Senate and House won’t support Medicaid expansion, proposed tax cuts from savings

2/16/2016

By MICHAEL MARTZ Richmond Times-Dispatch

For the third consecutive year, Gov. Terry McAuliffe will not get his most fervent wish — expanded health coverage of hundreds of thousands of uninsured Virginians through the state-federal Medicaid program.

Senate Finance Co-Chairman Emmett W. Hanger Jr., R-Augusta, confirmed this week that the committee will not include McAuliffe’s proposal to expand Medicaid in the two-year budget it will release Sunday.

Nor will the spending plan include the governor’s proposals to cut the state corporate tax rate and expand the individual tax exemption with anticipated state savings from using federal funds under the Affordable Care Act to expand coverage to Virginians who earn up to 138 percent of the federal poverty level, Hanger said. He was a leader of a failed attempt in 2014 to use billions in federal funds to expand coverage.

“This session needs to be ‘let the dust settle’ and not be aggressive on anything related to the Affordable Care Act,” Hanger said Monday after a meeting of the Finance subcommittee on health and human resources.

The position is the same in the House Appropriations Committee. Chairman S. Chris Jones, R-Suffolk, said the proposed House budget will not include any of the spending items proposed by McAuliffe using an estimated $157 million in net state savings from using $2.5 billion a year in federal funds to pay for hospital coverage of prison inmates and community mental health services, and reduce subsidies for indigent care by hospitals.

The governor linked eight spending proposals to the anticipated savings, including a proposed $63.7 million cut in the corporate income tax rate and $42 million for an increase in the personal exemption, which both committees say they will not support.

The committees may look for other ways to fund some of the other proposals, such as an additional $12.9 million for the new GO Virginia economic development program, $4 million in support for the Commonwealth Center for Advanced Manufacturing, and $8.5 million for the Massey Cancer Center at Virginia Commonwealth University. They also will have to find about $35 million in funding for inmate health care that the governor had wanted to finance with federal dollars.

“We took all of those items out,” Jones said Tuesday. “We will be putting some of them back.”

The decision was no surprise to health care advocates who have continued to fight for expanded health coverage of uninsured Virginians, including low-income parents and working adults. “It’s more than disappointing that the legislators continue to ignore the needs of this population,” said Jill A. Hanken, senior attorney at the Virginia Poverty Law Center.

The political reality already was clear to the Virginia Hospital and Healthcare Association, which has recast its proposal of a provider assessment on hospital operating revenues as a way to help Virginia hospitals with declining reimbursements for care, the cost of graduate medical education, and financial distress for rural hospitals — not to help the state expand Medicaid, as the governor proposed in December.

“You can use the assessment to allow system expansion when the General Assembly opts to extend coverage,” said Christopher S. Bailey, executive vice president of the association, in a presentation to the Senate subcommittee on Monday.

Under the proposed Virginia Hospital Access and Rural Hospital Relief Fund, Bailey said a 3-percent assessment on revenues would raise an estimated $425 million a year, which would produce about $40 million to help financially distressed rural hospitals, $20 million for graduate medical education, and the remaining $365 million “to address the payment shortfall at all hospitals.”

The shortfall represents the chronic underpayment by Medicaid for hospital care — now estimated at 66 percent of the cost of care, compared with a benchmark of 78 percent that Bailey said the state had met only three times since 2002.

One of the association’s top priorities is restoring more than $47 million in the budget to adjust Medicaid reimbursement of hospitals for inflation. The reimbursement would draw down an equal federal match, so the issue represents a $95 million opportunity for hospitals. McAuliffe left the inflation adjustment out of his proposed budget.

“It is not what I want to do, but that is the reality we are faced with as long as the General Assembly is not willing to expand Medicaid and address the financial pressures faced by hospitals,” Secretary of Health and Human Resources Bill Hazel said in a letter last month to Sean T. Connaughton, the association’s president and CEO.

Hanger said Monday that the Senate would address the inflation adjustment. “We need to do something there. It’s just a matter of how much we can do.”

Sympathy for the association has been in scarce supply, especially among House Republicans, since it launched a television and radio ad campaign last week. It warned of dire consequences to community hospitals and their patients if the Assembly approves legislation to repeal portions of the certificate of public need program that protects existing hospitals from competition for lucrative services that help them offset operating losses in other areas.

The key legislative proposal, House Bill 193, passed the House on Wednesday by a 52-46 margin that some observers on both sides said was affected by the backlash from House Republicans angry over the ads.

“I think they were over-the-top ads and ads like that can’t be ignored,” said Del. John M. O’Bannon III, R-Henrico, a neurologist employed by HCA Virginia and the author of House Bill 193.

James B. Cole, president and CEO of the Virginia Hospital Center in Arlington County and chairman of the association board, said Monday that he does not think the ad campaign, which the association abruptly halted in the face of intense criticism by House Republicans, “was counter-productive.”

“I can’t speak to how people reacted,” Cole said after the Senate subcommittee meeting.

Cole testified about the financial pressures on the industry from cuts in Medicare and Medicaid reimbursements under the health care law and federal budget sequestration.

The cuts under the Affordable Care Act “were supposed to be offset by expansion of coverage, but that didn’t fully take place in the commonwealth,” he told the subcommittee.

Legislation to repeal the certificate of need program “would do harm to the system” if the state does not expand coverage under Medicaid, Bailey said. “It would definitely destabilize the system.”

O’Bannon strongly disagreed in an interview Tuesday. “This has nothing to do with Medicaid expansion,” he said. “This has to do with reforming a bureaucracy that’s been in place for years.”

Hanger said in an interview that he supports the incremental reforms to the program recommended by a work group McAuliffe appointed last year, “as opposed to some of the more aggressive changes that are floating around out there.”

He said the issues besetting the health care industry can’t be settled effectively until after this year’s presidential election, which could determine the future of the health care law.

“On the political side, a lot of work has to be done addressing where we are with the reality of the health care system,” Hanger said.