Editor's Blog: Why is there so much disagreement about how much Medicaid expansion will affect Virginia?

In the past ten years, there has been substantial growth in the number of Virginians over 50 which help drive up medical costs (graph by Frank Muraca).

Virginia Medicaid Expansion Debate: Explained

The topic is in the headlines several times a week, and has been designated as one of Governor McAuliffe’s top legislative priorities.

While Governor McAuliffe has made it one of his top legislative priorities, House GOP leaders have repeatedly said that it is unlikely for General Assembly to expand the program.

In most media reports, the debate has gone back in forth between how Medicaid will affect the State’s finances. Proponents argue that Medicaid will save Virginia up to $1 billion over the next eight years. Opponents say it will do quite the opposite. How have these two groups come to such opposite conclusions?

Where Medicaid is today

Over the past decade, the size of the Medicaid program has exploded in Virginia, both in enrollment and cost.

“While the number of people served by Medicaid in Virginia has grown 10 percent over the last decade (fiscal years 2002-11), total state General Fund (GF) expenditures have increased by eight times that amount, from $1.6 billion to $2.8 billion to now consume nearly 21% of the state budget,” explains a report by the Virginia Department of Medical Services, the state entity that manages Medicaid. “The main drivers of growth are increases in enrollment, health care costs, and utilization of long term care and behavioral health services.”

Why are costs increasing? There are a few answers, but one of the bigger ones is that, as the population gets older they also get sicker, and require more expensive medical treatments.

And Virginia’s population has certainly gotten older over the past ten years. The largest growth by age has almost exclusively occurred in age brackets over 50.

To better show how this trend is affecting Medicaid costs, we should look at the entire population enrolled in Medicaid.

Today, there are 1.1 million Virginians currently enrolled in the state’s Medicaid program. Almost 70 percent of those enrollees are children, pregnant women and low-income parents. The other 30 percent is comprised of disabled seniors.

The catch is that the elderly enrollees (who make up only a third of the Medicaid population) consume almost two thirds of all Medicaid expenditures.

So who pays for Medicaid coverage? The costs are split evenly between state and federal funds, with Virginia paying about $3.5 billion, or 20 percent of the state’s overall budget.

According to a white paper put forward by Fairfax County, “Virginia ranked 43rd in Medicaid enrollment as a proportion of the state’s population and 47th in per capita Medicaid spending.”

Proponents are argue that Medicaid expansion will save Virginia money and create thousands of jobs. How exactly?

Why it will help Virginia

As of now, Medicaid currently enrolls two groups of people: disabled seniors, and pregnant women, children, and parents. Under Medicaid expansion, coverage would be extended to childless adults.

“A large portion of Virginians who are expected to become eligible for Medicaid under expansion will be non-elderly adults without a serious health disability,” read a November 2013 report by the Joint Legislative Audit & Review Commission. “These adults should be less likely to require specialized or institutional care”

Today, the standard reasoning is that since this population is uninsured, they often wait until their medical ailments reach critical condition to see the doctor, often resulting in more costly treatment.

“They wait until their health is in a precarious state, and they come … in a sicker state than they would have … had they had insurance coverage,” Tracey White, vice president of community and government relations for HCA Virginia Health Systems, told the Washington Post on February 5. “They don’t come for care until it’s an emergency … and then we are treating a person that is much sicker and therefore ends up costing the system more. If that population has access to coverage, they will use it and generally become healthier because of it.”

Most expansion supporters expect that if the program were to be extended to childless adults, it would be under what are called Managed Care Organizations.

Medicaid enrollees currently receive treatment in one of two ways. The first is what’s called fee-for-service, which is how disabled seniors receive care. Under fee-for-service, it’s as simple as a patient visiting a doctor and then paying at the office after the visit. This is how the majority of patients (in the nation) receive their medical care.

There’s a reason why that 30 percent of Medicaid population (the disabled seniors) consume over 70 percent of overall Medicaid expenditures. FFS creates a perverse incentive for doctors, who are paid on the amount of care they provide to patients rather than the quality of care.

Most health policy experts have said that this is an outdated and ineffective way of supplying medical services to Medicaid patients. In fact, the fee-for-service model only supplies 30 percent of Medicaid enrollees in Virginia, or primarily the disabled elderly.

The idea is to designate a primary care provider to each enrollee, and to rely more on preventative medical care.

Under the fee-for-service model, patients might visit different doctors over the course of an ailment. Under an MCO, patients would visit a single doctor who would be in charge of maintaining the quality of care for that individual. (Patients can still choose who they visit, but there is more guidance in terms of coordinating the care they receive.) Additionally, as mentioned above, the standard line of reasoning for providing coverage was that having access to preventative care would go a long way to the future costs of more severe medical ailments.

So why exactly does this end up saving money? Even if you’re expanding insurance across a larger pool of people, aren’t you paying for more services with or without the help of Managed Care Organizations?

To answer that question, we have to look at how hospitals are compensated for the services they provide.

Before the Affordable Care Act, hospitals received a chunk of money from the federal government that helped cover the services they were providing to uninsured patients. Under the law, if someone with a gunshot wound shows up in an emergency room, the hospital is required to provide him or her with care.

After the ACA was passed, that money, called Disproportionate Share funds, were reallocated to pay for the state’s to expand Medicaid. Politically, this has created a problem in Virginia, because if the state decides not to expand Medicaid, hospitals won’t be compensated for the services they provide to uninsured patients.

When people say that expanding Medicaid will save Virginia money, they are largely saying that state is throwing away money that’s needed to help pay for the uninsured. If Virginians have already been taxed, why not use those funds to benefit the state’s population, rather then letting it go to finance some other state’s Medicaid program.

Why expansion will cost Virginia

Under the ACA, the federal government has agreed to finance 100 percent of Medicaid expansion during the first year it is implemented, then taper down to 90 percent for the first three years.

Opponents of Medicaid expansion most frequently say that the federal government can’t be trusted to contribute the necessary funds for expansion.

“Any arguments for the long-term economic viability of this expansion lean heavily on promises from the federal government, and those promises are of tenuous value at best,” Del. David LaRock (R-Loudoun) recently told the Washington Post.

Distrust is based on a couple of examples. Some legislators cite the handling of the exchange website, HealthCare.gov, that faced considerable technical challenges last year. Additionally, with budget discussions on the federal level are still piece-meal affairs.

So what happens if they expand Medicaid and then federal government doesn’t come through?

And in general, some are skeptical that while Managed Care Organizations are more effective at controlling costs, they still won’t address the rising cost of health care. According to the JLARC study, enrollment in the program grew nearly 51 percent over the last decade, and costs have doubled over the past ten years.

If Medicaid, which already takes up over 20 percent of the state budget, growth in costs would lead to less revenue for other state programs, such as education or transportation.

As of now, House GOP leaders have repeatedly said that they will not agree to any kind of expansion until the program goes through a robust auditing process. On February 10, the House passed that audit, a move that Democrats say is only a tactic to delay expansion.