Ron Paul group says Medicaid expansion will cost Virginia taxpayers $902 million

An organization founded by former U.S. Rep. Ron Paul, R-Texas, is urging Virginia House Speaker Bill Howell to stand firm against expanding Medicaid in the Old Dominion.

"Estimates for adopting Obamacare’s Medicaid expansion show it will cost Virginia taxpayers $902 million through 2022," says an online petition to Howell that was posted April 29 by the Campaign for Liberty.

Paul, who served 25 years in Congress and ran three times for president, retired from the House last year. He set up the Campaign for Liberty in 2008 to promote limited government, non-interventionist foreign policies and opposition to the Federal Reserve System.

We wondered whether the claim about estimates showing Medicaid expansion will cost Virginia taxpayers $902 million is correct. So we took a look.

The Affordable Care Act -- also known as Obamacare -- gives states the option of expanding Medicaid eligibility to people earning up to 138 percent of the federal poverty line. Uncle Sam will pick up the entire tab for new enrollees during the next two years and pay 90 percent of the cost down the road. The expansion could add as many as 400,000 Virginians to Medicaid’s rolls.

The Republican-controlled House of Delegates, led by Howell, has twice refused to broaden the program, saying the federal government can’t be trusted to pay its promised share. A stalemate between the House and the Democratic-controlled Senate is delaying passage of a two-year state budget scheduled to go into effect July 1.

When we asked the Campaign for Liberty about the $902 million claim, it cited a year-old graph by the Heritage Foundation, a conservative advocacy and research organization, showing the annual costs and savings Virginia would see through 2022 if it expanded Medicaid.

Heritage, in a source note under the graph, said its figures came from a November 2012 report by the Kaiser Family Foundation, a nonpartisan organization that researches health issues.

The Kaiser report

Kaiser estimated the total added costs each state would incur from 2013 through 2022 if it expanded Medicaid.

It concluded that Virginia would spend about $52.7 billion on Medicaid during that span if it broadened its program and about $51.4 billion if did not. So the gross cost of expansion would be slightly higher than $1.3 billion. The main reason for the increase is that the state in 2017 would begin to assume a small share of the cost of insuring the new enrollees. Virginia’s share would cap at 10 percent in 2020, with the federal government paying the rest.

Kaiser then subtracted the largest single source of savings Virginia would receive from expansion. The state would no longer need to pay hospitals and clinics as much for their losses from treating indigent patients -- adults who can’t afford private insurance but earn too much to qualify for Medicaid. That, Kaiser estimated, would conserve $424 million through 2022.

So Kaiser said the net expansion cost to the state -- slightly more than $1.3 billion minus $424 million -- would come out at $902 million through 2022.

But Kaiser stressed twice in its report that its net cost estimates had shortcomings because -- outside of considering savings on indigent care -- it did not examine other economies expanded Medicaid offered states. Its source of data did not provide for more detailed research.

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Kaiser wrote that its net estimates "should be considered an overestimate of costs or an underestimate of savings if states were to implement the Medicaid expansion."

The Campaign for Liberty, in relying on this 18-month old estimate on Virginia, neglected a more  current and deeper forecast released in January by state’s Department of Medical Assistance Services, which oversees the Old Dominion’s Medicaid system.

The DMAS report

The DMAS report contained figures compiled by its actuaries at PriceWaterhouseCoopers.  These figures, based on substantial new research in Virginia and trends found in Medicaid expansion in other states, showed lower costs and much higher savings than previously predicted.

Virginia’s cost totaled slightly more than $1.1 billion:

• $933 million for the state’s share of covering newly-eligible Medicaid patients
• $100 million for administrative costs
• $75 million in for adding people who were previously eligible for Medicaid but didn’t apply and came out of the woodwork after expansion
• $9 million in taxes on premiums for Medicaid expansion enrollees.

The report identified multiple avenues of savings totaling $1.7 billion:

• $1.1 billion from indigent care costs
• $255 million from covering hospital expenses of state prison inmates through Medicaid expansion
• $227 million in behavioral health services that the state now pays
• $139 million in moving poorer pregnant women to Medicaid expansion instead of the state’s insurance program

The bottom line is DMAS estimated Medicaid expansion would save the state $604 million through 2022. But the longer the state opts out of expansion, the more those savings decline.

It should be noted that the expanded coverage will start to cost the state more than it saves during the next decade when Virginia’s 10 percent contribution to cover the added Medicaid enrollees locks in, according to Secretary of Health William Hazel. The state has not released estimates of those long-term costs but Hazel has called them "manageable."

Finally, you may have noticed a huge difference in Kaiser’s and DMAS’s estimates of the amount Virginia would save on indigent care over 10 years: Kaiser said $434 million; DMAS said $1.1 billion. That’s because Kaiser assumed each state would see a 33 percent drop in their indigent costs if it expanded Medicaid. DMAS estimated Virginia would see an 80 percent reduction in that expense.

Our ruling

Campaign for Liberty says estimates show Medicaid expansion will cost Virginia taxpayers $902 million over the next decade.

One forecast indeed showed that: A 2012 study by the Kaiser Family Foundation offering broad estimates of the net cost expansion for each state. Kaiser stressed in the report that it did not examine all of the savings states might realize and said its net projections "should be considered an overestimate of costs or an underestimate of savings."

The Campaign for Liberty ignores the most current and detailed study, released in January by Virginia’s Medicaid agency. This report, which examined all avenues for savings based on updated trends, concluded Medicaid expansion would save the state $604 million through 2022.

The campaign’s use of the plural "estimates" suggests there’s broad agreement Medicaid expansion will cost Virginia taxpayers $902 million. Not so.

So the campaign’s statement has an element of truth, but ignores critical facts that would give a different impression. We rate it Mostly False.