are made – so it’s just not legitimate to claim that it does… because it clearly does not .

        So be fair in the assessment. Don’t start off claiming it will be one more thing that increases the deficit and debt – because it does not.

  5. TooManyTaxes Avatar

    And the government told us face-to-face the Silver Line would be at or under budget. Medicaid expansion will cost the Commonwealth a lot, lot more than what is projected. This is just cover for those Republican legislators who are switching their vote.

    Several years ago, I asked Janet Howell that, if Medicaid expansion would pay for itself, why not mandate cost savings from state-paid free health care (emergency rooms) and insured individuals’ health insurance premiums (emergency rooms) be required to flow to those sources. She danced a jig to avoid answering my questions. Translation – Medicaid savings will be as real as the Tooth Fairy.

    Government at all levels in the United States has become buying votes and enriching special interests on the backs of taxpayers. And watch how many doctors in favor of Medicaid expansion will continue to refuse to treat Medicaid patients.

    I’d love to hear someone say “Of course, Medicaid expansion is going to cost a great deal more than projected and will crowd out other programs, unless we raise taxes.”

  6. Steve Haner Avatar
    Steve Haner

    Jim, Jim, Jim – I have to note, along with Larry, that from the get go this was a net positive for the state – at the beginning. But there is indeed every reason to worry that in the future Congress will reduce the federal share, adding to the state share, and of course the federal share is basically deficit dollars. What I think has changed is that a GOP majority Congress and a GOP White House failed to repeal Obamacare in general or this provision in particular, so for the immediate future it is here to stay and the previous funding for uncompensated care (which disappeared when Obamacare passed) is not coming back.

    Pretty sure the votes are there in the state Senate, and have been, but the Senators looked at the more numerous body and said you take the bullet first, please. I was in a House Appropriations Committee member’s office today and waiting to ambush him was the local GOP committee chair, who drove to the Capitol just to complain about that Medicaid vote. The screaming is just starting.

    1. LarrytheG Avatar

      once more – the Medicaid Expansion is NOT funded from Federal deficit dollars. It is not funded from general revenues like original Medicaid is.

      The only way funding for the Expansion gets reduced is if Congress goes back and repeals the specific earmarked taxes that fund it.

      I am amazed that people don’t know this and have not taken the time to find out as one of the biggest arguments against the expansion has been that it is funded from general revenues and thus subject to have the funding reduced. That’s not he way it is funded.

      It actually is funded more like social security or airports or transportation is funded – by dedicated taxes (like gas taxes and airport fees) that continue to be collected regardless of what is going on in the general revenues /discretionary funding.

      it will never run out of funding.. and never will even reduce in funding either unless the specific taxes that fund it are repealed.

  7. LarrytheG Avatar

    re: “… and will crowd out other programs, unless we raise taxes.””

    it’s funding does not come from general revenues.. and thus is not competing with other things funded from general revenues…

    it’s funded from earmarked taxes…

    got it?

    you can and probably will not agree with the additional taxes but the point is the funding comes from those taxes – not the general fund.

    1. TooManyTaxes Avatar

      Larry – the issue facing Virginia is the state dollars that must be paid in the future. They will come from the General Fund. State funding for Medicaid expansion will compete with other programs. Just say it.

      1. LarrytheG Avatar

        TMT – when you or others say it will add to the deficit/debt – are you not talking about the Federal budget? The state cannot run a deficit, right?

        In terms of the State budget – the Feds say they will fund 90% of it and if they do not – Virginia has the right to cut benefits.. the very same way they can cut road building if the Fed gas tax reduces or the same way jobs are cut if there is a sequester.

        but saying that the Medicaid Expansion will add to the deficit and debt is not true. The expansion is funded specifically from earmarked taxes the same way highways are funded or Social Security or airports… they are taxes specifically dedicated to that purpose.

        This is like saying that Social Security adds to the debt.. it does not.

        Every penny that goes into Social Security was funded by FICA taxes not general fund revenues..

        It’s okay to have political views.. we all do.. but it’s NOT okay to not tell the truth on the issues… that’s just partisan poop..

        1. TooManyTaxes Avatar

          Larry, please read what I write. I am addressing the Virginia budget, not the federal budget here. Yes, the State cannot run a deficit. And dollars to donuts, the cost of Medicaid expansion will exceed the estimates and likely grow faster than projected. Ergo, the funding needs of Medicaid will compete against other state programs, including K-12, post secondary education and public safety.

          Cutting programs doesn’t happen. Medicaid will not be cut. And the liberals will be clamoring for tax increases to preserve all these necessary programs.

          I’d like to see Northam stand up and say “We’ve expanded Medicaid and by the end of my four-year term the costs for expansion will not exceed the estimate. The Commonwealth will fire government officials who permit excess growth and will sue any provider of service for waste, fraud and abuse. “

  8. LarrytheG Avatar

    Medicaid also is flexible from the State side. For instance, Virginia voluntarily decides to use MedicAid to pay for nursing homes while it denies benefits to able bodied even if they work.

    And Virginia is seeking additional waivers for work requirements for all able-bodied adults..

    So if Medicaid funding reduces and/or the “woodwork” effect occurs, Virginia can reduce benefits. The “woodwork” effect by the way is people who are eligible for coverage but do not apply because they do not realize they are “eligible”. The expansion may well bring them out.

  9. I’ve never had any politician respond to how we are going to pay for this. The entitlement state will die, we will become like Russia was in the 1970’s. Even the Russians think we’re nuts.
    The fun part is that those of us who paid for it and have been should be the first ones into it. Those who are drags on the system, sorry, out. The only way to get America back on its feet is start telling people you are entitled to act civilized, participate respectfully in the election process, pay taxes, get a job, don’t have kids unless you can pay for them, college is not free nor is it for everyone and that’s not a slur, its a great thing.
    Sad to see America going downhill.

  10. LarrytheG Avatar

    re: ” Sad to see America going downhill.”

    Geeze – are we not doing what every other industrialized country on the planet is already doing AND – ALL OF THEM have longer life expectancies that us?

    Even Russia covers their people better than us!!!

    Here’s that list:


  11. LarrytheG Avatar

    Virginia has the opportunity with the MedicAid expansion to actually further reduce costs overall because Virginia has gone to a managed care model for MedicAid:


    This means that care is coordinated working with a single medical record. People on MedicAid may actually receive higher quality care than people who go to different providers who don’t effectively coordinate care.

  12. There are many aspects of our health care systems that beg for improvement. Perhaps we are getting past the debate over who should have health care, but delivery of quality care efficiently remains the biggest hurdle. Incentives are wrong, transparency is lacking, quality of care is often poor.

    Medicaid expansion in Virginia addresses a different problem: coverage. Who gets health care, not its quality. Poor quality care is better than none. We’ve got people with no healthcare at all, and that is wrong. The State long ago recognized the need and has been assisting hospitals with emergency room care, etc., to close the gap. It isn’t surprising to me that, as you now document, even Medicaid can do the job cheaper. Consolidating these patchwork programs and shifting the venue to health clinics rather than emergency rooms has got to be more efficient and better for patients.

    All that said, Medicaid expansion is not the end point. We owe all our citizens minimal health care coverage and Medicaid expansion is a big step in the right direction. Now comes the real challenge: deciding access to care, quality of care, cost of care. Jim, you have focused on COPN restrictions and hospital profits and opaque billing before; now is the time to dive deep into that. The current federal administration is at least more open to State-by-State experimentation with Medicaid and Medicare; well then, what Virginia-specific features would improve Virginia’s delivery of care? There’s less reason with expanded Medicaid to subsidize emergency rooms as de facto health clinics; is this the time to begin going after hospitals’ deliberate overcharging of “regular” patients and their insurers in order to pay for their uncompensated care to the community? At least, can we begin to seek greater transparency?

  13. LarrytheG Avatar

    I sort of divide it up into what is moral .. or not.. and what is equitable and what is the practical reality. there are 3 parts.

    On a pure political scale.. all that I advocate for is equity for all of us. If we vote to limit health care.. as long as we do it fairly for all of us .. then I support it…. if that’s how we vote. But what I won’t support is a system that favors some folks and disenfranchises others… and that’s the way our system works right now .. with some folks who do benefit from favorable govt treatment – that allows them to have insurance – those folks oppose that same favorable treatment for others..

    and that’s not right.

    On a practical scale – we do not deny health care to people who are sick.

    and we do pay for it.

    but what we do is deny them access to primary care.. but then cover their costs when they get deathly ill – which could have been prevented with access to primary care.. for a lot less money.

    It’s downright ignorant to deny someone access to primary care to screen them for diabetes and help them manage it… we deny that.. but then when they show up at the ER with organ failure or limbs that need to be amputated… we “cover” that.. we pay for it.. we all pay for it… – and that kind of approach to health care is just dumb as a stump.

    Who has the guts to say .. we are going to deny access to ERs for those who do not have insurance? Some at the voter level will say this.. many lack the backbone to actually say it.. but how many so-called “Conservative’ politicians actually say this and run on that promise?

    How many Conservative politicians promise to repeal EMTALA ? None that I know of but all of them will vote against primary care for those who can’t afford insurance.. and will watch them go to the ERs to get put in a hospital for organ failure or cardiovascular failure – and get treated for it – hundreds of thousands of dollars of treatment – that then gets billed to taxpayers and those who have insurance.

    That’s just plain hypocrisy.. in my view. We “pretend” that we will not provide health care to those who can’t afford it but in reality what we really do – is wait until they are near death THEN we pony up tax dollars to pay 10-20 times as much as we would have if we had paid for primary care.

    We decry the politics but not a whimper about the stupidity.

  14. TooManyTaxes Avatar

    We’ve all (or most of us anyway) have regularly complained about Dominion Energy’s overreach, greed and abuse of small customers. We complain about state government failing to reign in these abuses.

    Yet we are setting up the health care industry, which tends to do the very same things, to take more taxpayer money in a manner that we all know will not include real bona fide increases in transparency or efficiency. Will the State require newly covered Medicaid recipients that smoke to get treatment to quit? Will the State require all licensed health care professionals to take Medicaid reimbursements? Will Virginia expand its no-fault program for birth-related injuries to cover other doctor-involved situations that don’t work out well? Will Virginia revise its rules to allow nurses and nurse practitioners to handle treatments that do not require the skills of an MD? Or has the Commonwealth just opened up a new publicly funded trough for the health care industry to feed on?

    We won’t see reforms even with an very experienced M.D. as our Governor. So why do we rage over Dominion (me too), but not the health care industry?

  15. LarrytheG Avatar

    re: will the state “force” people to not smoke, drink or swear if they are to get “free” health care?

    good question !

    Insurance companies right now would do that to YOU on your employer-provided if the GOVT did not restrict them from doing that!

    So – perhaps the answer is – should there be the SAME approach for all of us – and should the govt get out of employer-provided and let the insurance companies deny people on employer-provided insurance ALSO if they are obese, smoke and have other noxious life-shortening “problems”?

    In terms of “enough” medical providers… it’s a continuing myth – that was going around about Medicare – first – and then that myth went away and it switched to MedicAid…

    Right now Virginia Medicaid is already 70% managed care and they intend to increase that number and that means that you don’t need all providers accepting MedicAid because with managed care – you actually need LESS resources because it’s a much more cost effective way to deliver health care when all providers are using the same medical record , not duplicating treatment and not making mistakes because they don’t know the full medical record.

    Here’s the real problem. People who are predisposed against MedicAid will conjure up every “what if” in the book to argue against it. People who favor it see the same issues as ones that need to be reformed – resolved.. and move on.

    Just like anything else in our society – whether it’s transportation, education or health care – there are two approaches.. half-glass full or half-glass empty.

    There is a reason why of all the industrialized countries on the planet – we pay TWICE as much for health care – and yet we rank at the bottom in life expectancy and all those other countries have health care for all their folks.

    Trying to have health care for SOME of our citizens is NOT cheaper…no matter how fervently some believe it.

    By the way – the news reports that MedicAid Expansion in Virginia is not necessarily a done deal.. the Senate remains opposed… stay tuned!

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