LAST month, the state agency that administers Medicaid in Virginia announced that an independent consulting firm would be hired to conduct a top-to-bottom review of its financial management and forecasting systems.

That’s because in November, state lawmakers were caught off guard when officials from the Virginia Department of Medical Assistance Services informed them that the agency’s traditional Medicaid cost forecasts were off by $462.5 million—creating a large gap in the commonwealth’s 2018–2020 biennium budget.

That was before Virginia’s Medicaid expansion went into effect on Jan. 1 and is not related to it.

Then last month, legislators were told that the Medicaid expansion would cost Virginia taxpayers $85 million more in administrative costs than DMAS had previously estimated. Gov. Ralph Northam wants to cover the overage by taking money out of the state’s General Fund—after telling taxpayers last year that a $300 million “bed tax” on hospitals would pay for the state’s 10 percent share of the federal program.

“It was always my expectation that this was going to be part of the provider assessment,” House Appropriations chairman Chris Jones, R–Suffolk, said when he heard the latest Medicaid cost estimate.

He’s not the only one.

Financial forecasting is an art, and nobody expects DMAS to get future cost estimates correct down to the penny. But when a state agency miscalculates its expenses by $547.5 million, or nearly a half-billion dollars, something is clearly awry. Especially after the Virginia Association of Health Plans warned DMAS that its estimates of how much it would save by moving 210,000 elderly and disabled people already on Medicaid into a managed care program were too high.

First of all, it’s not news that elderly and disabled people are the most costly to treat.

Secondly, federal law requires that rates for managed care programs be “actuarially sound,” meaning there must be a reasonable expectation that future costs are taken into account. Since no states that switched to managed care achieved any savings in the first three years, why did DMAS think Virginia would be any different?

The agency’s latest forecast indicates that Medicaid will cost taxpayers at least $200 million more this year than anticipated, and there’s no guarantee that its new estimate is any more accurate than its previous miscalculations.

A bill (SB1352) patroned by Sen. Ryan McDougle, R–Mechanicsville, would create an independent state agency to provide oversight of DMAS’ expenditures, assume its accountability and transparency responsibilities, and prepare a monthly Medicaid forecast for lawmakers and the public. The new Office of Medicaid Fiscal Oversight and Accountability would report directly to the governor. McDougle’s bill passed the Senate on Tuesday on a vote of 22–18.

Ordinarily, creating another bureaucracy just creates more problems. But in this case, an independent agency to monitor DMAS makes sense, particularly since the agency’s half-billion-dollar miscalculation is indicative of a structural problem far beyond the scope of an outside consultant to fix.

According to DMAS, after a little more than one month of eligibility, 220,887 able-bodied adults in Virginia have already signed up for expanded Medicaid benefits. That figure includes more than 10,000 residents in the Fredericksburg region: 551 individuals in King George County; 924 in Orange County; 981 in Caroline County; 1,010 in the City of Fredericksburg; 1,263 in Culpeper County; 2,679 in Stafford County; and 3,285 in Spotsylvania County.

Virginia’s share of the cost for expanding Medicaid is 7 percent this year, with the federal government picking up the other 93 percent. But starting next year, the states will be responsible for 10 percent of the total cost, so it’s essential that state officials get a handle on how much that increase is likely to be.

Going forward, legislators and taxpayers will need much more accurate and transparent Medicaid cost estimates than DMAS has been able to provide.

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