The Corner

Virginia Has a $300 Million Shortfall, So Obviously Democrats Think This Is a Reason to Expand Medicaid

The Washington Post reports this morning that Virginia has a $300 million shortfall, triggering immediate reactions from both sides of the aisles. The Republicans say this makes finding a resolution to the current budget battles even more pressing, while the Democrats agree, but think this means Republicans need to come to their senses and agree to expand Medicaid. Adding more people to the Medicaid rolls and spending more of the state budget on the program would apparently actually improve the state’s fiscal situation, because of the billions of dollars the federal government would chip in. Here’s their explanation:

Senate budget leaders, who like McAuliffe support expansion, say the shortfall shows how much Virginia needs the federal Medicaid money, which initially would amount to $5 million a day.

But House budget leaders, already skeptical that Virginia can afford expansion, says the bleak financials are another reason to keep it at bay.

Under the Affordable Care Act, states can expand their Medicaid rolls and Washington will pay the full tab for the first three years. That would amount to about $2 billion a year in federal Medicaid money provided to Virginia.

If it seems necessary, I’ve already explained already why the idea that Medicaid expansion will cost nothing to the states and could even be financially beneficial doesn’t hold water. For one thing, states will bear the full administrative costs of the Medicaid expansion, and those can average 5.5 percent of benefits paid. And in the long term, while the expansion is covered fully (with the exception of administrative costs) for the first three years, in 2016 the federal share drops to 90 percent. In Virginia this will mean a state contribution of $200 million a year. The state has a $300 million shortfall today that’s threatening the state’s bond rating, and the Democrats want to permanently add at least $200 million spending a year starting in a few years?

But that’s not all. Everyone who will enroll now because of the publicity surrounding the expansion will fall under the old Medicaid formula, which in Virginia’s case means that the state picks up 50 percent of their benefit costs. There are many more reasons why the expansion isn’t a free lunch, of course (I’ve listed many of them here). But the bottom line is that spending money above and beyond what the federal government will pay for will not improve your budget deficit.

There’s another obvious reason why the Democrats’ thinking about the federal dollars for the expansion is nonsense. My understanding is that the federal money is meant to cover the added cost for the provision of health-care services to the poor, through Medicaid. The money is automatically allocated for the expansion. The only way for Virginia to use this money to patch their deficit is if 1) they don’t spend the money on poor people, 2) they don’t pay providers of the services, or 3) they do a mix of both.  Either way, they won’t get away with it for long.

Democrats may argue that there are other reasons to expand Medicaid, even in the face of its impact on the budget (though these arguments aren’t great either). They just certainly can’t argue with a straight face that Medicaid is a way to fix their deficit.

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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