3:06pm: Hotline with Dave Weekley

State would increase a tax to address Medicaid gap, and Senate Finance chairman questions future effects

West Virginia faces a $114 million Medicaid gap along with a proposal to fill it, but the Senate Finance chairman is expressing concern about financial consequences down the line.

Medicaid is a joint federal and state program that helps cover medical costs for some people with limited incomes and resources.

For the coming fiscal year, West Virginia faces a gap estimated at $114 million because of a range of factors.

When state officials aim to keep the general revenue budget relatively flat, a $114 million cost increase could be a big deal.

One factor causing the funding gap has been attributed to adjustments to the Federal Medicaid Assistance Percentage, a multiplier often referred to by the acronym FMAP.

For every dollar the state spends on Medicaid, the federal government matches at a rate that varies year to year. The ratio provides higher reimbursement to states with lower per capita incomes relative to the national average. In recent years, the federal match for West Virginia has been favorable, but as West Virginia has gained financial health the rate will lower.

During the covid-19 pandemic, the state benefited from an additional 6.2 percent FMAP but that is now going away.

Additional financial factors include an “unwinding” of pandemic-era enhanced eligibility standards, rising prescription drug costs and more.

To deal with the increased state expenses, officials are proposing an increase in the fee that Medicaid charges managed care organizations.

So West Virginia would increase the fee, then pay the state’s increased share to providers and then put in for reimbursement from the federal government at the increased level.

Cynthia Persily

“If we change the tiered tax rate and we certainly have modeling of that, it will have a significant impact on the net state revenue to fund the state share of Medicaid expenses,” Cynthia Persily, secretary for the Department of Human Services told senators today.

If state officials would happen to reject that proposal, another option would be a straight supplemental appropriation of $114 million.

The Medicaid gap was one of many subjects discussed during a long Monday budget hearing for the state Department of Health and the state Department of Human Services, two agencies that split from the prior DHHR.

Eric Tarr

Senate Finance Chairman Eric Tarr, R-Putnam, questioned whether West Virginia could wind up taking on a greater future financial burden if it increases the provider tax.

“I have great reservation with going that route because of how we ended up in the present situation we’re in financially,” Tarr said.

“We expanded Medicaid services to a lot more people, and as that goes down, at the same time, we expanded payment because of the FMAP being up there. And so the solution that’s suggested is to go in and grow Medicaid what could potentially end up being 400 million dollars by the time it all circulates.”

Tarr asked, “What happens three or four years down the road, if it even takes that long, if federal policy changes and we’ve increased all these benefits for the sake of a one-year shortfall?”

At that point, he suggested, the state could face an even greater gap.

Persily said the managed care organization tax increase is not the only step that West Virginia needs to take to shore up the finances of the program. She said the state needs to examine service provision, examining rates and overseeing quality of service. “So there’s an entire array of things that we can look at in Medicaid and that we are looking at to try to shore up the Medicaid budget,” she said.

Tarr asked for a spending forecast, and Persily said she could provide it.

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