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Virginia’s Medicaid costs were $140 million over budget in the fiscal year that ended June 30 because a federally mandated reevaluation of eligibility for the 2.1 million Virginians who received health insurance benefits under the program dropped fewer people than expected from coverage.

The cost overrun came as no surprise to Virginia lawmakers, who had set aside $95 million in the new two-year budget that took effect July 1 in anticipation of higher costs. Enrollment remained high despite the “waiver” of eligibility that the federal government required as a condition of the $3.1 billion in additional aid Virginia received over three years during the COVID-19 emergency.

The Department of Medical Assistance Services, which administers Virginia’s Medicaid program, said it has cut off health insurance for nearly 468,000 people but continued coverage for more than 1.6 million, while another 97,000 people are pending eligibility reviews.

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The Senate had set aside $150 million in its original budget proposals, and the House had set aside $100 million to avoid potential Medicaid cost overruns. However, that amount was reduced during negotiations between the legislators and Governor Glenn Youngkin that resulted in a budget compromise passed on May 13. The agreement eliminated a proposal to extend the sales tax to digital services and reduced the revenue available for spending.







Senator Creigh Deeds

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Mike Kropf, TIMES-DISPATCH


“It’s a big deal, but it’s not a disaster,” said Senator Creigh Deeds (D-Charlottesville), chairman of the Senate Finance Subcommittee on Health and Human Resources. “Fortunately, we planned for it and saw it coming.”

However, Finance Committee staff said the deficit “could have been at least partially mitigated” if the Department of Medical Assistance Services had acted sooner, according to a memo obtained by the Richmond Times-Dispatch.

Michael Tweedy, a parliamentary finance analyst for the committee specializing in health and human resources, said in the memo that the Medicaid agency could have used its automated systems to quickly identify people who had not responded to requests for information in a timely manner to demonstrate their continued eligibility for program benefits. The agency began using that tool in March and began removing more people from Medicaid rolls.

“However, the Medicaid budget deficit at this time was unavoidable due to higher-than-expected enrollment numbers earlier in the year,” Tweedy said.

The number of people covered by Medicaid has declined since the end of the pandemic, but not as much as expected. During the public health emergency, the number of Virginians in Medicaid increased by 628,194 and exceeded 2.1 million when the wind-down process began in March 2023.

Last fall, the Youngkin administration projected that enrollment would decline over the next three fiscal years before rising again in 2027. By the end of June, enrollment had fallen below 1.9 million as projected by the Medicaid agency. “This means that the shortfall (in the just-ended fiscal year) is likely a one-time budgetary issue, but final enrollment numbers will not be available until the wind-down process is complete,” Tweedy said in the memo.

The settlement, or reassessment, of eligibility began in March 2023 and was supposed to be completed in April 2024, but as of the end of last month, about 87,000 Virginia residents were waiting to have their eligibility reviewed, Tweedy said. “At the current pace, it will probably be August of this year before the settlement process is complete,” Tweedy said.

Medicaid, along with the public school system from preschool to high school, is a major cost driver in the state budget. The Youngkin administration had forecast savings of $126 million for the just-ended fiscal year and additional costs of $714 million for the next two years.

Now the state will have to pay $45 million in additional costs from the last fiscal year in the new budget. Deeds, the Senate’s second-ranking finance secretary, said he expects the difference to be made up through additional revenue.

“We hope this is just a one-time thing,” he said. “There is no guarantee.”