Landes claim Medicaid expansion could cost Virginia $1 billion a year based on shaky assumption

Del. Steve Landes says Gov. Terry McAuliffe’s long-sought initiative to expand Medicaid in Virginia is financial quicksand.

"Do you support or oppose Medicaid expansion in Virginia?" Landes, R-Augusta, asked constituents in a recent survey about issues. "While expansion would enroll up to 400,000 currently uninsured Virginians in Medicaid, it could cost the Commonwealth of Virginia over $1 billion per year, forcing cuts to other key services like education, mental health and public safety."

Landes is hardly the first Republican to sound the $1 billion-a-year alarm about the potential cost of expanding Medicaid. Others, including House Speaker Bill Howell, also have tossed around the number during the GOP’s successful three-year effort to block expansion.

Democrats say the state has a moral obligation to make Medicaid available to all low-income Virginians who are qualified - particularly because the federal government has agreed to pay for the vast majority of the expansion. Republicans counter that Medicaid already is unwieldy and that Uncle Sam, deeply in debt, can’t be relied upon to pay his promised share.

The issue is certain to re-emerge this winter when the General Assembly convenes for a 60-day session starting Jan. 13. So it’s a good time to look into the accuracy of the $1 billion-a-year claim. Let’s start with some background.

The costs

Under the Affordable Care Act, also known as Obamacare, states have the choice of extending their Medicaid programs to people who earn 138 percent of the U.S. poverty level. The federal government pays all of the expansion costs through this federal fiscal year, which ends Sept. 30, and gradually will drop its future share to a standing 90 percent after 2019. To date, 31 states have decided to expand Medicaid.

Virginia’s Medicaid program is run by the state Department of Medical Assistance Services which, in September, issued annual cost estimates for Medicaid expansion through 2022. They show the expansion would cost a total of $800 million in fiscal 2017, with the state shouldering $32 million of that amount. In 2022, the cost would be $3.1 billion, with the state responsible for $325 million.

But these gross figures don’t take into account savings that DMAS says the state would realize by expanding Medicaid. For example, Virginia now covers all the costs of hospitalizing a state prisoner; under Medicaid expansion, the federal government would pay 90 percent of the bills. Virginia pays most of the costs for uninsured low-income residents who receive behavioral health treatment from community service boards; under Medicaid expansion, the federal government again would pay 90 percent of those bills.

DMAS concluded that the savings would outweigh the costs of Medicaid expansion through 2020, when Virginia would see a $34 million net gain from joining the program. After that, there would be some - but not much - red ink. DMAS estimated that the bottom-line cost to expand would be $3 million in 2022.

Landes’ figure

So how does Landes reach his estimate of a potential $1 billion-a-year cost to Virginia taxpayers?

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Eric Cantor

stated on February 5, 2013 in a speech.

"Collectively states are spending more on Medicaid than they do on K-12 education."

His calculation rests on the premise that the federal government, already over-committed, will renege on its legal promise to never pay less than 90 percent of expansion costs.

"If the federal government cut the expansion match rate back to 50/50, it would cost Virginia over $1 billion per year in the out years," Landes wrote to us in an email.

He pointed out that the bottom-line price of expansion - combining Washington’s share with the state’s net cost - is estimated to exceed $2 billion a year starting in 2018. If the federal government tosses half of the expense back to Virginia that year or later, the state would be shackled with annual bills of at least $1 billion.

Craig Markva, a spokesman for DMAS, told us the state has every reason to believe that won’t happen. For one thing, legislation would be required to cut the federal contribution.

Edwin Park, the vice president for health policy at the Center on Budget and Policy Priorities, a liberal think tank, told us there’s no movement afoot in Congress to take such an action.

In 2012, the Obama administration proposed a budget-cutting measure that would have changed the formula for how much it pays for Medicaid patients, boosting the federal match for current enrollees and lowering the match for people who became newly insured under the law. But after the Supreme Court ruled in 2012 that expansion was an option, not a mandate, the White House dropped that proposal, because it wanted to assure states the match would stay at 90 percent, Park said.

It also should be noted that the Obama administration notified states in December 2012 that if they enrolled in expansion, they could drop out of the program at any time. That assurance was repeated in a March 20, 2014 letter that Cindy Mann, then the White House’s top Medicaid official, wrote to Bill Hazel, Virginia’s secretary of health.

McAuliffe, a Democrat who has been pushing to broaden Medicaid, has proposed a state law that would require Virginia’s withdrawal if Washington reduced support for expansion.

Republicans have been skeptical the state could extricate itself from the expansion once it began.

Our ruling

Landes, in a constituent survey, said Medicaid expansion "could cost the Commonwealth of Virginia over $1 billion per year."

That contradicts the latest estimates on expansion. Virginia’s gross cost in 2022 - the furthest out the projections go - would be $324 million. The net cost, after taking into account a variety of savings the expansion offers, would be $3.1 million. That’s light years away from Landes’ figure.

Landes’ estimate rests on the eye-popping supposition that the federal government could decide in the future to cut nearly half of its commitment to pay 90 percent of the costs for expansion, leaving states holding the bag. But this is pure speculation of his part. There’s no effort in Congress now to cut the federal share at all, let alone by the proportion Landes suggests.

There’s a burden on Landes to prove his statement with facts, and he comes up short. We rate his claim False.