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Medicaid Expansion Update–Part 1

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As part of Obamacare, states are invited–it was going to be essentially federal compulsion, but the Supreme Court changed this last June–to sign up millions of new people for Medicaid, the health insurance program for the non-elderly. Washington is to pay the expansion’s entire cost for three years, and (ratcheting down to 90 percent) nearly all of it for four more. After that, who knows. Post-2020, there are no guarantees.

The problem, of course, is that the federal government is broke, with unimaginably enormous deficits whose abatement, too, seems unimaginable when we consider where the various big-ticket entitlements and their weak finances are headed. So a long-term commitment to nearly total funding of Medicaid expansion seems unlikely. And for the same reason, even the short- and medium-term commitment, or at least its size, must be questioned. Fiscally responsible legislators and governors around the country thus have a keen dilemma.

In Virginia, Governor Bob McDonnell has opposed Medicaid expansion without major cost-cutting reforms, and permission for those reforms’ state-enacted elements must come from the federal government. Already, he told Health and Human Services secretary Kathleen Sebelius in early March, Medicaid takes up a remarkably high 21 percent of the commonwealth’s general-fund budget, up from 5 percent three decades ago.

In terms of recipients, a good estimate, according to a recent study for the Virginia Hospital and Healthcare Association (VHHA), is that there will be 310,000 new ones over the first several years of Medicaid expansion should Virginia opt for it. Most new enrollees would be parents, childless adults, and disabled people, for whom the state’s now very tough eligibility threshold would be loosened, under the Obamacare expanded-Medicaid standard, to include the somewhat poor and not just the desperately poor. In addition, another 90,000 already-eligible people are likely to join Medicaid. (Study found here).

“Virginia,” the governor wrote Secretary Sebelius, “will not consider any expansion of Medicaid before there are dramatic, verifiable cost saving reforms of the program at the state and federal level.” He went on to cite quite a few of them. But McDonnell’s position will be politically relevant for less than another year, because his term is up and Virginia governors cannot seek re-election (here).

The General Assembly’s recent decision to set up Medicaid expansion in Virginia (by conditionally authorizing the use of federal funds for this purpose) without actually voting to approve the policy leaves the question, under its adopted language, to a specially appointed committee of legislators. Unless the legislature changes its mind. The provisions have been incorporated in the current state budget, but a new budget must be adopted in 2014. So a year from now, the General Assembly and the new governor could decide to change those budgetary provisions, meaning the rules of the game.

Here’s how it works–for now. The expansion is authorized if a newly appointed Medicaid Innovation and Reform Commission, whose members are from the state Senate and House of Delegates, decides sufficient cost-controlling reforms are underway. If enough senators or delegates on the panel remain unconvinced that Virginia is moving toward major savings in the expensive program and vote accordingly, Medicaid expansion is blocked. Majorities of both the House and the Senate commissioners must agree that enough progress toward reform has happened.

Politically, the bottom line is this: Four of the five members from the House of Delegates are Republicans, so if three of those Republicans (or conceivably two Republicans and the Democrat, said to be fiscally cautious on the question) are willing to take the heat for an unpopular decision against Medicaid expansion, Virginia will stay out. Otherwise it will join what increasingly looks like a majority of states, including more than a few with cooperating Republican governors, in taking this immediately attractive but worrisome fiscal step.

What Medicaid expansion opponents in the General Assembly lost when the decision was structured this way was safety in numbers. Since the legislators as a whole, including the heavily Republican House, apparently won’t be voting on Medicaid, the spotlight will focus on a handful of their colleagues.

Comments from the two Republican commissioners who were quoted in a press release from the office of Speaker William Howell (R-Stafford) announcing the House appointees are encouraging to expansion opponents. Serious reforms are needed to ensure that Virginia doesn’t get stuck “if and when the federal government breaks its promise to pay” for it, said Del. Jimmie Massie (R-Henrico). “I have been around long enough to know there is no such thing as free money from the federal government and no such thing as a bigger program that costs less and works better.”

In a similar spirit, Del. John O’Bannon (R-Henrico), a practicing neurologist, said “Medicaid expansion without significant reforms could wreck Virginia’s finances.” But another recent quote from Dr. O’Bannon, in a Richmond Times-Dispatch news story, is more conciliatory: “I’m not saying it’s a slam dunk … but I think there’s a possibility there” for expanding Medicaid.
Of the two candidates for governor, it probably goes without saying that Democrat (and former Democratic National Committee chairman) Terry McAuliffe supports the Medicaid expansion. It’s also no surprise that his Republican opponent Ken Cuccinelli, who was among the many state attorney generals suing to stop Obamacare on constitutional grounds, opposes the move without major cost-cutting.

The state budget isn’t the only consideration, though, from an economic standpoint, and even the budgetary issue is more complicated than some opponents may suggest. A recent study for the VHHA health care association, conducted by Chmura Economics & Analytics, says Medicaid expansion should allow the state government to reduce its current spending on needy people’s otherwise-uncompensated emergency care while also collecting new tax revenue from the larger health-care sector (and its added jobs) that would result from more Medicaid. The Chmura study also sees significant economic benefits outside that sector–and an annual boost to the Virginia economy totaling $3.9 billion.

Of course, all that must be viewed against a worst-case scenario in which the commonwealth holds the bag if the prediction by Delegate Massie, for instance, comes true.

In the second half of our Medicaid update, we will look into the complicated list of reforms McDonnell and other fiscal conservatives are urging, as well as early successes with Medicaid cost-cutting in Florida.

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