Category Archives: Health Care

Too Early to Predict Impact of Medicaid Expansion on Carilion

Carilion Roanoke Memorial Hospital, flagship of the Carilion fleet.

Information continues to dribble out about the impact of Medicaid expansion on Virginia hospitals, although there still seems to be no consensus on whether or not the costs of a hospital “assessment” will be passed on to privately insured patients. The uncertainty reinforces the impression that Governor Ralph Northam and GOP lawmakers bought a proverbial “pig in the poke” when they agreed to enlarge Virginia’s largest entitlement program.

The latest evidence on the hidden cost of Medicaid expansion comes from Don Halliwell, chief financial officer of Carilion Clinic, the health system serving much of western Virginia. Halliwell tells the Roanoke Times that the health system will pay about $27.5 million a year once expansion is fully underway, but he cannot tell how much the system will reap in return.

“It is a victory for our communities and a victory for our patients, but boy, it’s complicated,” Halliwill said. “We know the direction and what has been stated as the intentions. But how it will play out we just don’t know.”

Left unaddressed in the article is the question of how much Virginia will need to spend to raise Medicaid reimbursements to physicians — an issue that was deferred by this year’s legislation. Reimbursement rates of about 71% of cost are so low that many primary care doctors refuse to accept money-losing Medicaid patients. There is a growing awareness that expanding Medicaid coverage to Virginia’s near-poor population is meaningless if patients can’t find doctors to treat them.

Luanne Rife does not address that issue, but her article in the Times otherwise does the best job I’ve seen yet of exploring the financial implications of Medicaid expansion at the provider level.

If everyone who will soon qualify for Medicaid signs up, Carilion will gain at least 17,000 paying patients in its core service area and a share of another 17,000 people living in outlying areas.

Most of these patients are now what Carilion calls “self pay.” Last year, this group represented about 6 percent, or $255 million, of Carilion’s charges for inpatient and outpatient services. Much of it is written off.

In the first year of Medicaid expansion, the hospital assessment on all acute care hospitals (with the exceptions of the University of Virginia, Virginia Commonwealth University and the Childrens Hospital of the King’s Daughters) will pay an assessment of 1.1% on net patient revenue, or an estimated $190 million statewide. In the second fiscal year the tax will increase to 2.3%. In exchange, states the Times article, the state will boost reimbursements for Medicaid services from 70% of hospital costs to 88%.

With higher reimbursements and thousands more paying patients, budget makers figured that after assessments, hospitals across the state would net $263 million the first year and $617 million in the second full year of expansion.

Hospitals with few Medicaid patients might pay more than they gain, and there is speculation they will pass along their losses to commercial insurance payers.

What does that mean for Carilion? Halliwell isn’t sure. “I can only speak for myself, but I don’t see a way where we would be in a position where our assessment would be greater than the benefit,” he said. “If your assessment was greater than the benefit then you would have excess costs. A system would have to figure out a way to pay for it. I wouldn’t speak for them, but it could be passed on.”

Bacon’s bottom line: The politicians don’t know what the impact will be. The hospitals don’t know. Nobody knows. All anyone can say is that in the aggregate, more Medicaid money will flow into hospitals as will flow out. While hospital lobbyists engineered what looks like a political deal for their industry, the hospitals themselves have not figured out how the money flows will work internally. One thing you can bet on, more money will mean bigger hospital profits — including those of the so-called nonprofit hospitals.

Here are some benchmark figures for the Carilion Medical Center, the flagship operations in Roanoke, to monitor in the years ahead as Medicaid expansion unfolds (2016 figures):

Charity care — $142 million
Bad debt — $71 million
Net patient revenue — $1,174 million
Operating income –$66 million
“Surplus” (profit) including non-operating gains — $100 million

Being Dealt A Losing Hand That Lingers

There are times in life when four aces is a tough hand to hold.

Common themes on this public policy forum include poverty and its causes and cures, school failure and related discipline matters, health problems and the difficulty understanding why these conditions remain so widespread in this great nation and commonwealth.  I invite you to temporarily suspend your preconceived notions and examine some hard data that upset some of mine.

My quick summary is not doing this work justice but this is a blog, not the New Yorker.

More than twenty years ago two researchers on opposite sides of the country were feeling their way toward explaining strong correlations they observed between childhood experiences and later physical diseases.  One noted that people who dropped out of obesity treatment were often sex abuse victims.  A collaborative study was funded by the Centers for Disease Control and Kaiser Permanente.  About 17,000 people were asked to fill out a simple 10-question survey on various adverse childhood experiences (ACEs) and then the results were correlated with their health records.

Here, take the test yourself.

The results were astounding.  Adults who had high ACE scores also were substantially more likely to have – decades later — a number of health problems up to and including early death. People with a score of six or more were potentially looking at lifespans of 20 fewer years.  From the summary I linked:  “Compared to an ACE score of zero, having four adverse childhood experiences was associated with a seven-fold (700%) increase in alcoholism, a doubling of risk of being diagnosed with cancer, and a four-fold increase in emphysema; an ACE score above six was associated with a 30-fold (3000%) increase in attempted suicide.”

It was widely known that children who were physically or sexually abused were more likely to become offenders themselves, and the concept of psychosomatic illness is ancient.  We’ve long talked about the cycle of poverty.  But here was hard proof in a simple and easy to replicate study.  It then led to brain studies that discovered that trauma and the resulting floods of cortisol and adrenaline actually change physical brain structures.  The how is becoming clearer.

This initial group was not a low-income population.  Heart disease, depression, family violence, drugs and learning problems are not limited to poor neighborhoods.  But the work has sparked a slowly spreading revolution in education and social services.

Consider the implications of simply changing the question “What is wrong with this child?” to “What has happened to this child?”  When you make that mental shift, does it change the way you think about the argument over long suspensions for primary school students with control issues?  Do you really think sitting out of school for a long period (unsupervised) is going to change anything?  Do you worry a little bit more about the impact on a child of a being evicted a series of times?  Are you a bit more interested in providing Medicaid to the whole family instead of just the children?

Source: CDC

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Medicaid Fraud Unit Grows With Program

It would be interesting to know which is growing faster, the Medicaid program itself or the state-run legal and investigative team charged with rooting out and prosecuting the fraud, waste and abuse that appear on pools of dollars like algae on a still pond. My guess is the Medicaid Fraud Control Unit (MFCU), now around 100 people, has actually grown faster than the underlying program it polices.

Does that mean a growing Medicaid program is generating more fraud? Or does it mean the problems are always there and a more numerous and aggressive enforcement staff can bring more cases? The second argument was the one always used on me when MFCU argued for more budget during my time as administrator in the Office of Attorney General.

In 1983 the team started with about a half dozen staff and recoveries that year were minuscule, but these are cases that take time to investigate and build. Over 35 years that total has reached almost $2 billion, although one big year (2012) accounted for almost half of that. The $14.4 million it will spend in each of the next two years is over 25 percent of the entire budget for the OAG.

None of the money comes from state taxpayers, but as is often noted we are all federal taxpayers as well. Its recoveries exceed its cost. Overall it has returned hundreds of millions of ill-gotten gains to various treasuries. Its deterrence effect is hard to measure but has to be included in any assessment.

In 2009 the unit started publishing its own annual reports, giving each Attorney General (a.k.a. Aspiring Governor) a chance to print his photo and bask in the glow of success MFCU usually throws off. By the time the first report was published, Bob McDonnell was already running for Governor so it wasn’t his photo. Still, I’m not surprised these reports started with an election year and haven’t stopped.

That first one from 2009 showed a staff of just under 50 people and a $6.6 million spend (way above where I left it in 2002), reporting 16 convictions and almost $27 million in restitution. That was substantially below the totals for 2007 and 2008, but there are no annual reports for those years to dig into why.  When you go to the 2017 report, you find the staff went up to just below 100 persons, the budget to just below $12 million, but recoveries were under $21 million that year.

From the 2017 Annual Report

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Millions More for Medicaid Expansion? Now You Tell Us

One of the conceits of Virginia’s Medicaid debate is that expansion would pay for itself. Uncle Sam would pick up 90% of the cost, leaving Virginia to raise money for only 10%. The Commonwealth would save a few hundred million dollars through reduced funding for prison healthcare, mental health, indigent care funding, FAMIS pregnant women, and other programs. And hospitals would kick in more than $300 million from a provider assessment.

Now we read from Michael Martz with the Richmond Times-Dispatch, the only reporter providing meaningful follow-up to the biggest entitlement expansion in recent Virginia history, that “the work is far from done in expanding access to health care for 400,000 uninsured Virginians.”

It turns out, he writes, that lawmakers and state officials “didn’t include money in the two-year budget to raise Medicaid reimbursement rates for doctors and other front-line health care providers.”

Oops. And how much  money might that be? Supposedly, about $47 million in the second year of the biennial budget to raise reimbursements for doctors to about 67 cents on the dollar to 88 cents.

I’ve been making this point throughout the debate — expanding Medicaid coverage is meaningless if the federally and state-funded health insurance program for the poor pays so little that many doctors won’t take money-losing Medicaid patients. At least, it appears, our legislators did understand the problem even if they didn’t openly acknowledge it. (If they did openly acknowledge it, no one in the media picked up on it.) But now that Medicaid expansion is a done deal, lawmakers and lobbyists are suddenly talking about previously undisclosed liabilities to taxpayers.

“Just because you get insurance doesn’t mean you have access to a doctor,” said Ralston King, vice president of government relations for the Medical Society of Virginia, stating an issue that should have been obvious to everyone but somehow flew under the media radar through months of debate. Finding a way to pay for it is the next challenge, King said. “Right now, we don’t have a funding mechanism.”

Then there’s this from Dr. Todd Parker, an emergency room physician at Riverside Shore Memorial Hospital on the Eastern Shore: “We are encouraged that along with this legislation, given the very low reimbursements that Medicaid provides providers, that legislators are considering ways to increase Medicaid reimbursements and otherwise help physicians who may see increased numbers of Medicaid patients.”

Bacon’s bottom line: So, Medicaid expansion isn’t complete, and ordinary Virginians aren’t finished paying for it. We’ll pay indirectly by means of a $300  million provider tax, some proportion of which will be passed on to patients, and we’ll pay again when legislators figure out where to find another $47 million a year to make Medicaid expansion meaningful by raising reimbursements to a level where physicians don’t treat patients at a loss.

Who even knows if that $47 million number is real? How long it will take to morph into something much bigger? Do the math: About 1.3 million Virginians currently receive Medicaid. Expansion will add another 400,000. Forty-seven million dollars spread over 1.7 million patients equals less than $27 per patient. Do you think $27 a year will raise physician reimbursements from 66% to 88% of the cost of treatment? I don’t.

If you feel hoodwinked by Medicaid expansion — politicians consistently low balling the cost and the fourth estate failing to probe what it would cost the public — you’re not alone. So do I.

OK, We Enacted Medicaid Expansion. Let’s Measure How Well It Works.

A “die-in” held at Capitol Square: Long on symbolism, short on data. Photo credit: Washington Post

So… The General Assembly has enacted Medicaid reform. That’s a big win for Governor Ralph Northam and Virginia Democrats, and potentially good news for 400,000 of near-poor Virginia adults who now will qualify for a healthcare program that will be 90% funded by the federal government and 10% by the state. It’s not such good news for budget hawks concerned about Medicaid’s runaway impact on Virginia’s General Fund budget or for patients who could pick up the tab for a new $300 million-a-year assessment on hospitals.

The reporting on Medicaid expansion, the biggest entitlement expansion in recent Virginia history, has been truly dreadful — a fact that I attribute to the downsizing of newsrooms across Virginia and the resulting inability of Virginia media to field the manpower to do anything more than cover General Assembly hearings. It is astonishing how little we really know about the impact this legislation will have on the cost and delivery of health care in Virginia.

My big questions now: (1) Will the program improve the health of Virginia’s near poor; (2) will it do so within the budget constraints that have been promised; and (3) how much of the cost, if any, will get passed on to the privately insured?

In all likelihood we will never know. That’s because no one appears to have identified benchmarks by which the effectiveness of the legislation can be measured. The politicians, activists and pundits will declare victory and move on to the next cause of the day. The last thing they want is to lay down markers by which this entitlement expansion can be judged to be effective or not. We don’t have the capacity here at Bacon’s Rebellion to do that heavy lifting, but we  can ask questions that are worth bearing in mind as the Medicaid juggernaut rolls forward.

Budget savings. A key promise in getting Medicaid expansion enacted is that the program will pay for the state contribution through savings in state programs. In theory, the Commonwealth will save $370 million in prison healthcare, mental health, indigent care funding, FAMIS pregnant women, and the like, over the next two-year budget. Will those savings materialize? I’m fairly confident that they will — budget items like this are among the easiest things to predict. But we won’t know for sure if we don’t check.

Impact on the Affordable Care Act. Steve Haner noted in a previous post that an estimated 60,000 Virginians now covered by Affordable Care Act health plans will be enrolled in Medicaid. What does it say about Medicaid expansion if, to a significant degree, it is just shifting tens of thousands of patients from one government-subsidized program to a different government subsidized program? Another question: Does Medicaid provide better coverage than Obamacare or worse? Yet another: What actuarial impact will the loss of 60,000 patients have on the Obamacare plans?

Speaking of Obamacare… The Affordable Care Act insurance markets continue their meltdown in Virginia. According to HealthInsurance.org, the weighted average of next-year rate increases filed by all insurers in Virginia is 13.4%. Some fraction of that increase can be attributed to Trump administration actions, but the markets also have been in a death spiral in which healthy patients bail out, forcing insurers to hike rates to cover the remaining, sicker patients. Regardless of who or what is to blame, it is difficult to appraise what is happening in the Obamacare markets. Plans vary so widely by the amount of deductibles and discounts negotiated from listed prices that it is impossible to compare Plan A with Plan B. The situation could be worse than it appears from comparing premiums alone. What will happen to the near-near poor (as opposed to the near-poor enrolled in Medicaid) if they get priced out of the market? Will Medicaid have to expand to cover them, too?

Quality of Medicaid care. Medicaid reimburses hospitals and doctors at the lowest rate of anybody in town, and most providers lose money on their Medicaid patients. Combine that with an acute shortage of doctors, and you get a situation in which it is exceedingly difficult for Medicaid patients to find primary case physicians. The General Assembly has done nothing to alleviate the doc shortage. Perhaps the managed care plans set up for Medicaid patients will devise work-arounds for the problem. Perhaps not. Nationally, there has been considerable debate about whether Medicaid patients are better off with Medicaid than if they just threw themselves upon the mercy of hospitals and doctors. Inevitably, that debate will be reprised here in Virginia. The Northam administration should settle upon metrics that track outcomes for Virginia’s near-poor population before and after Medicaid expansion.

Cost shifting. The financing of the health care system is stacked against the middle class. Hospitals shift a portion of the cost of treating their money-losing patients (indigent, uninsured, and Medicaid) to patients with privately insured health plans. Privately insured patients could get a triple whammy next year. Not only will they pay higher premiums due to general health care inflation (the first whammy), but they’ll eat the estimated $300 million hospital assessment enacted as part of Medicaid expansion (the second whammy). Plus, they could take another hit as docs and hospitals treat more money-losing Medicaid patients and shift costs to the privately insured (the third whammy). On the other hand, Medicaid expansion will inject a couple billion dollars into the system, so maybe cost-shifting pressures will diminish. Frankly, nobody knows. But it would inform future debate if someone tracked the numbers and performed the analysis.

Hospital profitability. With the exception of some rural hospitals, putatively nonprofit hospitals have consistently maintained high levels of profitability through the twists and turns of health care markets over the years. Will Medicaid expansion pad or diminish their profitability? I’m predicting that overall industry profits in Virginia will surge, but I could be wrong. Again, it would be helpful if someone kept track so we can understand what’s happening.

I offer this list just to get the conversation started. I’m sure readers can refine the thinking. What’s important is that we start measuring now. I would hate to find ourselves revisiting Medicaid expansion two or three years knowing no more than we do now.

Raising the Next Generation of Snowflakes

Graphic credit: Wall Street Journal

One in four students at elite universities are now classified as “disabled,” largely due to mental-health issues, reports the Wall Street Journal. And that disabled status is increasingly entitling them to special accommodations like being given extra time to complete exams.

Under federal law, schools must offer reasonable accommodations to the disabled. A blind student, for instance, would be given access to specialized software or a reader for an exam. No one could argue with that. But what about people with less visible disabilities such as depression, anxiety, or ADHD? Some colleges are providing “low distraction” testing centers and allowing students to bring “comfort animals” to school.

“At Pomona, we have extremely talented bright students with very high expectations who are coming in with a good level of anxiety and are highly stressed,” said Jan Collins-Eaglin, the Claremont, Calif., college’s associate dean of students for personal success and wellness. “Our job here is to help them really thrive.”

Bacon’s bottom line: Got that? The way to deal with anxiety and stress is to give students safe spaces rather than learn to master their fears and emotions.

Despite the advances of modern medicine and psychiatry, Americans are becoming mentally and physically more fragile with each succeeding generation. The problem starts long before kids go to college, but it’s becoming clearer than ever that institutions of higher education are not part of the solution but part of the problem.

The American character is becoming weaker and less resilient with each passing year. Can you imagine Generation Z (or whatever the post-Millennial generation is called) producing a Teddy Roosevelt, who was born a sickly child with debilitating asthma but, through force of will, overcame his physical health problems by embracing a strenuous lifestyle? The old virtues — strength, stamina, courage, perseverance, indomitable spirit in the face of adversity — are dying, replaced by the therapeutic ethic and cult of victimhood. Truly, we are a decaying society.

Recent news articles have noted that only a quarter or so of America’s youth qualify to enter the U.S. armed services. Once upon a time, American elites looked down upon military careers, as if they were occupations of last resort for those who couldn’t get into college. But if one third of college students have disabilities, it looks like the Army, Navy, Air Force and Marines are more selective these days than our institutions of higher education — and perhaps our only hope of preserving the traditional virtues upon which this country was built.

Most States Use Provider Tax for Medicaid

The pending proposed amendments to the stalled state budget bill, which almost broke the log jam earlier this week, did indeed include not one but two new provider assessments/fees/taxes (you pick the term) on Virginia private hospitals. When both chambers return next week with their “this time we’ll really do something” promises on the line, the fate of both should be determined.

The payments are interchangeably referred to as taxes, fees or assessments around the country. Virginia already imposes one on intermediate care facilities and only one state, Alaska, has avoided any use of this revenue method for Medicaid.

Based on my short research the federal government allows the states to use these “tax the provider to pay the provider” schemes on the whole range of providers, and most states do also tax nursing homes. Others tap pharmacies and managed care providers. There are good summaries here from the National Conference of State Legislatures and from Kaiser Family Foundation. The federal rules do limit just how much the state can tax and still pledge to recycle the money back, but these proposals stay under that limit.

The existing Virginia provider tax on intermediate care facilities raises about $13 million per year. The two new ones proposed for Virginia private hospitals would raise about $383 million in Fiscal Year 2020, the first full year of implementation.

Right between the two provider taxes in the list of proposed amendments there is another new provision calling on a joint legislative group to take another look at Virginia’s tobacco taxes, to see how to handle the new vape products and to see if changes should be made to the restrictions on local tobacco taxes. There is no reference to a health care funding angle as motivation for that. Perhaps there should be.

The provider tax approach to funding Medicaid has a long history. It was proposed and shot down under Governors Gerald Baliles and Douglas Wilder.  During this year’s debate I gave somebody my 26-year-old “No Sick Tax!” lapel pin.

The idea’s attraction is obvious. The hospital or other provider pays the state $1 dollar toward Medicaid expansion and the state uses that to draw down more than $9 from federal matching funds. The second $1 now proposed is collected for payment reimbursement rate increases, but that only draws down $1 additional from Washington’s coffers because that is under the cost share match formula for existing Medicaid programs.

Will those taxes, which appear to exceed 2 percent of gross patient revenue at the 70 hospitals involved, end up coming from individual patients or from their insurance carriers? Hospitals point out correctly that with the federal matching dollars they come out ahead, implying that there would be no need to pass on the cost. Hard guarantees are lacking. Clearly costs are being shifted around, but it seems unlikely they will shrink.

There is an interesting parallel with the proposal related to the Regional Greenhouse Gas Initiative, where people are being told to disregard the carbon tax which the power companies will pay and then get back. Won’t cost us a dime! One difference is the RGGI taxes don’t attract any match. Both ideas have me turning over walnut shells looking for the pea.

In 1992, when Wilder was pushing his own $68 million proposal, the Virginia hospitals led the opposition. “The health care groups say the Medicaid tax inevitably would get passed on to consumers through increased fees and insurance premiums,” was how John Harris of the Washington Post summarized their position. Wilder pushed back citing hospital profits and executive compensation.

The 1992 story also notes that Medicaid had grown from 5 percent to 13 percent of the General Fund budget in just five years. Where it is now and where it is going can be seen in this recent Senate Finance Committee staff slide. Another ten years and it is bumping up against 30 percent.

Call them an assessment or a tax these dollars will not be General Fund dollars and will not change that projection. That is another reason some legislators like the idea. The same Senate Finance Committee staff presentation stated as advantages of this approach:  “Eliminates need for GF support” and “Frees up all Medicaid expansion savings for investment in other budget areas.”

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Awkward Questions for Roanoke’s Health Sciences Campus

The Virginia Tech Carilion health sciences campus is emerging as the new economic growth engine for Roanoke. The impact of the campus on the state’s economy will grow from $214 million today to $465.2 million within eight years, according to a study issued by the University of Virginia’s Weldon Cooper Center for Public Service.

The addition of a second building at the research institute will create 828 new jobs and generate $150 million in additional spending by 2026, reports the Roanoke Times. The figures measure only direct impact, not the effect of undergraduate students studying there or spin-off development in the surrounding area.

“I think that as a region we need to think big because this is an opportunity that comes our way once a century,” said Heywood Fralin, chairman of the VTC Academic Health Center Steering Committee. The last time anything this big happened in Roanoke was when the Norfolk & Western Railway moved its headquarters in 1882 to the area then known as Big Lick.

The Roanoke Times provides the history of the initiative:

Tech and Carilion formed a partnership a decade ago to build a medical school and research institute on the Riverside campus. The research institute is at capacity, and a new building is underway that will double its size and expand its reach in advancing medical discoveries through trials and to market. Tech intends to offer more undergraduate programs in Roanoke centered around its school of neuroscience, and the Virginia-Maryland College of Veterinary Medicine will move its cancer treatment center to Roanoke. Four companies have been spun off from research since 2010. At that pace, the economist expects 10 more companies will form by 2025.

Here’s the catch:

“Clearly, the more financial support we can give to this effort the better it will be,” Fralin said. “There is an enormous list of things that are needed. To date, the commonwealth of Virginia has funded the buildings. I don’t think it’s reasonable to assume that every building going forward will be built by the commonwealth.”

Bacon’s bottom line: Before I launch into a contrarian mode of thought, let me make it crystal clear that Roanoke desperately needs a new pillar to its economy. Its old industrial-era economy has been hollowed out. The region needs to look to a knowledge-economy model of development rather than vainly try to rehabilitate the old manufacturing model. The research-center initiative brings together two of western Virginia’s key players, Virginia Tech and the Carilion health system, who have the financial clout and know-how to make things happen.

But I do find myself compelled to ask, who’s paying for all this?

Clearly, the Commonwealth of Virginia will be paying for the buildings — through state-backed bond issues, I presume. That’s fine, the state pays for higher-ed buildings across the state, and it’s only fair that Roanoke get its piece of the action.

But who’s paying for all the faculty, researchers, graduate students, and support staff? Hopefully, some of the money will come from federal and private-sector research contracts. Great! But how much? How much is coming from Virginia Tech and how much from Carilion? Digging deeper, where does Virginia Tech get its money, and where does Carilion get its money? To what extent, if any, are these new programs being subsidized by undergraduate tuition payments? To what extent, if any, are they being underwritten by higher-than-needed profits generated by the “nonprofit” Carilion health system?

Another way of asking the question: To what extent are Virginia Tech students paying higher tuition and Carilion patients paying higher medical bills in order to build the campus? To what extent is wealth being extracted from taxpayers, students, patients, and even local philanthropists to fund this research complex? Perhaps most critically of all, to what extent will the health science campus require ongoing subsidies forever?

The buildings, contracts and jobs being created are highly visible, and their economic impact is easy to measure. The funding sources are highly dispersed and largely invisible. Their economic impact is impossible to measure. Does the health science campus represent the optimal investment of society’s resources? Who knows? Nobody is even asking the question.

Medicaid Can Cost Taxpayers Less than ACA Plans

Source: United Healthcare Group

One of the interesting tidbits gleaned from a presentation last week on the Medicaid expansion debate was that with expansion perhaps 60,000 Virginians now enrolled in Affordable Care Act Public Exchange plans will qualify for and switch over to Medicaid.

People who have low-enough incomes to qualify for Medicaid are also eligible for subsidies for an ACA exchange plan, so both programs are costing the taxpayers. A recent report indicated Medicaid is actually costing taxpayers less than ACA plans for that population.

UnitedHealthcare Group’s report noted – not a surprise – that Public Exchange coverage has proven to be more costly and less sustainable than envisioned (or promised). Since 2014 – the first year of Public Exchange coverage – the average annual unsubsidized premium for a benchmark silver plan has increased 88 percent for a 27-year-old and 76 percent for a 40-year-old.

The original projection was that it would reach 25 million persons by now, and in 2017 it was more like 10 million.  Recent actions at the federal level will keep that from rising much beyond 12 million.

Compare that to Medicaid, which has enrolled more than 16 million additional people nationally since 2013.  These figures are national, and Virginia would vary somewhat, but the estimated average cost for the newly eligible Medicaid enrollee has been $5,400 and the average total cost for Public Exchange coverage has been $9,400.   In the case of the Exchanges, of course, much of that is coming from the consumer’s pocket.

But the low-income Exchange adult enrollees – the persons who could switch with Medicaid expansion – pay only $2,400 out of pocket and their federal share is about $7,000. That is still higher than the cost of Medicaid, which is fully government funded (state and federal combined).

This may not matter much to the Virginia voters and legislators opposed to expansion.  The state taxpayer makes zero financial contribution to the ACA health plan subsidies, and is going to be paying a share of the cost for new Medicaid enrollees.  We should find out early this week if the state Senate has a consensus on the expansion issue.

UnitedHealthcare Group (UHG) is hardly a disinterested observer in this discussion. It provides managed care for Medicaid in various states, now including Virginia, and based on its website it participates in some ACA marketplaces.  If the company has an economic incentive to prefer one approach over the other, it is unlikely to admit that in these presentations.

But it does argue the billions planned for ACA subsidies would be better spent on Medicaid.  It is unsaid but true that the future of the ACA Public Exchanges is cloudy at best, while Medicaid isn’t going anywhere, with or without expansion.

Absent from this is any discussion of quality outcomes when comparing the ACA Public Exchange plans with Medicaid, although UHG does advocate for managed care in general as providing higher quality for lower cost.  And the cost of Medicaid is hardly expected to remain stagnant.  Also absent is any discussion of which is preferred by the providers getting paid under the two approaches.

A footnote in the UHG report takes you to the most recent (2016) actuarial report on Medicaid. It was projecting federal costs would grow almost 6 percent per year, but also reported that the costs for newly-eligible adults were dipping slightly and might dip below those already eligible.  As always the most expensive Medicaid populations were the aged ($14,323 per enrollee in 2015) and disabled ($19,478).

The audit noted most states that had opted for expansion were using managed care contracts to lower the costs.  That will be the case in Virginia, and the 2017 Annual Report on Medallion 3.0, Virginia’s managed care approach, gives you a good idea of the services available.  If this is a choice open to them the lower-income ACA covered population will probably make the change.  It seems a very easy economic choice for them.

(Hat tip: Doug Gray)

Wait, A Second Hospital Tax?

For years a Virginia business policy group, the Thomas Jefferson Institute, has been pushing a Virginia tax reform proposal that would impose the sales and use tax on services.  The sales and use tax covers tangible goods, not (with a few exceptions) services.   Looking at the group’s 2015 report on the idea, imposing the sales tax on the broad medical and nursing home industries could generate close to $2 billion per year.

My memory went back to this idea while reading in the Richmond Times-Dispatch this morning that the hospital industry is indeed pushing again for a second “provider assessment” (read:  hospital tax) as part of the ongoing budget debate over Medicaid expansion.   The House of Delegates has included one new tax on hospital revenue to provide the state share of the cost of expanding Medicaid, and the hospitals want to tack on a second tax to increase their reimbursement rate for services.

The idea resurfaced in the Senate staff presentation Monday and then Senate Finance Committee discussions Tuesday.  The committee’s work on the overdue budget has now gone sub rosa for a while so there is no indication this “has legs”, as they say at the Capitol.

The two taxes combined would approach $400 million in 2020. That would be one of the largest tax streams flowing into state coffers, almost half the annual take of the corporate income tax and comparable to the insurance premium and recordation taxes.  The House version of the first provider tax is in effect a sum sufficient provision, meaning the tax will adjust up automatically if required to cover the state’s share of expansion (and the federal share will be shrinking.)

The infusion of major new federal revenue from Medicaid expansion to the hospitals now providing uncompensated care to that population may make it possible for them to absorb any new tax.  In theory the rest of us will be covering for less of that uncompensated care.  And the Thomas Jefferson Institute also helpfully tracks Virginia hospital profits, which grew last year, giving reason to hope customer costs or insurance premiums won’t rise because of the new tax.  The hospitals can eat it, right?  Have any such assurances been made?

But if this is just like every other tax and eventually somebody, somehow has to pay it, why not spread the burden across the entire health care sector by ending the medical sales tax exemption?  The same 1.4 percent tax rate now being proposed might do the trick.  New Medicaid patients will be visiting doctors, out-patient clinics, nursing homes and pharmacies and sending tests to labs.  Many will be in managed care systems – and we want then taking that approach.  If reimbursement rates are to go up, will they go up only for hospitals?  Why should only private hospital revenues be taxed?

Or what if we just ended the non-profit status of so many medical facilities and practices and just taxed their property and profits like any other business?  What if we doubled Virginia’s famously low tobacco products taxes, raising another $170 million for dealing with the health-care consequences of that poisonous habit?

The “third rail” status of the whole idea among most Republicans – including most Republican legislators – has forced this discussion off a rational plane and into a perpetual posturing zone.   A serious tax policy discussion of how to pay for this and what the impact would be on customer costs might or might not end up with these “provider assessments” as the right choice, but there has been no debate.