January 5, 2013
By Michael Martz
A new economic study for Virginia’s powerful hospital and health care industry says the state would pay more for Medicaid in the near term if it chooses not to expand the health program to more than 300,000 uninsured Virginians.
At the same time, the study for the Virginia Hospital and Healthcare Association says the state would forgo estimated economic benefits from expanding Medicaid that would be more than four times those from opting out of the expansion.
Chmura Economics & Analytics, a Richmond firm hired to perform the study, found that expanding Medicaid under the federal Affordable Care Act would generate an economic benefit to the state of nearly $4 billion a year over the next six years, driven by a huge increase in federal spending that would produce almost 31,000 jobs, most of them in the health care industry.
But the study’s biggest revelation was the cost to the state budget of expanding Medicaid — it would be about 7 percent less than if Virginia opted out of the expansion.
“That is a surprising result,” said Christopher S. Bailey, senior vice president at the association.
Expansion would cost Virginia less in the near term because the Affordable Care Act promises full federal funding for the first three years of the six-year study period, the Chmura report said.
The state also would benefit from “a significant reduction” in reimbursements of uncompensated care for uninsured Virginians, as well as new state tax revenue from investments by the expanded health care industry, businesses and individuals who save on health care costs.
However, Bailey said the study does not address increased state financial support of the expansion after 2019. It also does not address, in detail, concerns about the possibility of less federal aid than promised because of deficit reduction and the lack of control over expenses in operating the Medicaid program now.
“It doesn’t do anything to change the reality that we’re going to have to figure out a way to manage Medicaid sustainability more successfully over the long term,” Bailey said.
Secretary of Health and Human Resources William A. Hazel Jr. came to the same conclusion. “You’re still going to have to look at the cost-benefit analysis, because this is only the benefit,” he said Thursday.
Hazel said the state is concerned about where it would find the money to fund its share of the expansion, especially after 2019, when the state would pay 10 percent of the cost of expansion. “There is a huge jump (in costs) in the out years,” he said.
Gov. Bob McDonnell opposes Medicaid expansion without significant reforms to the program, but his administration is working closely with the U.S. Department of Health & Human Services on waivers and pilot projects that would give the state flexibility in how it operates and pays for the program.
A federal decision on those state requests could come during the General Assembly session that will begin on Wednesday. Medicaid expansion will be one of the biggest items on the legislature’s agenda.
Sen. Emmett W. Hanger Jr., R-Augusta, said Friday he will introduce amendments to the state budget that will put Medicaid expansion “on the table, so we can consider it during the session.”
Hanger, chairman of the Senate Finance health and human resources subcommittee, said he also will introduce a budget amendment to allow a “hybrid” health benefits exchange to be operated in partnership between the state and federal governments, instead of defaulting to a federally operated exchange.
Medicaid expansion and establishment of a health benefits exchange are the most crucial components of the Affordable Care Act’s goal of extending health insurance coverage to an estimated 1 million uninsured Virginians.
Virginia’s policy decisions will have enormous ramifications for the state’s hospitals and health insurers, which are counting on expanded health coverage to bring down the costs of uncompensated medical care.
“These are opportunities to get more people enrolled to share the costs,” said Doug Gray, executive director of the Virginia Association of Health Plans.
The effect on the state budget would be an estimated increase of $244.7 million a year, on average, if the Medicaid program expands and $261.9 million if it does not, the study estimates.
One of the biggest reasons for the difference is an estimated state savings of $69.2 million a year as Virginia’s share of reimbursements to hospitals for uncompensated care.
Virginia Commonwealth University and University of Virginia medical centers provide most of the uncompensated care in the state and stand most to lose if reimbursements shrink but Medicaid does not expand to reduce the number of uninsured people they treat.
“There is no place (for hospitals) to go for uncompensated care if they don’t expand Medicaid,” Gray said.
Virginia will pay more for Medicaid regardless of whether it expands the program, the study concludes, because almost 90,000 people are expected to apply for benefits to which they already are entitled as other health care reforms spur them to act. This is the so-called “coming out of the woodwork effect.”
The state would share equally with the federal government in the cost of care for those people, while the state would pay none of the cost of care for newly eligible Medicaid participants under expansion for the first three years. Its share would increase gradually to 7 percent of the cost over the next three years and 10 percent thereafter.
Expansion would extend coverage to about 310,000 Virginians who aren’t eligible now, the hospital association study estimates, although it said state officials are doing a more detailed study of the likely “take-up” of benefits. The state has not released the study.
But the essence of the hospital association study is the effect of federal spending estimated at almost $1.9 billion a year, on average, from 2014 through 2019. That spending would generate an average of almost $3.5 billion a year in the health care sector alone and produce more than 26,000 jobs, the study estimates.
The total economic benefit, estimated at $3.9 billion a year, on average, includes $34.6 billion for businesses that would reinvest projected savings on employee health insurance and $417.7 million in spending by people who no longer have to pay out of pocket for any medical care they get.
In contrast, if Virginia does not expand its Medicaid program, federal spending still would increase because of the “woodwork effect” and have an economic spinoff that would produce a total estimated benefit of $878.2 million a year, on average, in the six-year period.
“The near term benefits (of expansion) are very significant,” Bailey said. “We need to use those benefits to fix the long-term problem.”