Virginia Governor Postpones Plan To Use Medicaid Loophole

Virginia officials last week delayed a plan that would have used the Medicaid loophole to balance the state's budget by collecting about $260 million in federal funds, the Washington Post reports (Rein, Washington Post, 11/16). Under the loophole, states pay city- or county-owned care facilities more than the actual costs of health services, receive additional matching funds from the Centers for Medicare and Medicaid Services and then require the facilities to return the extra state funds. The states sometimes pay the facilities a small fee for participating and use the extra federal funds for both health and non-health programs. In January, federal officials issued final rules to close the loophole gradually; following a 60-day delay on implementation ordered by President Bush, the regulations took effect in mid-March (Kaiser Daily Health Policy Report, 10/10). Virginia's plan to use the loophole would require the cooperation of local officials, but many of them have "refused to participate," saying that use of the loophole is "unethical." Only Bedford County and the city of Petersburg have agreed to participate in the loophole scheme. Virginia could have relied on the support from just the two localities to use the loophole, but state Health and Human Resources Secretary Louis Rossiter said he wanted to give other localities "at least until January" to agree to the plan. However, the Post reports it is "unlikely" that local governments will change their stance. Although Virginia had given itself a Nov. 15 deadline to take advantage of the loophole, federal law allows applications until the end of September 2002. Rossiter added he "hopes to draw down" the federal funds this year. Outgoing Gov. James Gilmore (R) is scheduled to announce his budget for next year Dec. 19, but it is uncertain if the state will have received the federal funds by then. Because the plan has been delayed, Gov.-elect Mark Warner (D) may be forced to "sign ... the unpopular financing method or face an even wider budget gap," the Post reports (Washington Post, 11/16). During the state's recent gubernatorial campaign, Warner called the loophole plan "questionable," saying that the additional funds "should be used for health care purposes" only (Martz, Richmond Times-Dispatch, 11/19).

Medicaid Costs Weigh in State Budget Shortfall
Analysts for the state House of Delegates said the "hole in the state budget keeps growing" and has reached $1.2 billion (Lessig, Knight-Ridder Tribune Business News, 11/17). Much of that shortfall is related to the state's Medicaid program, which faces a shortage of $173 million this year and $600 million in the next two-year budget cycle. These estimates, however, are based on maintaining current coverage and do not reflect an expected increase in enrollment and costs, the budget analysis found. Pharmaceutical expenses are expected to increase 7%, while costs for treating the mentally ill and mentally retarded in community-based settings and expenses for nursing home care are also expected to increase. Manju Ganeriwala, deputy director for administration and finance at the Department of Medical Assistance Services, said, "The Medicaid program is going to need a lot of money this year and in the next two years." Without funding increases, enrollments, benefits or payments to doctors, hospitals and nursing homes would all have to be cut, the Richmond Times-Dispatch reports (Richmond Times-Dispatch, 11/19). The state will likely use money from its $940 million "rainy day fund" to "make ends meet" when the fiscal year ends in June (Knight-Ridder Tribune Business News, 11/17).