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The administration of Gov. Bob McDonnell estimates that expanding Virginia’s Medicaid program would cost the state $137.5 million over nine years, far lower than previous estimates that have ranged as high as $2.2 billion.
The estimate reflects $584.3 million in expected savings in the first five years of the expansion, although $142.2 million in net savings come from provisions of the Affordable Care Act that do not depend on Medicaid expansion.
The cost to Virginia would begin to rise in 2019 and total about $722 million through 2022 as the state assumes a 10 percent share of the bill under the federal law. The federal share of the cost of expansion in Virginia would exceed $23 billion over nine years — including 100 percent of the bill the first three years.
“It is a significant amount of federal money,” Secretary of Health and Human Resources William A. Hazel Jr. told a Senate Finance subcommittee last week. “We do have concerns about whether that federal money will be there.”
The new estimates, compiled over the past seven months by the Virginia Department of Medical Assistance Services, emerge as the General Assembly prepares to debate whether to expand the federal-state program for the poor in the face of opposition by McDonnell and other Republican leaders.
“As the state is conducting a more thorough analysis … the costs to Virginia are going lower and lower, making this an even better opportunity for Virginia to move forward with expansion,” said Jill A. Hanken, staff attorney for the Virginia Poverty Law Center.
The estimates do not reflect the potential economic benefits of the expansion — predicted at almost $4 billion a year in Virginia in a study commissioned by the state hospital association that forecasts the creation of more than 30,000 jobs and significant increases in tax revenues.
With those potential benefits, Hanken said, “the bottom line is the expansion pays for itself.”
The lowest cost estimate is based on the expectation that fewer Virginians would take advantage of expanded eligibility for Medicaid on Jan. 14, 2014 — about 248,000, or 69 percent of all those expected to be eligible.
The cost to the state would be close to $1 billion over nine years if all of those eligible enrolled in the program initially — more than 400,000 Virginians. Most of the newly eligible would be childless adults and parents who don’t qualify now under Virginia’s program, ranked 48th in the country for eligibility and benefits.
More than two years ago, the state estimated the cost of expansion at $2.2 billion over 10 years. Medicaid officials say they assumed then that all of those newly eligible would apply for coverage, so the new analysis effectively reduces that estimate by about half.
The new analysis estimates substantial savings, almost $300 million, if behavioral health benefits are included in the Medicaid expansion because in many cases the state is paying for those services without federal help.
“This would substitute Medicaid funding at 100 percent federal for a lot of services that are currently state-funded,” said Scott Crawford, deputy Medicaid director for finance.
Virginia also would save almost $290 million in hospital care of inmates in the Department of Corrections who currently don’t qualify for Medicaid, the analysis estimates.
But the biggest savings would come from reduced state reimbursements for hospitals — especially teaching hospitals at Virginia Commonwealth University and the University of Virginia — for the uncompensated care they provide to Virginians with no or little health insurance.
The analysis estimates those savings to the state at $637.4 million over nine years, or about half an estimated $1.3 billion in reduced federal and state reimbursements to hospitals for indigent care.
On the other hand, the analysis estimates a much bigger bill for Virginia if the state were to fully fund the cost of hospital care to Medicaid patients — now reimbursed at less than 70 percent of the cost — and raise rates for doctors and other providers by 25 percent to the level currently paid by Medicare.
If Virginia raised those hospital and provider payment rates, it would cost $3.1 billion to $4 billion through 2022.
Under the Affordable Care Act, the federal government will pay the higher Medicaid rates for primary care services beginning this year and continuing through 2014. States will have to decide whether to pay a share of the bill beginning in 2015 or lower the payment rates.
All of the estimates assume that the federal government provides the funding promised in the Affordable Care Act, and even advocates agree that expansion of Virginia’s Medicaid program should be linked to the federal match rates in the law.
McDonnell and Republican legislative leaders also want flexibility in how the state would administer the Medicaid program to newly eligible Virginians and, eventually, those already covered by it.
“Without dramatic reform, I cannot recommend a dramatic Medicaid expansion,” the governor said in his State of the Commonwealth speech last week.
The McDonnell administration is submitting a waiver to the federal government under Section 1115 of the Social Security Act that would give the state flexibility in how it designs benefits, requires recipients to share costs, promotes effective care, and simplifies administration of the program.
Virginia Medicaid officials plan to meet with their federal counterparts in early February to discuss the state’s request. The state also is seeking an agreement with the Department of Health and Human Services to undertake a pilot project to reduce the high cost of care for elderly and disabled Virginians who are eligible for both Medicaid and Medicare benefits.
Last month, Health and Human Services Secretary Kathleen Sebelius encouraged states to undertake such reforms and take advantage of federal waiver “demonstrations” to change how they deliver and pay for care.
The federal Medicaid program “continues to work closely with states to provide options and tools that make it easier for states to make changes in their Medicaid programs to improve care and lower costs,” Sebelius said in guidance released Dec. 10.
Ranking Republicans on both assembly money committees submitted budget amendments on Friday to allow state Medicaid officials to negotiate reforms with the federal government as a step toward possibly expanding the state program.
“Most of us are very comfortable with the approach of reform first and then consider expanding later,” said Del. John M. O’Bannon III, R-Henrico, a member of the House Appropriations Committee who requested the amendment.
Sen. Emmett W. Hanger Jr., R-Augusta, who chairs the Senate Finance subcommittee on health and human resources, filed a similar amendment to condition expansion on reforms and federal funding.
“We have an opportunity, as long as we get the conditions, to do it Virginia’s way,” Hanger said Friday.
