As Spiking Medicaid Costs Strain State Budget, Officials Look To Pinpoint Cause

Sep 23, 2015

Vermont is tied with Massachusetts for having the lowest rate of uninsured residents in the country. But that success might be coming at a high price. 

An unexpected spike in Medicaid costs has put the program and its thousands of new enrollees under heightened scrutiny.

It's been less than three months since the start of the state fiscal year, but analysts say it already looks like Medicaid costs could come in as much as $60 million over budget in the 2016.

The picture for next year isn't any rosier. Neither the Legislature nor the Shumlin administration has offered any hard projections yet. But officials familiar with the situation say unanticipated increases in Medicaid expenses could end up doubling the $50 million to $70 million budget gap already looming in the fiscal year 2017 budget.

"This issue has really grown to something that is unmanageable from the state's financial portfolio," says House Minority Leader Don Turner.

The Affordable Care Act expanded Medicaid eligibility by raising income levels needed to qualify for the program. Gov. Peter Shumlin and Democratic lawmakers seized on the federal legislation to bring thousands of new Vermonters onto the Medicaid rolls.

"It's stressful budget news," South Hero Rep. Mitzi Johnson, Democratic chairwoman of the House Committee on Appropriations, says the new cost projections.

"But it means that more people are covered, more people have health care, and that's been a goal all along."

Achieving that goal, however, looks to have had a higher price tag than lawmakers might have thought a year or two ago.

"It's stressful budget news. But it means that more people are covered, more people have health care, and that's been a goal all along." - South Hero Rep. Mitzi Johnson, Vt. House Committee on Appropriations

  Lawmakers and administration officials are trying to figure out why Medicaid costs are coming in so much higher than budget writers anticipated just a few short months ago.

Some of the answers are pretty clear. The new arrival of a new drug to treat cystic fibrosis, for example, could add about $12 million to fiscal year 2017 costs. Unexpected increases to the state's share of Medicare expenses could mean $10 million in unexpected spending this year, and another $13 million in fiscal year 2017.

But it's Medicaid "utilization" costs that are responsible for the bulk of the rising expenses. And figuring out why they're coming in so much higher than projected has proven difficult.

"It's really important that we start looking at Medicaid, that we start breaking it down and really understand where the trends are, where that growth is occurring, how it looks relative projections, to try to get a better handle on what's driving it," says Caledonia Sen. Jane Kitchel, the Democratic chairwoman of the Senate Committee on Appropriations.

One thing is certain: lawmakers got more than they bargained for when they pulled the trigger on Medicaid expansion. Enrollment increases in the state Medicaid program last year came in 8 percent higher than analysts predicted, and Medicaid now provides health insurance to nearly one in every three people in the state.

"It's really important that we start looking at Medicaid, that we start breaking it down and really understand where the trends are, where that growth is occurring... to try to get a better handle on what's driving it." - Caledonia Sen. Jane Kitchel, Vt. Senate Committee on Appropriations.

  Kitchel says lawmakers haven't been able to pinpoint what elements of the Medicaid program are responsible for the unexpected fiscal pressures. The program cost about $1.5 billion annually, and costs are split roughly evenly between the state and federal government.

Turner says that him, common sense dictates the source of the unexpected cost increases.

"I've got to believe that there's a correlation between adding thousands of new people to Medicaid, and the increased cost," Turner says.

But Steven Costantino, commissioner of the department that oversees Medicaid spending, says it's not necessarily just about adding people to the program.

"As you add an individual, is the cost per individual going up as well?" Costantino says.

Costantino says it's going to take a more granular analysis — one he says is now underway — to figure out why exactly costs are rising, and what the state can do to rein them in.

Technological snafus earlier this year resulted in mass enrollment processes that bypassed traditional eligibility checks. Turner thinks that as a result, taxpayers are footing the bill for Medicaid enrollees that make too much money to qualify for the program.

Kitchel says it's a valid concern.

"We suspect that we've got a certain number of people that are in that Medicaid bucket that are no longer eligible, and we need to get them reviewed," Kitchel says.

In the long term, Kitchel and Costantino say the key to fiscal sustainability will have as much to do with how many people are on Medicaid as it does with fixing the flawed way in which health care providers are paid to treat them. Costantino says that under the current system, providers are compensated based on the volume of services provided, of the number of procedures performed.

He says his department is trying "change it to a more value-based, outcome-based, performance-based structure that aligns the incentives in a direction away from fee-for-service."

"And as we replace fee-for-service to more of these other models, I think it makes Medicaid programs in the future more sustainable," Costantino says.

"And as we replace fee-for-service to more of these other models, I think it makes Medicaid programs in the future more sustainable." - Steven Costantino, Department of Vermont Health Access

  Turner says he plans to ask the Green Mountain Care Board, which oversees virtually all aspects of health care in the state, to undertake a rigorous review of the state's Medicaid program.

Al Gobeille, chairman of the Green Mountain Care Board, says the board isn't necessarily equipped to do a full-fledged overhaul of the program. But he says Medicaid is "absolutely" ripe for review, and that growth in Medicaid costs is one of the more serious challenges facing the health care system.

"How we go about handling this is something we should all talk about," Gobeille says. "And then from there, there's  a whole conversation of how big is the budget, where's the money going, what are we spending, and what are we getting in return for it?"