Senate panel backs limited alternative to Medicaid expansion, but keeps hospital tax to pay for it

The Senate Finance Committee has endorsed an alternative to Medicaid expansion that would rely on a new hospital tax to pay for treating an additional 20,000 low-income people with mental illness, addiction or chronic disease, while boosting the state reimbursement of hospitals for caring for patients in the program and funding additional services to disabled Virginians who are waiting for help.

The committee voted 10-6 on Monday to approve Senate Bill 915, proposed by Sen. Siobhan Dunnavant, R-Henrico, to expand Medicaid coverage of inpatient and emergency room care for a limited number of low-income Virginians with chronic mental and physical disorders. The bill also would require funding of services under three Medicaid waiver programs for about 2,300 people with intellectual and developmental disabilities.

The vote sets the stage for a potential confrontation between the House and Senate this coming weekend on whether to include Medicaid expansion and an estimated $421 million in savings in their competing versions of the two-year budget.

House Republicans who have blocked expansion for years have opened the door to discussing the possibility as long as the state also imposes a work requirement for Medicaid participants, as proposed by House Bill 338, to which the full House gave preliminary approval on a voice vote on Monday.

The Senate committee chose a different path, although Senate Majority Leader Tommy Norment, R-James City, paraphrased poet Robert Frost to suggest the debate is far from over.

“We have miles to travel before this issue goes to sleep,” said Norment, who is co-chairman of the powerful budget committee.

By a 13-3 vote, the panel also supported a separate proposal by Dunnavant, Senate Bill 844, that the health insurance industry warned could wreck Virginia’s Medicaid managed care program by requiring participating companies to also offer commercial insurance in the individual markets that have been caught in the political crossfire over the future of the Affordable Care Act in Washington.

Doug Gray, executive director of the Virginia Association of Health Plans, said the bill would undermine Virginia’s current Medicaid program, which contracts with six insurance companies to manage care for more than 216,000 elderly and disabled Virginians, as well as separately for about 700,000 pregnant women, children and low-income parents.

“This policy, if it’s put into place, would have a very, very bad effect on your Medicaid program,” warned Gray, who said it would have a disproportionate effect on two companies, Anthem and Optima, by forcing them to remain in money-losing markets in order to continue serving people under Medicaid.

For Dunnavant and other supporters, the bill is aimed at bringing competitive relief to families who want to buy private insurance but cannot afford skyrocketing premiums because of turmoil in the individual market as many insurers have stopped offering policies in the face of mounting losses. A group of residents from Charlottesville and Albemarle County testified last week about their inability to afford private health insurance on the individual and small-group markets.

“At some point in time, we have to hold people accountable,” she said.

The committee vote on Senate Bill 915 followed party lines as Republicans — with one key exception — endorsed Dunnavant’s Priority Needs Access Program as an alternative to expanding Virginia’s Medicaid program under the Affordable Care Act. Medicaid expansion is embedded in the two-year budget that then-Gov. Terry McAuliffe introduced in December. It also is a top priority of his successor, Gov. Ralph Northam, who has been negotiating privately with Republican leaders in both chambers over the issue.

The one exception was Senate Finance Co-Chairman Emmett Hanger, R-Augusta, who denounced the provider assessment included in both the governor’s budget and Dunnavant’s bill as a “bed tax” that he would not support under either circumstance.

“I would support a general tax increase of $300 million before I support a bed tax,” he said before voting with the committee’s five Democrats against the bill.

“There’s going to be a lot of pain for little gain,” Hanger said.

Virginia hospitals also opposed the bill for using a tax on inpatient revenues to extend health coverage for a fraction of those who would benefit under Medicaid expansion, while committing the state to paying for 50 percent of the costs rather than no more than 10 percent under the Affordable Care Act.

Medicaid expansion “can do so much more for so many for so much less,” said Chris Bailey, executive vice president of the Virginia Hospital & Healthcare Association.

Dunnavant and her supporters on the committee said her proposal would extend care to the most vulnerable people in Virginia — those with mental illness, addiction and chronic disease, as well as help people with intellectual and developmental disabilities who are stuck on waiting lists for waiver services — rather than people who are able to work, but might not be working.

“I believe your bill is going in the right direction,” said Sen. Frank Wagner, R-Virginia Beach. “We need to define those groups that legitimately can’t help themselves but are not yet eligible for Medicaid.”

Supporters also challenged Hanger’s description of the provider assessment on hospital revenues as a tax because they said the proposal would result in net savings of $43 million to hospitals by increasing the reimbursement rate for Medicaid patients from about 71 percent to 83 percent of their costs.

The fiscal impact of the bill isn’t clear because the substitute legislation introduced by Dunnavant on Monday would cap the number of additional people covered by the new benefits at 20,000. Before the substitute, the Department of Planning and Budget estimated the program would increase the number of people covered by the existing Governor’s Access Plan for people with mental health and substance use disorders by nearly 44,000 in the second year.

The review estimates the original proposal would cost the state more than $315 million over the biennium, compared with full Medicaid expansion in the governor’s proposed budget. The proposed hospital tax would raise about $370 million under Dunnavant’s plan and about $307 million under the governor’s budget.

Secretary of Health and Human Resources Daniel Carey told the committee that full Medicaid expansion would be preferable to expanding the limited Governor’s Access Plan benefits, which have cost the state about $42 million a year to treat about 13,000 people with serious mental illness.

Those people would be covered by full expansion of the program, with the federal government paying at least 90 percent of the cost, compared with 50 percent under the legislation, Carey said. “We think there’s a better way.”

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