The V.I. Budget Crisis, Part 14: Medicaid and Medicare

Debt Revenues and Debt Service 2004-2016

With a crippling budget crisis, credit downgrades and lenders balking at buying V.I. bonds, getting new revenue sources online has been a high priority. The territorial government has cut budgets and raised taxes. There is more it might be able to do, but nothing that seems certain to fix the problem, especially by itself.

But Congress could do several things which would quickly eliminate the territory’s budgetary problems.

Medicare and Medicaid

One of the simplest and biggest things Congress could do is treat the Virgin Islands like a state for Medicaid and Medicare.

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Then-Delegate to Congress Donna Christensen testified to Congress in 2012 that the federal government pays at least 50 percent of the Medicaid program’s cost in each of the states and around 80 percent in the poorest states. But federal law caps total funding and puts a floor on local matching funding in the territories, for no reason other than the word “territory.”

V.I. residents pay the same taxes for Medicaid, Medicare and Social Security as employees anywhere in the country.

By federal law, the V.I. has to pay 45 percent matching costs and Medicaid funds 55 percent while some states have a 25-75 percent split. Gov. Kenneth Mapp originally proposed $14 million in local Medicaid matching funds in his Fiscal Year 2017 budget, which would have brought about $17 million in federal dollars for about $31 million in Medicaid funding in all, at the current matching formula (The USVI distributes those funds through its Medical Assistance Program through the Department of Human Services). The actual appropriation was less, but with a recent new appropriation, there is a bit more than $12 million for Medicaid matching funds for 2017. As a 45 percent match, that should bring in about $15 million in federal dollars for $27 million in all.

Human Services Federal Funding and Fed Funding 2006-2017

Those numbers are large increases from before the  2010 Affordable Care Act expanded Medicaid. The territory actually qualifies for more federal Medicaid dollars than that under the ACA but only at the 45 local matching rate. If the territory were treated like a state for matching rates, it could have spent the same $12 million as a match for $36 million in funding on matching funds, for $48 million in all. That’s another $22 million per year in funding, much of which would have gone right into the territory’s struggling hospitals and back out into the economy, reducing the need for the government to fund the hospitals and increasing tax revenues.

And the territory may opt to budget more on Medicaid matches, if it can reduce cash subsidies to the hospitals by as much or more than it spends on them with triple the amount of Medicaid funding coming into the territory than spent on matching. If the USVI spent $20 million on matching and were treated like a state, the territory would get $80 million, for $100 million in Medicaid funding in all. If it spent $25 million, it would get $110 million, for $135 million in all. The money would go to an array of providers, but much of it would go to the territory’s two hospitals, where expensive major procedures are performed. The influx might be enough to completely or largely eliminate the two V.I. hospitals’ uncompensated care problem, possibly allowing the government to reduce its direct funding to the hospitals. Any money the government did not have to directly give to the hospital could help pay the territory’s matching share to Medicaid.

Those are big numbers and predictions but are they truly realistic? Figures from other parts of the U.S. suggest they are.

Back in 2005, before the 2010 Affordable Care Act increased Medicaid funding, the U.S. General Accounting Office found the federal government provided more than $800 in Medicaid funding per capita, nationwide, versus about $50 per capita in the territories. If the USVI got $800 per capita, that would be an infusion of more than $80 million per year, much of which would go directly to the cash-strapped hospitals. And those are nationwide figures, averaging the cost for wealthy states with low federal matches together with poorer states with higher federal matches. Poorer states get more per capita. Those figures are lower than what would likely happen too, because they are from before Congress greatly expanded Medicaid with the 2010 Affordable Care Act. So yes, the estimates of what the USVI could get appear to be well in line with the available data.

If the hospitals were financially sound, they could pay their utility bills and improve services to the point where aspirations to medical tourism and increased paying customer use of the hospital could come to fruition. The downward spiral at the hospitals could become an upward spiral. Not to mention the direct impact being insured through Medicaid would have on the health and personal welfare of individual Virgin Islanders

Not Just Medicaid But Medicare Too

The USVI loses out on what may be tens of millions of dollars in potential Medicare dollars too. The hospitals have long complained that CMS reimbursement rates are out of date and too low. Gov. Juan F. Luis Hospital officials have said for several years now that they get reimbursed about $10,000 for services costing about $17,000.

Those dollars do not represent direct cash savings to the V.I. government’s budget. But the government gives more than $40 million per year to the territory’s two hospitals each year, not counting millions more in special appropriations to help pay utility bills or deal with emergency capital projects to avoid being decertified. About 60 percent of each hospital’s revenue comes from either Medicare or Medicaid. Bringing in $80 million or more in new funds would mean the government could pay less and the hospitals could do better. And those funds would circulate in the economy, with doctors, nurses and other hospital employees buying groceries and paying taxes. JFL may even start paying utility bills again, reducing pressure on the struggling Water and Power Authority.

Congress reforming how Medicare and Medicaid operate in the territory might have a bigger impact on the budget and the lives of territorial residents than all the other reforms combined.

But there are other things Congress could do that would make a huge difference in the USVI and other territories, including cash-strapped Puerto Rico.

Next: Pt. 15: Congress Could Reform Rum Subsidies and Tax Break Programs

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2 COMMENTS

  1. Thank you for your reporting.
    More than 60% of the annual medical costs of smoking diseases is paid for by government programs like Medicaid (*). Medicaid is healthcare welfare and smokers on Medicaid should do their part to be healthier by quitting.
    In addition, Housing and Urban Development Secretary Ben Carson must implement the HUD public housing smoking ban immediately and strictly enforce it.
    The Equal Protection Clause of the U.S. Constitution does not include smokers as a protected class. There is no constitutional right to smoke because the U.S. Constitution does not give special protection to smokers. Smoking is not a specially protected liberty right under the U.S. Constitution Due Process Clause and smoking is not included in the right to privacy.

    *Am J Prev Med. 2015 Mar;48(3):326-33.
    Annual healthcare spending attributable to cigarette smoking: an update.
    Xu X, et al.

    • Belatedly, I’d like to point out to Carl that the USVI has the lowest rate of cigarette smoking of any state or territory, at less than 2 percent.

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