States’ Waivers Could Lay Groundwork for Big Medicaid Changes

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By Victoria Pelham

Medicaid waiver requests that would impose work requirements in states like Kentucky and Indiana could be a harbinger of more sweeping changes for the safety-net insurance program.

These Section 1115 demonstrations, which are likely to win approval from the Trump administration, could set the stage for and quicken the arrival of Medicaid funding changes as well as tougher restrictions from other states, health-care analysts said.

“The Trump administration will be eager to show some progress on health care,” Michael Cannon, the Cato Institute’s director of health policy studies, told Bloomberg BNA. Administration officials will want to show conservatives they’re amenable to their requests, “especially given the spectacularly embarrassing collapse of efforts to repeal and replace Obamacare,” he said Aug. 10. Cato is a libertarian policy research organization.

At the other end of the spectrum is the Center on Budget and Policy Priorities. Judith Solomon, vice president for health policy at the CBPP, said Aug. 10 that Kentucky’s Section 1115 request—which would also add a provision that disqualifies beneficiaries for failing to report small changes in their circumstances—will likely see action first, as early as September. Though states won’t necessarily get everything they want, other waivers will follow, amounting to a “fundamental shift” in Medicaid, she said.

Tightening Eligibility

The Centers for Medicare & Medicaid Services is reviewing state proposals that would make employment a criterion for Medicaid eligibility in Kentucky, Indiana, and Wisconsin, according to the agency. A CMS spokesman had no additional comment on the status of the requests.

Kentucky’s pending waiver has been in play the longest. In addition to the work requirement, it would compel beneficiaries to pay premiums and copayments. It also seeks to forgo coverage of nonemergency medical transportation

Indiana’s request would continue the Hoosier State’s controversial Healthy Indiana Plan 2.0 through to 2021. The program expanded Medicaid under Obamacare, when Vice President Mike Pence was governor, but also asked beneficiaries to shoulder more of the responsibility for their care through cost-sharing and a six-month lock-out period for failing to pay the premiums, under the idea it would encourage more cost-effective, conscious health habits.

In July, Indiana tacked on a 20-hour-per-week employment mandate for able-bodied, working-age Medicaid beneficiaries or participation in a Gateway to Work program for those who are not enrolled in education. The state said a “well-designed process to connect individuals to employment in a way that promotes positive health outcomes and financial stability is essential.”

In Wisconsin, a similar Section 1115 request adds work requirements for childless adults under the Medicaid expansion, as well as tiered premium rates based on lifestyle choices, emergency room copayments and, most uniquely, mandatory drug screening “to make further inroads in helping residents recover from substance use.”

Wisconsin Medicaid Director Michael Heifetz said in a letter accompanying the waiver request that the state’s Department of Health Services is “optimistic for a favorable response.”

Giving States What they Want

The Trump administration, in a letter sent governors in March, declared support for increased state flexibility in Medicaid waivers.

Solomon said she thinks health-care officials will approve the work requirements, though there could be changes in some of the specific terms. But there will also be legal challenges if they are approved, she added. Medicaid demonstration waivers are supposed to be experiments to test ideas that would support the goals of the Medicaid program.

“We’ve come very far from that, and we’re now just kind of changing rules states don’t like,” she said.

For example, proposals like those from Kentucky, Indiana, and Wisconsin will lead to fewer people covered, a fact that the states acknowledge, she said.

“If there is a willingness to do this knowing that these requirements are going to keep otherwise eligible people from being able to participate, I think that’s a really serious change in what we’ve allowed under 1115,” Solomon said.

She called that a “troubling” trend and noted that more than half of beneficiaries already do work.

Those who don’t often can’t because of either health issues, care-taking roles for children or other relatives, or obstacles such as a lack of transportation, and they’ll be the ones to lose insurance, she said.

Additionally, she warned that locking people out of Medicaid in Kentucky for failure to report small, technical changes such as an extra shift at work could be confusing to beneficiaries and “equates failure to report with intentional fraud,” she said. Solomon said she’s closely watching what will happen with this provision because the outcome is less clear.

Cannon, with the Cato Institute, agreed the Trump administration will be “looking at giving states everything they want, just about everything they can in terms of flexibility.”

That means going as far as the law will let them, he said, and maybe even further.

But he countered that the states’ proposals would really just be small changes. What matters is what they might lead to, Cannon said.

What Comes Next

Just one waiver approval would “embolden” those in other states who support similar conservative ideas and could sway those who are undecided, changing the political landscape over Medicaid, Cannon said.

And on a broader scale, they could signal larger overhauls to rein in the $550 billion program, akin to 1996 welfare reform, he added.

“That is why so many conservatives are hopeful about these waivers,” he said.

Congressional Republicans who have pitched large Medicaid overhauls as part of recent Affordable Care Act repeal-and-replace efforts have lamented the sharp growth in federal spending on the program. That’s expected to reach $624 billion by 2026, according to the Congressional Budget Office. They also have consistently pointed to Medicaid’s designation by the Government Accountability Office as a high-risk program for fraud, waste and abuse.

“The Medicaid program as it exists is so incredibly dysfunctional, and we know so little about what it actually does that... if either the federal or state governments were paying for the entire thing so the responsibility was not divided, we would see dramatic reform,” Cannon said. “We’d see dramatic interest in measuring what works, getting rid of what doesn’t and curtailing this program.”

Instead, he said Medicaid is an “incredibly wasteful” program growing at a worrying pace, facing lots of abuse, and with very little to track its successes and failures.

“There is a huge opportunity for reform, so these waivers might help to hasten the day when that happens,” he said.

To contact the reporter on this story: Victoria Pelham in Washington at vpelham@bna.com

To contact the editor responsible for this story: Brian Broderick at bbroderick@bna.com

For More Information

States waivers can be found at the list on the CMS webiste at https://www.medicaid.gov/medicaid/section-1115-demo/index.html.

The undated Medicaid letter from the Trump administration to governors is at http://src.bna.com/rCv.

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