Oct. 24, 2005 — There is a hidden potential source of tens of millions of dollars a year waiting to stimulate the Virgin Islands economy. That flow of money would also enhance the health of thousands of island residents.
It‛s called Medicare.
The study recently released by the Government Accountability Office (GAO) reports that Medicare represented the largest flow of federal health dollars to the Virgin Islands; the annual expenditures in these islands were more than $37 million in 2003. (See "Analysis: V.I. Shortchanged by Federal Medical Funds Formulae").
What the report did not state was that were the Virgin Islands a typical mainland community it would not be seeing $37 million a year in these funds, it would see more than $100 million a year – a sizeable difference.
Why is the V.I. receipt of Medicare funds so much lower per capita than on the mainland?
Can something be done to remedy this?
The answer to the first question is complex and is explored below. The answer to the second is: yes, but it will be hard work. Like any other form of economic development activity, expanding the flow of Medicare dollars will require grit, imagination, leadership, and some capital outlays. But it can be done, and the Medicare money is simply waiting to be used.
Where do I get the $100 million plus figure? I went through a simple procedure. I compared the flow of Medicare dollars on the mainland in 2002 to the total population in that year, and then compared the dollars coming to the Virgin Islands with the territory‛s total population.
Sparing the reader the calculations, one gets an annual per capita mainland expenditure on Medicare of $922, compared to a per capita flow of $316 to the U.S.V.I. That is almost a three to one ratio.

There are four sets of known factors that explain the difference; two major ones and two minor ones, all shown in the exhibit. To some extent each of these factors could be tweaked in the Virgin Islands direction, if the community really tried.
The most important difference is that much less is spent on the average V.I. Medicare
enrollee than on his or her mainland counterpart. As the GAO report shows, these numbers are, respectively $6,788 on the mainland and only $3,178 in the islands.
Another important difference relates to the relative rarity of Social Security beneficiaries in the islands as opposed to the mainland. I previously had calculated that social security beneficiaries constituted 10.6 percent of the Virgin Islands population compared to 16.4 percent of the mainland population. (See my earlier op-ed column "Social Security Pumps $84 million into the Economy, it Could be More").
The two smaller explanatory factors relate to the beneficiaries‛ behavior on one hand, and the physicians‛ behavior on the other.
On the first of these lesser factors, traditionally there have been two parts of Medicare: Part A provides hospitalization services and covers all beneficiaries; Part B is optional and covers out-of-hospital medical services, such as visits to the doctor, and now costs $78.20 per month. As a Medicare user I find this a screaming bargain, but the cost can be discouraging to people with small pensions.
In the Virgin Islands 91 of 100 beneficiaries opt for Part A, and the other nine do not. On the mainland the utilization rate is 95 out of 100. So in the V.I. one beneficiary out of 11 is not using the full Medicare program.
The other lesser factor reducing the amount of money spent on Medicare in the Virgin Islands is the fact that some physicians will not participate in the program, usually because of the paperwork demanded in it. We suspect that the incidence of non-participation of doctors is somewhat higher in the islands than on the mainland, but this is the one known factor for which we have limited data and must use an estimate.
Let‛s look at the two major factors mentioned above in a little more detail. The number of social security beneficiaries is crucial, as most Medicare benefits go only to these beneficiaries, and then, only to a subset of them. Medicare typically is for social security beneficiaries 65 and over, but it also provides similar benefits to a much smaller group, people who are: under 65, who have been found to be permanently disabled by the Social Security Administration, and who have been in that category for at least two years. (This program is much less utilized in the islands than on the mainland, and will be the subject of subsequent Source coverage.)
Unfortunately for the flow of Medicare funds, but fortunately in other ways, the Virgin Islands population is younger than the mainland one. But this is not the only reason that Social Security beneficiaries are more common on the mainland than in the islands. There is also the factor of people working in the underground labor market, being paid cash and not being covered by social security. A lifetime (not just a few years) in that labor market will keep the worker out of the social security system, and hence away from Medicare.
The other major factor is the much lower average expenditure on each beneficiary. Relatively little is known about this variable at the moment, but common sense would suggest a couple of things: 1) if the island beneficiaries are younger, on average, than those on the mainland, then expenditures would be lower (generally health costs are lower at 66 than at 86); 2) similarly if the costs of medical services are lower in the Virgin Islands than on the mainland that would work in the same direction. Both of those are benign variables.
A third factor within this set is the (I think strong) possibility that some island residents are not getting the treatment they should, including major operations. The GAO report indicates, with no discussion of need, that V.I. Medicare beneficiaries are less likely than other Americans to receive what it calls "major medical procedures." It showed that for every 1000 Medicare beneficiaries on the mainland there were 272 of these procedures annually, but only 182 in the Virgin Islands. That may be a troublesome situation.
A fourth set of factors is internal to the Medicare program. That is the system used for repaying hospitals for services done for beneficiaries. The mainland and Puerto Rico use one system, while the Virgin Islands uses another. Puerto Rico, according to the GAO report, lobbied successfully to move from the system used in the U.S.V.I. to the mainland system, so the latter must be more attractive.
Finally, as the GAO report points out for the islands generally, some insular areas do not have the full sweep of medical institutions found frequently on the mainland, and funded, in part, by Medicare. The report mentions that the islands sometimes lack "Medicare-certified outpatient rehabilitation facilities, community mental health centers, or ambulatory surgical centers." The report is not specific about this situation in the Virgin Islands but the general thrust would seem to be accurate.
What can be done?
So what can be done in the islands to secure more Medicare funds? The answer is lots of things, each in connection with the set of four factors shown in the exhibit and discussed above.
1. As to increasing the number of social security beneficiaries, a naturally aging population will help, but there are two proactive, long-term efforts that would also be useful.
One would be an effort by the territorial government to make sure that all island businesses are, in fact, paying social security (FICA) taxes for their workers. Given the size of the territorial work force it would seem possible to assign some of them to making sure that every government contractor and subcontractor, and every business holding a busines
s license from the local government, obeys the law in this connection. Some business people may be irked, but compliance with FICA is good for the workers involved, and for the society, generally.
The second would be to make efforts to encourage more people from the mainland, including people born in the Virgin Islands but now living elsewhere, to retire to the territory.
2. The task of increasing the number of Medicare beneficiaries participating in Part B would involve a population of about 1,000 people. If Medicare would let the territorial government know who had opted out of Part B, it would be fairly easy to reach them. If not, perhaps many of these people could be identified through an examination of the islands‛ Medicaid files.
In some cases it might make sense financially for the government to pay the Part B fees for low-income retirees out of Medicaid funds rather than providing Medicaid-funded services to the same individuals. After all, there is no limit to Medicare funds in contrast to a strict limit on Medicaid funds.
Similarly, should the proposed health plan to help the uninsured come to pass, Plan B fees for low income people could be paid out of that program. (See "Health Plan Aims to Help Uninsured").
3. The job of increasing physician-involvement in the Medicare program would involve only a handful of physicians, some of whom object to the bill-handling services now provided by a Puerto Rican firm. If these problems can't be resolved, perhaps the territory could seek to persuade the Medicare program to use a different contractor.
4. The largest set of challenges is seeking to increase the services to current Medicare beneficiaries (and thus increasing the influx of funds from Washington). Research would be needed to identify the current problems in order to design a program that would give Virgin Islanders the same level of treatment as that now being provided to their peers on the mainland.
A trio of specific suggestions:
A) The islands' hospitals might find that it would be useful to follow the Puerto Rican precedent and move to the mainland reimbursement system.
B) Perhaps a V.I.-based health professional could spend a little time in, say, Mississippi or West Virginia, to see why major medical procedures are so much more likely to be performed with Medicare funds in those states than in the Virgin Islands. As the GAO report indicates, there are more than 300 major medical procedures performed for every 1000 enrollees each year in those states, while the comparable number in islands is 182.
On the other hand, there is always the possibility that the visiting professional from the Virgin Islands will find that the V.I. approach is careful and correct and that the mainland one should not be replicated. It is also possible that the mainland population getting these operations is an older segment of the senior population, on average, than that of the Virgin Islands.
C) Most importantly, the health care establishment in the territory should examine the gaps in the islands' current system that Medicare funds could help fill. Providing a wider range of health care services than now available would simultaneously improve the health of the islands' Medicare beneficiaries while at the same time boosting the economy, generally.
Of course, this sounds like a lot of work; sometimes quite specialized work, and it may be that no single island-based entity could do it, even if funded. But the goals are worth the effort: better health care for a substantial number of islanders and perhaps tens of millions of additional dollars flowing into the local economy every year – and all without having to ask the Congress to vote more appropriations for the insular areas.
Editor's notes: David North, a retired Department of Interior official living in Arlington, Va., , writes for the Source from time to time about financial and social service issues.
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