Here’s why Medicaid in Virginia will cost $200 million a year more than expected

Nov. 16--State officials' predictions that they could rein in the cost of care for elderly and disabled low-income Virginians turned out to be far too rosy, a fresh look at Medicaid's finances shows.

That -- along with mis-estimates for hospital and nursing home bills and other payment issues -- means Virginia's Medicaid system will need $202 million more this year and $260 million more next than the system's managers had expected, according to the system's latest financial projections.

None of the additional money is needed for the expansion of Medicaid the General Assembly approved earlier this year. By tapping Affordable Care Act funds to cover more than 300,000 low-income Virginians, it is supposed to save the state money.

But the additional predicted expense is a big -- and completely unexpected -- bump in the system's current $5 billion-a-year call on state taxpayers.

The Medicaid agency's biggest miss, state and insurance officials say, was an over-optimistic view of the savings that could come from signing up some 210,000 elderly and disabled Virginians with managed care companies.

"The adjustment in the general fund forecast relates to existing Medicaid members with disabilities and the elderly, the most expensive Medicaid population," said Christina Nuckols, spokeswoman for the state Medicaid agency

Behind the forecast of savings was the idea was that paying health plans a set per-person fee would lead the insurers to steer elderly and disabled Medicaid recipients to better -- and less costly -- care.

But the experience of other states shows it takes time -- longer than Virginia officials first forecast -- for those savings to come, said Joe Flores, assistant secretary of health and human services.

Doug Gray, executive director of the Virginia Association of Health Plans, said the new managed care program launched in 2017 with the Medicaid agency's target of 3.5 percent savings.

That was a benchmark the agency cut from its original promise of 7 percent savings after health plans pointed out no other state launching managed care programs for the elderly saw any savings at all for the first three years.

"I think they were trying to keep the program budget neutral," said Mike Tweedy, a fiscal analyst with the state Senate Finance Committee. He noted the Medicaid agency also underestimated overall growth in costs, forecasting that they would rise by 2.5 percent this year, less than half the recent average, and 3.4 percent in fiscal year 2020.

The revised forecast calls for a 6.2 percent increase this year and 3.5 percent next year, excluding those who are signing up under the Medicaid expansion program.

"They shouldn't have missed it by that much," Tweedy said.

What the actual impact of the missing savings from the managed care program for the elderly and disabled will be is still not completely certain. The Medicaid agency and its actuary are crunching the numbers to decide how much they will pay insurers to cover people next year.

Gray said rates are set to rise because the plans lost money over the past year. Federal law requires Medicaid managed care per-person rates be "actuarily sound" -- that is, high enough to cover likely cost of care.

The Medicaid agency now expects managed-care costs to be $185.3 million higher for the two-year budget period that began July 1. House Appropriations Committee analyst Susan Massart told legislators the increase could be even more, $192 million.

Another major forecasting miss involved hospital bills.

The Medicaid agency increased its forecast for those expenses by $92.6 million for this year and next. The reason was a decision by the General Assembly to exempt some nursing home residents -- those in the handful of homes operated by localities or in veterans' homes -- from the managed care program, the agency said.

It also underestimated a rise in the number of children covered by Medicaid by about 10,000. Currently, there are roughly 470,000 children in Virginia enrolled in Medicaid.

Also contributing to the increase in money needed for Medicaid are some one-time expenses -- delayed payments totalling $26 million to the University of Virginia Health System and Children's Hospital of The King's Daughters -- and a billing dispute with the federal Centers for Medicare and Medicaid Services over charges from two state geriatric hospitals. That dispute will cost Virginia $58 million.

Dave Ress, 757-247-4535, [email protected]

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