Midwest Governors Seek First-in-Nation Medicaid Changes

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By Stephen Joyce

Midwestern governors, with the assent of the Trump administration, for the first time want to impose work and drug-test requirements on Medicaid recipients.

Illinois, Indiana, Iowa, Minnesota, and Wisconsin each have asked the Centers for Medicare & Medicaid Services (CMS) to approve Social Security Act Section 1115 waivers, or amendments to existing waivers, to permit them to customize their Medicaid programs without jeopardizing federal matching funds. While a few of the states want to expand their programs, several others want to impose eligibility requirements that will likely cut state-assistance spending as well as the number of program enrollees, Medicaid specialists said.

The changes, if approved, would permit governors to stamp their ideological preferences regarding public assistance programs on state Medicaid plans. And because the Trump administration has encouraged states to use Section 1115 waivers and change programs to better reflect its Medicaid philosophy, use of the waivers will likely increase in the near term, the policy specialists told Bloomberg BNA.

“Clearly the trend is going to be a continued interest in waivers, and some states will be more interested than they were before” under the Obama administration, Larry Kocot, KPMG LLP Center for Healthcare Regulatory Insight national leader, told Bloomberg BNA. “What we’re seeing is an appetite to look at alternative approaches to some of these issues that part ways with the Obama administration,” he said.

Others agreed. “States are asking for things that have never been approved as part of a waiver in the past. So there are definitely breaks with any other requests that have been approved in any other administration,” Robin Rudowitz, Kaiser Family Foundation associate director for Medicaid and the uninsured, told Bloomberg BNA.

Price, Verma Encouragement

Section 1115 of the Social Security Act allows the Department of Health and Human Services to waive defined federal provisions imposed on state Medicaid programs, providing states with flexibility when designing their Medicaid programs. As of Sept. 13, 33 states had 41 approved waivers and 18 states had 21 pending waivers, according to a Kaiser Family Foundation report.

States have been using the waivers for decades, allowing them to run their Medicaid programs in ways that differ from federal Medicaid rules as long as CMS determines the programs still conform to overarching Medicaid objectives. The waivers allow the deviations while allowing states to continue qualifying for billions of dollars in federal Medicaid funding. Waivers typically are effective for five years and can be extended.

Governors were encouraged to continue, or even increase, use of the waivers in a March 14 letter from HHS Secretary Tom Price and CMS Administrator Seema Verma. "[W]e commit to ushering in a new era for the federal and state Medicaid partnership where states have more freedom to design programs that meet the spectrum of diverse needs of their Medicaid population,” the letter said.

Specifically, the letter said the administration will support “innovative approaches to increase employment” and give states more tools to combat substance abuse. The Medicaid specialists pointed to that language as a signal that the federal government is willing, for the first time, to approve waivers seeking to condition Medicaid eligibility on able-bodied recipients meeting work requirements or passing drug tests.

“My guess is she’ll be fairly amenable to” approving Section 1115 waivers,” Ari Gottlieb, a PricewaterhouseCoopers LLP health-care practice director, said of Verma, a Medicaid specialist who helped design Indiana’s state Medicaid program.

A CMS spokeswoman declined to comment on the status of the pending waiver applications.

Wisconsin: Drug Testing

Some waivers would fundamentally alter eligibility rules. Wisconsin’s waiver request, for instance, would introduce a first-in-the-nation requirement for individuals to submit to drug tests in certain circumstances. Anyone testing positive for illegal drugs would be directed to substance-treatment programs financed by Medicaid; those refusing treatment would be ineligible for Medicaid benefits. The Wisconsin waiver request also requires enrollees work a minimum number of hours each week or qualify for a work-requirement exemption.

Wisconsin Gov. Scott Walker (R) proposed the changes in an effort to help move Medicaid enrollees from “government dependence to true independence by encouraging work and providing incentives for healthy lifestyles,” Elizabeth Goodsitt, Wisconsin Department of Health Services spokeswoman, told Bloomberg BNA in an email.

Policy specialists disagreed over the potential positive and negative effects of required drug tests, but several worried it could create an imposing barrier for low-income citizens to access a program designed to help that very part of the population. “If a lot of Medicaid money is spent to help people addicted to substances, do you want to make it harder to get those people in the program?” Gottlieb said.

“You don’t want to create a punitive structure that would keep people in the shadows,” Atheendar Venkataramani, University of Pennsylvania Perelman School of Medicine assistant professor of medical ethics and health policy, told Bloomberg BNA. “You always worry what the perceptions are on the ground. The way people perceive programs often are critical pieces about whether programs work or not. That type of dynamic [establishing drug tests] could depress people’s perception about eligibility,” he said.

Gateway to Work

Another first-in-the-nation Medicaid eligibility requirement sought by Wisconsin, Indiana, and at least four other states is the ability to impose work requirements on Medicaid enrollees. Indiana received from the CMS a waiver enabling the state to implement its Healthy Indiana Plan 2.0 in 2015, and Indiana Gov. Eric Holcomb (R) wants to renew and alter that waiver with a 2017 amendment containing a work requirement, among other changes.

The Indiana proposal would require able-bodied adults to participate in the state’s Gateway to Work program, which after phasing in will require Medicaid recipients to complete 20 hours per week of work, education, training or other eligible activities averaged over eight of the 12 months in a year. Those not meeting the work requirement will be suspended from the state’s Medicaid program until they demonstrate compliance for at least one month.

“The state believes this will lead to improved overall health for members, as the correlation between employment and better physical and mental health has been documented,” the Indiana waiver application said.

In a letter accompanying his waiver amendment application, Holcomb defended charging program participants in a May letter, arguing the requirement would help transition Medicaid enrollees to meaningful employment in the private sector.

On the other hand, Rudowitz said, “It’s unclear what the impact [of a work requirement] would be. “About 60 percent of Medicaid recipients already work, and more than one-third of the population not working reported some sort of ailment or disability precluded them from employment, she said.

While the work requirement may have its weaknesses, it could also provide the necessary incentive to lift Medicaid enrollees out of poverty and off Medicaid, several specialists said.

Governors and their appointed Medicaid directors are seeking the changes for several reasons, including an attempt to restrain public-assistance outlays and to implement their personal philosophies or political ideologies, the specialists said.

Walker, a conservative Republican, said in a statement announcing his waiver amendment that Medicaid “should be a trampoline, not a hammock,” providing enrollees with the assistance needed to spring back into the job market. Minnesota’s Mark Dayton, a Democrat who is not running for re-election, is pushing to expand his state’s Medicaid coverage to improve coverage of Native Americans.

Copays, Enrollment

The Indiana and Wisconsin requests would also levy contributions, in many instances less than $10 a month, for health savings accounts or health-insurance premiums.

Wisconsin’s waiver amendment, meanwhile, would introduce for the first time monthly premiums of up to $8 each month, which could be reduced by enrollees adopting healthy behaviors, and an $8 fee for using an emergency room to encourage program partcipants to seek cheaper, preventative care.

Eric Borgerding, Wisconsin Hospital Association president and chief executive officer, said he understands the concepts of enrollees having “skin in the game” and shared responsibility for health care but said collections processes for premiums and emergency-room payments are a concern and argued federal law requires hospitals to provide care to individuals visiting a hospital emergency room regardless of any sort of required premium payment.

“We’re not so sure that’s going to have a curbing effect on the inappropriate use of ERs. We think there are a lot better ways through targeted care coordination with certain members of the Medicaid population to make sustainable impacts in reducing inappropriate [emergency department] utilization,” Borgerding told Bloomberg BNA.

Lock Outs

Another concern voiced by specialists are the lock-out provisions made a part of the proposals. Enrollees who miss a premium payment under the Wisconsin plan, for instance, would be kicked out of the program for six months.

“This punitive lock-out period will increase the number of uninsured residents in Wisconsin and increase the burden of uncompensated care on the health-care system,” James Madara, American Medical Association chief executive officer, said in a May letter to the Wisconsin Department of Health Services.

And like Borgerding, Madara said in his letter, the premium requirements in Wisconsin may be administratively complex for enrollees. “As we have learned from the experiences of other states, administratively complicated program requirements result in patient churn and disrupt the important continuity and coordination of patient care,” Madara said in his letter.

Efforts to minimize churn, or the constant adding and elimination of program participants, and problems with seemingly benign errors resulting in lock-outs was mentioned by Venkataramani and others as chief concerns if the waivers are approved and implemented.

New Priorities

Iowa legislators approved a statute (SF 2) signed into law May 12 by former Gov. Terry Branstad (R) that replaced an existing family-planning Section 1115 waiver. The statute prohibits funding family-planning entities that perform abortions and was essentially made possible when control of the state Senate switched to Republican control following 2016 elections. The statutorily created Family Planning Program is a state-funded, state-run program and does not need CMS approval, although approval is needed for winding down the state’s older family-planning program.

The waiver also seeks to effectuate HF 653, a law eliminating a state provision affording new Medicaid enrollees with three months of retroactive Medicaid benefits. An Aug. 2 Iowa Department of Human Services report said the change will more closely align Medicaid policies with the commercial health insurance market, but critics said it will cut costs by reducing reimbursable Medicaid payments.

While many Section 1115 waivers would likely shrink Medicaid programs and some of their obligations, some Midwestern states are using waiver applications to expand Medicaid programs. Illinois, for instance, is seeking through its waiver application to integrate mental health and substance abuse in its Medicaid program. About one out of every four state Medicaid enrollees suffer from some type of behavioral health affliction, the state’s Healthcare and Family Services said in its waiver application.

A.J. Wilhelmi, Illinois Health and Hospital Association president and chief executive officer, said in a September comment letter the waiver has the potential to improve health-care access, achieve significant improvements for beneficiaries, produce cost savings, and enhance emergency and community-based crisis stabilization services.

Other Uses

The specialists said states may use the waivers for other reasons as well, including streamlining care delivery as well as reducing the financial costs associated with the expansion of state Medicaid programs under the Affordable Care Act.

As health-care delivery has evolved, doctors and hospitals are now providing care to Medicaid patients using myriad services not traditionally covered by Medicaid, Kari Wolf, Southern Illinois University School of Medicine associate professor, told Bloomberg BNA. States have therefore used waivers to permit the payment of a wider array of providers or services as part of a patient’s complete treatment, said Wolf, a relatively recent arrival to Illinois who wrote and implemented Section 1115 waivers when she practiced in Texas.

Her point was illustrated by Minnesota’s request; the application said the waiver will “test ways to stabilize and strengthen the ability of providers to serve this population through innovative delivery and care coordination models.”

Another reason states may wish to use the Section 1115 waivers: finances. In its waiver proposal Wisconsin estimated a decrease of 5,102 enrollees in its Medicaid program by the waiver’s fifth year, representing an anticipated savings of nearly $49.8 million. And while the federal government initially paid 100 percent of the added state costs associated with adults made newly eligible for Medicaid under the Affordable Care Act, in 2017 that support was reduced to 95 percent and will drop to 90 percent in 2020 and beyond. As of June 30, a total of 31 states and the District of Columbia implemented Affordable Care Act Medicaid expansion to adults, according to Kaiser Family Foundation data.

To contact the reporter on this story: Stephen Joyce in Chicago at sjoyce@bna.comTo contact the editor responsible for this story: Brian Broderick at bbroderick@bna.com

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