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Refusing Medicaid upgrade won’t hurt credit: Moody’s


As states try to decide whether to participate in the Medicaid expansion through the federal health care law, they can stop worrying about one thing.

If they don’t do it, it probably won’t hurt their credit rating.

That’s the prediction from bond-rating firm Moody’s, one of three major credit rating agencies whose judgments can make or break a government’s finances.

Moody’s announced a report that was titled, “State Ratings Not Likely Affected by Decisions on Joining Medicaid Expansion.”

In the announcement, report author Kenneth Kurtz—Moody’s senior vice president—said the issue for state credit ratings isn’t Medicaid expansion itself, but how states deal with potential federal budget cuts.

States that choose to expand their Medicaid offerings under the Affordable Care Act will get federal money to do so. But if those federal dollars later get cut, it could leave those state budgets even more vulnerable.

“States that opt into the expansion of Medicaid under the new law will have greater exposure to the potential risks that will come with efforts to trim federal spending,” Kurtz said in a statement on Moody’s website. “The extent of any effects on ratings will depend on how states respond to underlying cost drivers, including any new federal actions.”

Virginia has long treasured its AAA bond rating from Moody’s and the other firms, and has in the past made serious state budget choices to keep that high rating.

But Virginia is one of several states considered particularly vulnerable to federal spending cuts, because so much of the Northern Virginia economy in particular is dependent on the federal government.

Last year, around the time Congress was in an eleventh-hour fight over raising the U.S. debt ceiling, Moody’s warned that it could downgrade the bond rating for Virginia and a few other states because of the reliance on federal dollars.

For Virginia and other states, the cost of Medicaid—a shared federal and state program—has ballooned in recent decades and is one of the biggest drivers of state budget increases. It’s a struggle for states to hold down Medicaid spending because they’re required to provide certain levels of benefits through the program.

Moody’s already factors those current costs into its bond ratings for states, Kurtz said. He also noted that Medicaid costs haven’t risen as much as overall health care costs; he wrote that between 1997 and 2010, federal data showed that per enrollee, Medicaid costs increased an average of 3.1 percent a year. The per-enrollee cost for healthcare expenditures as a whole increased at an average of 5.5 percent a year.

Kurtz did warn states that Moody’s valuation of Medicaid’s effect on bond ratings could change in the future, as an aging population puts even more pressure on Medicaid programs.

“Rising health care costs and an aging population will continue to increase Medicaid’s costs and challenge states’ finances, regardless of how federal health care reform is ultimately implemented,” Kurtz said.

Chelyen Davis: 540/368-5028