Governor Raph Northam and U.S. Senator Mark Warner hit the road yesterday with the media in tow, making the case that Medicaid expansion will free up $421 million over two years for other priorities such as K-12 schools.
“When we talk about education, we have to talk about health care,” Warner said during a roundtable discussion at Albert H. Hill Middle School in Richmond, as reported by the Richmond Times-Dispatch. “We’ve got to do this.”
Meanwhile Secretary of Finance Aubrey Layne is making the case that enacting Medicaid expansion is necessary to preserve Virginia’s coveted AAA bond rating, which is teetering on the edge of a downgrade.
That’s quite the rhetorical jiu jitsu move. For years, Republicans have opposed expanding Medicaid under the provisions of the Affordable Care Act on the grounds that it would be fiscally irresponsible, running up state Medicaid expenditures even after accounting for a 90% federal contribution, and competing with other priorities such as K-12 schools, higher education, and pay raises for state employees.
How is it possible for the Commonwealth to simultaneously expand Medicaid at an estimated cost of $300 million over the next two years and free up $421 million for other programs, as the Washington Post quotes Northam as saying? Two things. First the state cost of Medicaid expansion would be offset by means of an “assessment” — in other words, a tax — on the net patient revenue of Virginia’s acute care hospitals. Surprised to hear about that? Yeah, so am I.
Second, Medicaid expansion will allow the state to reduce spending by $380 million on indigent care funding, state spending on mental health, prison inmates and various programs for the poor, according to the House version of the budget. (I can’t figure out where Northam gets his $421 million estimate.)
Voila! That’s $380 million (or $421 million if you use Northam’s figure) that can be spent on other things, such as directing money into the state’s cash reserves and/or K-12 schools. Regarding those reserves, the state has only $281 million set aside in the event of a several revenue downturn, with $154 million scheduled to be injected this year. The budget submitted by former Governor Terry McAuliffe would have added $281 million, but the proposed budget adopted by the House would add only $91 million over the next two-year budget, and the proposed budget adopted by the Senate would add only $180 million.
Bacon’s bottom line: Does the public realize that there is a $300 million tax increase embedded in this plan? I did not understand that to be the case until I read the news accounts with a fine-tooth comb. The Times-Dispatch and Washington Post coverage mentioned the tax only in passing deep in their stories. Of course it’s in the interest of Democrats to downplay the tax increase, but, remarkably, I’ve seen nothing to suggest that Senate Republicans, who oppose expansion, have made an issue of it.
Let’s imagine an alternate universe in which Virginians said, (a) we want Medicaid expansion, and (b) we want to fund it without a tax increase on hospital revenues, which likely would be passed on to patients in the form of higher hospital charges. If the state is generating savings in the realm of $400 million a year from Medicaid expansion, why not just apply those savings to the 10% state share of the program? Why the necessity of adding a roughly $300 million “assessment?”
According to the numbers we’ve been given, paying for Medicaid expansion with savings to state programs would leave about $100 million left over to plunk into the state’s cash reserve. Of course, that approach wouldn’t allow Northam and Warner to tell people that “Medicaid expansion” will help Virginia schools, and it wouldn’t put as much money into the state’s cash reserves as Layne would like.
I find it astonishing that the hospital assessment has not become a hot-button issue. Health care costs are out of control as it is, and a $300 million tax on patient revenues can only make the problem worse (unless you believe that hospitals will settle for lower profits, in which case I’ve got some great swamp land in Florida I’d like to sell you.)
You’ve got to give Northam political credit. He and House Republicans are very close to pulling off the trick of expanding Medicaid and “freeing up” hundreds of millions of dollars for new spending without Virginians even noticing that they’d be indirectly paying for a $300 million tax increase on hospitals. This guy is good.
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