What’s Going On with Medicaid?

Critics of government talk about its inexorable expansion, oblivious to political or social trends.  Even in Virginia — a model of conservative and parsimonious state government — our state spending has steadily increased in real dollars (with the conspicuous exception of the past 3 years).  Why?


The Medicaid program in Virginia, which is administered in Virginia by DMAS (Dept of Medical Assisted Services), has risen from $2.7 billion in 2001 to $6.5 billion in 2011.  The state share of that cost has nearly tripled, going from $1.1B in 2001 to $3.3B today. 

Medicaid has even grown in the past three years, while every other state agency (including education) has shrunk significantly. 

Why did this happen?  Is it good or bad?

Some of both.  But let’s look at the major reasons:

1.  FAMIS:  In 2003, the Assembly pushed through a significant expansion in our FAMIS program which provides HMO services to children in uninsured families. Since that time, we have added over 100,000 kids (over 90% of eligible population).  Since children are relatively low cost to administer (average annual expense of $2300), it’s significantly CHEAPER to have them in a health and wellness program, rather than deal with the costs of having them grow up uninsured.  More kids = more cost.

2.  Great Recession:  The recession in 2008-2009 cost over 200,000 jobs in Virginians.  Many of our neighbors are still without work.  Medicaid gave them accesss to medical care for families at or near the poverty line.  Again, it’s better (and cheaper) to treat them through a Medicaid-funded program, rather than have them totally uninsured.  But more members = more cost.

3.  Expansion of Waivers:  In the past ten years, the House and Senate have made a conscious effort to eliminate the “waiting list” for Medicaid waivers, which is the stipend a family receives when a dependent is given at-home services (rather admission to an institution).  Advocates like ARC of Northern Virginia have met great success.  That increase alone is nearly $700M.  More waivers = more cost. 

4.  Rising Cost of Services:  While Virginia provides significantly below-market reimbursements to doctors and nursing homes, the bottom line costs have still risen with inflation.  That is another major cost driver.

Currently, we are spending $6.5B on Medicaid, nearly half of which is state General Fund money.  This is our second largest expenditure in Virginia (behind only K-12 education).  As the recession goes away, this number should drop, right?

Not so fast.

The Federal Health Care Reform Act of 2010 will change the face of public health care iin America in many ways.  One of the first ways is to INCREASE Medicaid eligibility by making eligible all adults and families below 133% of the Federal poverty line. 

This will cut significantly into Virginia’s uninsured population of 1.1 million (which is great), however, it will significantly increase the state-supported Medicaid population.  Again, we could be looking at a 30-50% increase in our Medicaid population.  At our current trends, that will be at least another $2B in costs. 

The U.S. Congress has promised to pick up this new state cost (or at least 90% of it).  One problem — that was the old U.S. Congress.  How about the new one? 

Increasing Medicaid eligibility for poor families is a good thing, even as we look for ways to make the system more cost-efficient.  In the end, we save money through better health care outcomes, especially for kids.  However, it is not free.  And when it’s required by Federal law, we must have Federal help to fund it. 

Otherwise, this  will become the biggest ”unfunded mandate” since ….


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