Medicaid block grants would pose challenges for states

If federal support for Medicaid was transformed into a block grant to states, with a per capita cap set by Congress, the impact would vary widely on different states, according to participants in a webinar sponsored by the Alliance for Health Reform. The webinar also focused on the reauthorization of the Children’s Health Insurance Program (CHIP) and state Medicaid waiver requests. The American Health Care Act (H.R. 1628) would transform the federal part of Medicaid into a block grant to states starting in 2020, with a per capita cap on spending. Also, it would roll back the enhanced federal spending for adult Medicaid beneficiaries newly eligible under the Affordable Care Act. (The legislation, which passed the House on May 4, has not yet been considered by the Senate.).

Current Medicaid challenges

Robin Rudowitz, associate director at the Kaiser Family Foundation, noted that certain states are at higher risk if federal funding for Medicaid is transformed into block grants with per capita caps. These states have challenging demographics, including higher populations of people with poor health status, high cost health markets, and limited ability to raise tax revenues. Tony Leys, a reporter with the Des Moines Register, noted that state Medicaid programs already struggle to cover expensive blockbuster drugs, such as those for treating hepatitis C. If the federal Medicaid payment was capped, Leys said, states would struggle to pay for the next blockbuster drug that comes along.

Per capita caps 

Chris Pope, senior fellow at the Manhattan Institute, noted that per capita caps do nothing to prevent future expansions of benefits or eligibility by future Congresses, and may be preferable to the long-term health of the Medicaid program rather than “letting the program continue on autopilot without any real scrutiny.” Hemi Tewarson, program director for the National Governors Association Center for Best Practices’ Health Division, noted, however, that because of the way most states have to prepare their annual budgets “if we were to introduce every year uncertainty around whether the per capita caps would be raised or lowered…that would throw a lot of chaos into state operations, not just impacting health care, but all the their programs they have to make decisions on.”

Pope said that it’s a political decision for states to maintain coverage for Medicaid enrollees if expansion funding from the federal government is rolled back. He added, “There is a substantial overlap between the Medicaid expansion population and the population that would be eligible for substantial subsidies at the bottom of the income distribution covered by the exchange.” These are people who would be eligible for basic insurance plans with capped out-of-pocket spending.

Leys noted that in Iowa, this would be difficult because the state is about to lose its last participating insurer in the Exchange. In addition, Rudowitz said that after the per capita caps would go into place in 2020, the restriction of growth in federal spending would compound over time, putting Medicaid beneficiaries in the higher risk states noted above at greater risk of losing any insurance coverage. Tewarson agreed, noting that for some states disenrollment would be necessary over time as the restriction in federal spending grows.

CHIP reauthorization

The transformation of Medicaid into a federal block grant is not a sure thing, but the deadline for reauthorizing CHIP is. Congress has to regularly reauthorize CHIP, which provides enhanced federal funding to states who offer expanded Medicaid coverage for children; the program is currently extended only until September 30, 2017. Tewarson noted that as states prepare their 2018 budgets, some are planning on the enhanced match being renewed, while others plan on it going away, in which case states have to budget reserves to make up for the lost matching funds. Rudowitz also noted that the continuation of CHIP is a coverage issue; if the program is not reauthorized or the enhanced funding is cut back, states will have to make decisions about coverage and contact beneficiaries in a timely manner.

Medicaid waivers

States have been able to request waivers from federal Medicaid requirements for years; waivers are used by states for demonstration programs related to delivery system reforms, long-term care, behavioral health, among other things. As of February 2017, 33 states have 41 approved Medicaid waivers in place. Since President Trump was inaugurated, states have submitted waivers that would require certain Medicaid beneficiaries to be employed, although none of these waivers have been approved.

Tewarson noted that one of the big question states have regarding waivers is the administrative aspect—”how do you operationalize them?” In considering work requirement waivers, the administrative issues get bigger, she said. “How do we connect systems? What are the real outcomes we want to see from this? How do we define work requirements and who would be exempt?” She also noted that while the Obama administration approved many Medicaid waivers, they had guideposts as to what would or would not be acceptable; work requirements were not one of the acceptable waiver options previously.

Medicaid waiver applications test new administration’s policies

If CMS approves Maine and Wisconsin’s proposed Section 1115 Medicaid waivers, it will be marking a departure from the Obama Administration’s stance against work requirements and other previously unapproved proposals. The Kaiser Family Foundation (KFF) examined provisions of state waivers that are unrelated to Patient Protection and Affordable Care Act’s (ACA) (P.L. 111-148) Medicaid expansion, and opined that the Maine and Wisconsin proposals could result in a loss of coverage and higher costs for consumers. Both states’ proposals are open for public comment in the month of May; if approved, implementation could take place within six months.

Work requirements

The Obama Administration opposed the imposition of work requirements as a condition of the Medicaid program, finding that it did not promote health and access to care. However, HHS Secretary Price and CMS Administrator Varma recently issued a letter to state governors, stating, “The best way to improve the long-term health of low-income Americans is to empower them with skills and employment.” Verma also said that CMS would review Section 1115 waiver requests with an eye to encouraging “meritorious innovations that build on the human dignity that comes with training, employment and independence” (see Did CMS just sound the death knell for Medicaid expansion?, March 15, 2017).

Wisconsin’s plan would require childless adults ages 19 to 49 to work or participate in job training for 80 hours per month, but would allow exemptions for mental illness, receipt of Social Security Disability, and several other categories. Maine’s proposal would require traditional adults ages 19 to 64 to participate in paid employment or approved job training for 20 hours per week, volunteer 24 hours per month, enroll at least half-time at an academic institution, participate in combined work and education for 20 hours per week, receive unemployment benefits, or provide caregiver services for a non-dependent disabled person, but only if they are planning a career in that area. If approved, they would be the first approved work requirements in the nation. Wisconsin has also proposed drug screening, while Maine has proposed premiums higher than 2 percent of income in some cases. Both states proposed eligibility time limits. No such proposals have been approved in the past.

KFF concerned

KFF expressed concern that both states admitted that coverage would decrease as a result of the waivers and that costs would increase. It noted that CMS has traditionally required Section 1115 waivers to be budget neutral, resulting in post-waiver federal costs that do not exceed pre-waiver federal costs. It is also concerned that proposals that have been tested in other states, including health behavior programs, are overly complex, and that other provisions, such as a requirement that individuals pay a premium before coverage being, create barriers to access or result in loss of coverage.

Does Medicaid work with a work requirement?

Conditioning Medicaid eligibility on a work requirement could adversely affect beneficiaries from accessing needed health coverage in a manner that is contrary to the program’s purpose—providing health coverage. A Kaiser Family Foundation (KFF) issue brief examined the policy arguments related to Medicaid work requirements and the likely impacts of such requirements, in light of a March 14, 2017, CMS letter to state governors announcing that it will begin to use Section 1115 Medicaid expansion waivers to approve provisions related to “training, employment, and independence.”

Work requirements 

In the past several years, CMS has denied multiple requests to include work requirements as a condition of Medicaid eligibility. Those requests were made as part of states’ Section 1115 waiver requests to expand their Medicaid program under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). The requests were denied on the premise that work requirements would not further program goals of promoting coverage and access. The March 14 letter signals a fundamental change in policy for CMS.

Policy

KFF opined that the reversion to work requirements in Medicaid turns the program into a cash welfare program instead of a program focused on health care coverage. Proponents of the work requirement argue that the expansion of the Medicaid program to able-bodied adults provides a disincentive for those adults to work. Some states have advocated the inclusion of work requirements to ensure that beneficiaries have “skin in the game.” Opponents of the work requirement note that good health is a precondition of work and often an inability to access care can serve, itself, as a barrier to obtaining work.

Statistics

The vast majority (80 percent) of Medicaid adults live in working families. Additionally, more than half (59 percent) of Medicaid adults are working themselves. Thus, KFF estimated that work requirements would have a narrow reach, impacting primarily those who are already at a disadvantage and not working due to disability or caregiver responsibilities.

Alabama wants to push back Medicaid managed care demonstration

Alabama wants to delay the transition of its Medicaid program to a managed care model. In a letter to CMS, the state requested CMS’ acceptance of amended terms for the state’s Medicaid transition demonstration. The request makes no substantive changes to the program. Its purpose is to allow the state more time to appropriate funding and complete readiness activities.

Waiver

In 2016, CMS approved a Section 1115 waiver permitting Alabama to transition its Medicaid program to a managed care model relying on regional care organizations (RCOs). Under the waiver, Alabama was granted almost $750 million to start and improve its RCO program. However, even with the federal funds, the state says it does not have the necessary funds to get the program up and running.

Delay

The state is requesting to change the demonstration time period from April 1, 2016, through March 31, 2021 to April 1, 2017, through March 31, 2022. The change is driven primarily by financial concerns. Alabama officials say the delay allows more time for the appropriation of additional state funding and completion of readiness activities. Finally, the letter indicated the delay would also help the state meet broader demonstration goals: addressing fragmentation in health care delivery, improving chronic disease prevention and management, improving access and care coordination, improving birth outcomes, and enhancing the financial efficiency of the health care delivery system.