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November 20, 2015

Penny Wise

State spending on Virginia’s Medicaid will be $789 million higher the next two budget years than the base for this year, in part because people who have been eligible, but not yet enrolled, signed up for coverage. This is not a surprise. In fact, these new estimates are in line with the state’s budget writers’ previous projections. What’s more, the new estimates demonstrate just how much the refusal to close the coverage gap is costing Virginians.

More people are enrolling, in part, because of the push to connect people with coverage. Ads and news stories are encouraging people to sign up to secure the financial protections of health insurance and avoid the increasing federal penalty. So more people are signing up for coverage, and that’s a good thing because people with health insurance are more likely to receive recommended preventive care that reduces preventable deaths.

The issue for Virginia is that the state has to pay more for many of the new enrollees than it should. Had Virginia taken the commonsense approach – like 30 states and the District of Columbia – and closed the coverage gap, the federal government would have paid 100 percent of the cost for many of the new enrollees through 2016. That’s because many of the new enrollees only qualify for the state’s bare bones family planning coverage, which requires the state to pay more than if Virginia had allowed these same folks to get full Medicaid. If the state decided to close the coverage gap, its own cost would be nothing through 2016 for these people, only 5 percent in 2017, and 6 percent in 2018.

Virginia’s Medicaid budget increases are neither unexpected nor unique. The state’s own six year financial plan from 2014 anticipated the vast majority of the cost growth. Moreover, states that have refused to close their coverage gaps are seeing higher growth in state Medicaid spending despite lower total enrollment growth, according to a recent report by the Kaiser Family Foundation. By refusing to move forward, states like Virginia are having to use more of their own tax dollars instead of using federal tax dollars intended for this purpose.

By using the federal funds to replace state dollars, Virginia could save $352 million in the next two budget years. That would more than cover the state’s anticipated cost of the new coverage, leaving $157 million to invest in the things we all know help grow our economy.

Even with all of the facts pointing towards closing the coverage gap being the best value for Virginia, opponents often argue that the federal government can’t be trusted to maintain the enhanced match rate. But we’re already counting on them honoring an enhanced match in another part of the Medicaid budget, one that’s saving the state money.

Starting October 1, 2015, the federal match rate for Virginia’s children’s health insurance program – known as FAMIS – was boosted to 88 percent, up from 65 percent as called for in the Affordable Care Act. Lawmakers went ahead and booked those savings, which could total as much as $56 million this budget year and more than $75 million in years to come, based on analysis from the Center on Budget and Policy Priorities. That new rate is strikingly close to the enhanced rate for closing the coverage gap.

The bottom line is this: Virginia is paying more for less because lawmakers refuse to close the coverage gap or offer any real alternatives. It is time to move forward and put Virginians’ tax dollars to work.

–Massey Whorley, Senior Policy Analyst

The Commonwealth Institute

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