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One response to “Medicaid: A Rare Piece of Good Budget News”

1. 

   Jim Bacon

   November 28, 2007

   Matt Leighty with the Virginia Hospital and Healthcare Association responds as follows:

   While Medicaid may be a rare piece of good budget news this session, that’s not likely to be the continued outcome. This “flattening” of Medicaid increases is likely because of a few different factors. First, we have had a slower enrollment growth of women and children. With programs like SCHIP and FAMIS, Virginia aggressively pursued enrolling eligible children over the past decade. Happily, we have been doing well. When 40% of children weren’t signed up, the increases in enrollment were more dramatic. Now, at 90-95% participation, this trend is slowing down. So, as we have had success with that program, we have reached a sort of plateau. The result is positive: a slower rate of increased Medicaid spending.

   But children alone don’t account for this. Interestingly enough, children comprise 57% of Medicaid recipients in Virginia. Yet, because the medical care that is being provided to them is relatively cheap (immunizations, antibiotics, routine check-ups), they make up oly 21% of Medicaid expenditures. Bringing in thousands of kids that comprise 21% of spending would certainly cause spikes in increased spending, but they don’t tell the whole story.

   Another factor is adults, such as pregnant women. Pregnant women comprise the majority of adults that are covered under Medicaid in Virginia. The reason is that eligibility requirements for Medicaid in Virginia are so stringent that not many others would qualify. In 2006, in order to be eligible for coverage under Medicaid, a working parent would have to make 36% of the Federal Poverty Level, amounting to $3,528 annually. Even what the Commonwealth considers to be a “medically needy individual” would have to make 47% of the FPL to qualify for Medicaid assistance, or $4,606 annually. Pregnant women, on the other hand, were at 166% of the FPL in 2006, or $16,268 annually. This was raised to 187% in the 2007 session.

   Yet adults, who make up 13% of Medicaid recipients, account for only 9% of Medicaid expenditures. Decreases in inflation here are positive, but do not have a large affect on the overall decrease in Medicaid inflation.

   By far, the largest component of Medicaid spending is for the aged, blind, and disabled. The elderly make up 10% of Medicaid enrollees, but account for nearly 25% of Medicaid spending. Blind and disabled as a group make up 20% of Medicaid enrollees, but more than 45% of the Commonwealth’s Medicaid dollars go to this group. 30% of enrollees, then, account for 70% of Medicaid spending.

   While we have had a slowdown in the growth of elderly, blind, and disabled, this trend is not likely to continue. The Baby Boomers are coming, and coming quickly. Gradually, increases will be reflected in this biennium and the next biennium, but in 10 to 15 years you should anticipate the “bulge” of these individuals entering the system. It is here that we need to focus our reform efforts. …

   If you take nothing else away, please note this: While trends have been positive recently, Medicaid is counter-cyclical in nature. If you were to look at a graph of Medicaid expenditures and state revenues, you would see something resembling a sine and cosine curve plotted together.

   As the economy booms and the revenues of the Commonwealth swell, fewer people are eligible for Medicaid because they are quickly exempted from the state’s stringent eligibility requirements (perhaps because they are employed). Smaller enrollment and moderation in healthcare inflation will make expenses decrease. But as the economy slows, the exact opposite occurs. More people become eligible for the program, utilization increases, and expenses increase precisely as state revenues begin their decline. This makes Medicaid a nightmare program for which to budget, because the program costs the most when the least revenue is available, and vice versa.

   While the “flattening” of these Medicaid costs is positive for Virginia’s budget, there is another side to this coin. Virginia, like the rest of the nation, is facing increased numbers of uninsured. Recent guesses are 13% of the population, possibly more. This is important because of the strict eligibility requirements that I mentioned earlier. Virginia’s are among the most rigorous in the nation. Large amounts of uninsured with tough eligibility requirements equates to thousands of Virginians with no safety net at all. While the state saves money, it is also forgoing large amounts of federal matching funds.

   One last thing: everyone remembers the SOQ re-benchmarking. It’s been mentioned in budget reports, yours and other blogs, and dozens of newspaper articles. The expected price tag is $1.1 billion. What isn’t discussed is that Medicaid spending is rebased on inflation of healthcare costs and increased enrollment and utilization. It’s done the same time as the SOQ re-benchmarking. Yet it’s hardly ever mentioned, despite its price tag. To keep Medicaid reimbursements for providers the same, it will require an estimated $600 million dollars over the biennium. That’s right, $600 million just to tread water.

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