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With big federal boost, Virginia shows Medicaid surplus this year, helping offset future costs

With big federal boost, Virginia shows Medicaid surplus this year, helping offset future costs

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Virginia is showing a surplus of almost $654 million in its Medicaid program, boosted by federal spending that will help offset future cost increases in the next state budget for the $18 billion program for poor, elderly or disabled Virginians.

Medicaid costs will go up by a net $821 million in the two-year budget for July 1, 2022, to June 30, 2024, which Gov. Ralph Northam will introduce on Dec. 16, but state officials also foresee a $124 million windfall if the federal government raises its share of the program expenses by almost 1% next year as tentatively proposed.

Program costs are projected to grow 1% in the first year and 5% in the second, administration officials said Wednesday.

“The numbers have come in lower than they have historically,” Secretary of Finance Joe Flores said in a briefing with leadership of the Department of Medical Assistance Services, the state Medicaid agency.

At the same time, Virginia will begin sorting out the effects of the COVID-19 pandemic, which added 392,000 people to the Medicaid rolls, some temporarily, as well as refugees from the Taliban takeover of Afghanistan who have settled in the state and qualify for health care assistance. Medicaid now serves more than 1.9 million Virginians in a state of 8.6 million.

The federal government has boosted emergency support of the program during the pandemic, extending a temporary 6.2% increase in its share of funding through March 31. The enhanced aid will reduce Virginia’s share by almost $146 million in the fiscal year that began July 1 and save the state more than $1 billion since the public health emergency began in March 2020.

The American Rescue Plan Act, which President Joe Biden signed in March, also saved Virginia an additional $149 million in this fiscal year with a 12.5% increase in reimbursement rates for services, such as home health care, delivered under the Medicaid Home and Community-Based Services waiver.

State Medicaid officials also are excited about an impending announcement late this month to recalculate the federal government’s share of program costs with states.

Virginia has shared those costs equally — except for the more than 560,000 people who became eligible for benefits under Medicaid expansion — but the federal government is preparing to raise its share to 50.65%, which will reduce the state’s costs by $71 million a year.

“It will be a huge difference for us,” said Karen Kimsey, director of the state Medicaid office.

Flores added that the 0.6% increase matters because “Medicaid is a big number.”

But it’s not going to be as big as state officials expected.

“We’re kind of looking real good in that respect,” said Del. Barry Knight, R-Virginia Beach, senior Republican on the House Appropriations Committee and first in line to become its chairman under a new GOP House majority in January.

“The thing I think we need to be careful about is the pandemic,” Knight said. “It shook everything up.”

During the pandemic, Virginia could not move people off the Medicaid rolls as a condition of the enhanced federal aid. Now, it has 12 months to re-evaluate every participant in the program to determine if they’re still eligible for benefits.

Kimsey expects the “unwinding” of Medicaid enrollment to take 10 months in Virginia. She said the state would help those who are no longer eligible to get help from other sources, such as the health insurance exchange which the federal government now operates but is scheduled to become a state operation in 2024.

Meanwhile, she said, “We have to continue to pay for these individuals until we complete the process.”

Virginia has saved money on Medicaid during the pandemic because of decreased use of medical services. Most of the people who enrolled in the program during the public health emergency were eligible under Medicaid expansion, such as childless adults — 90% of those costs are borne by the federal government and the remainder are paid through a provider assessment on private hospitals.

At the same time, Virginia’s Medicaid program saw less demand than expected by low-income families with children and nursing home residents, both categories supported by state funds.

Kimsey said that at one point during the pandemic, Medicaid was enrolling 5,800 people a week, but she added, “We’re starting to see a plateau and decrease.”

In the next two-year budget, the state will have to account for additional enrollment growth after the enhanced federal support ends and plan for additional investments in home and community-based services in return for the additional funding it received under the American Rescue Plan Act.

The surplus this year, as well as the expected boost in the federal match rate, will help offset a projected increase in costs of almost $1.6 billion by the end of the next budget in mid-2024.

“Thank goodness we’re in the black column as opposed to being in the red column,” Knight said. “We’ve got a little bit of extra money, but we should go slow in spending it because we’re going to need it.”

However, Kimsey said her office is considering a possible increase in Medicaid reimbursement rates for dentists who provide services through a popular new dental benefit for adults. Since the new benefit began on July 1, Medicaid has paid 115,000 claims for dental services to 76,400 different people.

“That is being explored at this point,” she said of the higher reimbursement rate, “but with the budget there are still a lot of other questions.”

State Medicaid officials say they are closely watching the program’s costs, which account for 20% of the state general fund budget that supports core government services, according to a recent estimate by the Joint Legislative Audit and Review Commission. Medicaid trails only state support for K-12 education, which accounts for 30%.

“We’ve been pretty fiscally responsible,” Chief Financial Officer Chris Gordon said.


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