The Promise and Pitfalls of Alternative State Approaches to Medicaid Reform

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    ACA waivers allow states to make changes to Medicaid such as cutting some traditional benefits
    Congress will likely have to address state Medicaid proposals that restrict eligibility or coverage

Six states—Arkansas, Indiana, Iowa, Michigan, New Hampshire, and Pennsylvania—have expanded eligibility for their Medicaid programs using alternative approaches allowed under what are known as Section 1115 demonstration waivers. In April, the Montana legislature approved expansion, and lawmakers there expect that their program will also proceed as a Section 1115 demonstration. These waivers enable states to tailor their expansions to meet practical and political realities. As we reported earlier, they have allowed states to enroll beneficiaries in plans sold in the marketplace rather than traditional Medicaid managed care plans; eliminate certain traditional Medicaid benefits; and apply higher premiums and cost-sharing than Medicaid normally allows.

As this demonstration strategy has unfolded, both its promise and limits have come into view. In order to waive federal law, the U.S. Secretary of Health and Humans Services (HHS) must find that a proposed demonstration is consistent with Medicaid objectives, namely, to extend coverage to low-income and vulnerable populations. But some proposals seek to change Medicaid provisions in ways that restrict eligibility or reduce coverage. While HHS can approve many changes under Section 1115, reforms that affect eligibility or coverage will likely need to be left to Congress to resolve legislatively.

Work Requirements. One potential flash point concerns work requirements. Working or looking for work is not a legislative condition of Medicaid eligibility. In fact, most poor adults work. The Kaiser Family Foundation reports that 57 percent of uninsured low-income adults work either full time or part time and 72 percent live in families in which at least one member works. Many work in small, low-wage firms that typically do not offer employer-sponsored insurance. Among non-workers with low incomes, nearly one of five reports a disability and nearly one of three provides care for family members.

But governors in Indiana, Utah, Florida, and eight other states are seeking or plan to seek work requirements as a condition of Medicaid eligibility.1  To date the administration has rejected such requirements. But legislation recently introduced by Rep. Bruce Westerman of Utah and five cosponsors would permit states to impose broad requirements.

Higher Premiums. Another flash point concerns premiums. Federal law bars premiums for beneficiaries with incomes below 150 percent of the federal poverty level (about $17,000 for a single person). Several approved Section 1115 demonstrations allow states to require premiums for people with incomes between 100 percent and 138 percent of poverty, and the same rule would apply to the purchase of marketplace health plans. The administration has even permitted Indiana to impose a six-month coverage exclusion if beneficiaries with family incomes at or above 100 percent of poverty fail to pay. Michigan’s demonstration seeks to impose premiums as high as 7 percent of household income on beneficiaries with incomes in the 100 percent to 138 percent range.2  In the insurance marketplaces, families with incomes of 138 percent to 150 of poverty are required to pay no more than 2 percent of their income for premiums.

Low-Income Pools. Section 1115 demonstrations must be periodically renewed. Several states, including four that have not expanded Medicaid—Florida, Kansas, Tennessee, and Texas—have previously approved Section 1115 demonstrations permitting supplemental federal payments to hospitals serving large numbers of indigent patients, beyond what federal law ordinarily permits. These four states account for an estimated 2.5 million low-income residents who could gain Medicaid under an expansion. Ironically, federal funding would skyrocket in these states under expansion, significantly easing hospitals’ uncompensated care burdens. (Federal funding for Texas would rise from $4 billion for its low-income pool to $100 billion for the adult expansion; federal funding for Florida would rise from $1.3 billion for its low income-pool to an estimated $50 billion under an expansion).3

On May 21, the administration informed Florida that it would permit the state to continue to receive additional subsidy payments, but at a much lower level, and that the state could provide additional support for health care costs for low-income people by expanding Medicaid, if it chose to do so. But even though reducing the supplement would not alter the state’s entitlement to traditional Medicaid payments, Florida has sued, claiming that the administration’s position amounted to an unconstitutional coercion to expand Medicaid in violation of the Supreme Court’s 2012 decision in NFIB v Sebelius.

Moving Forward

These developments raise important questions. Will Congress enact legislation permitting Medicaid restructuring beyond what is permissible under current law through Section 1115, such as expanded premiums and work requirements? If so, this would permit states, as a matter of practice, to impose significant conditions on eligibility that have not previously been routinely applied to a low-income population, thereby reducing the reach of the Affordable Care Act’s Medicaid expansion. Second, will the courts extend the Medicaid coercion doctrine to situations in which there is no threat to withhold basic program funding? If the courts so rule, the Centers for Medicare and Medicaid Services may have difficulty enforcing federal standards governing optional state activities without being charged with wrongfully limiting state flexibility.

 


Notes

S. Wheaton, “GOP Warms to Obamacare – If Americans Work for It,” Politico, April 30, 2015.
2  R. Pradhan, “Obama Administration Faces Key Medicaid Test in Michigan,” Politico Pro, May 2, 2015.
V. Dickson, “Administration Bears Down on States to Expand Medicaid,” Modern Healthcare, April 25, 2015.
Letter from Vikki Wachino, director, Center for Medicaid and CHIP Services, to Justin Senior, deputy secretary for Medicaid, Florida (May 21, 2015) http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Waivers/1115/downloads/fl/Managed-Medical-Assistance-MMA/fl-medicaid-reform-lip-ltr-05212015.pdf

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Publication Details

Publication Date: June 11, 2015
Authors: Sara Rosenbaum, Mark Dorley, Sara Rothenberg
Contact: Sara Rosenbaum, Harold and Jane Hirsh Professor of Health Law and Policy, Milken Institute School of Public Health at the George Washington University
E-mail: sarar@gwu.edu
Citation:
S. Rosenbaum, M. Dorley, S. Rothenberg, and S. Ely, "The Promise and Pitfalls of Alternative State Approaches to Medicaid Reform," The Commonwealth Fund Blog, June 10, 2015.

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