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States using unprecedented federal flexibility to reshape Medicaid while they expand it

by Kate Tormey ~ February 2015 ~ PDF of Stateline Midwest article »
After a nearly two-year negotiation, Indiana — once considered unlikely to expand Medicaid— is currently enrolling Hoosiers in a first-of-its-kind program. The state is the latest to receive unprecedented flexibility in shaping its Medicaid expansion, and the third Midwestern state to do so in just over a year.
Indiana now becomes the 28th state in the nation to expand Medicaid under the Affordable Care Act. The 2010 law called for states to expand Medicaid eligibility to all adults earning less than 138 percent of the federal poverty level.
But the Supreme Court later ruled that states could not be required to expand eligibility to this new population, many of whom (namely non-disabled, childless adults) had never before been eligible for benefits.
State policymakers were left with a question: To expand or not to expand?
For some policymakers in non- expansion states, the benefits of extending eligibility for Medicaid were tempting: an unprecedented federal matching rate (100 percent through next year and gradually decreasing to 90 percent in 2020) and the opportunity to decrease the rate of uninsured.
And as extra incentive, the federal government has been granting unprecedented leeway to states in shaping Medicaid expansions. Some of the provisions recently approved have never been seen in the 50-year history of the program, which is financed jointly by the federal government and states.
“Expanding Medicaid is a good thing for a state from a health perspective — it’s good for the individuals who get coverage, it’s good for businesses whose employees get coverage, and the burden of uncompensated care goes down, so hospitals and doctors get paid for the work they do,” says Vern Smith, managing principal of Health Management Associates and former director of Michigan’s Medicaid program.
Expansion, he adds, can improve the state’s overall bottom line as well. Individuals who are now receiving care through state and local health programs, especially mental health services, can be shifted to Medicaid coverage — at a historically high federal matching rate.
Still, the political climate in some states can make expanding the program an uphill battle.
“The politics are very difficult on this,” Smith says. “There are very good reasons why a number of states have chosen not to [expand]. Even though it can be tremendously good for citizens, it is a very difficult step politically.”
But in 2013, a new strategy emerged: Expand Medicaid using a Section 1115 waiver, which permits states to temporarily stray from Medicaid rules in order to experiment with a new way of providing coverage to a state’s low-income population.
“This allows a state to capture federal dollars and reap the benefits, but without doing it as a straight Medicaid expansion,” Smith says.
“Now we have, for example, a Healthy Michigan plan or a Healthy Indiana Plan 2.0, which incorporates conservative principles — personal responsibility, cost sharing and features similar to health savings accounts — so that it is a state-specific approach to coverage.”
Arkansas was the first state to receive approval to expand Medicaid using policies not traditionally permitted in the program. Its waiver was quite different than anything that had ever been tried at such a large scale in Medicaid.
Instead of the traditional fee-for-service program, Arkansas is using Medicaid dollars to purchase private health insurance plans for beneficiaries. This so-called “private option” directs beneficiaries to choose from certain plans in the state’s online insurance marketplace.
After this unprecedented waiver was granted, policymakers in other states, including several in the Midwest, took notice.
States began shaping Medicaid proposals that included
• enrollment in private health plans;
• new cost-sharing measures, such as modest premiums and co-pays for low-income enrollees;
• incentives for healthy behaviors; and
• the use of health savings accounts for enrollees to pay for care.
Healthy Indiana Plan 2.0 expands coverage, ‘consumer-driven’ approach
In late January, policymakers in Indiana announced that the state’s Medicaid-expansion waiver had been approved by the federal government. The state’s expansion will be modeled after a program that has been operating under an existing Medicaid waiver for the past seven years. The Healthy Indiana Plan has been using a “consumer-driven” model to provide coverage to 60,000 Hoosiers. Enrollees have a high-deductible health plan and are required to contribute monthly to personal savings accounts, which they can use to pay for care until the deductible is met.
“The idea is for participants to have some skin in the game by making a monetary contribution to their coverage,” says Rep. Ed Clere, chair of the House Public Health Committee. “Individuals can see what the cost of their care is because every time they go to the doctor, they can see the amount coming out of their account.”
“HIP 2.0” extends coverage to Indiana residents earning up to 138 percent of the federal poverty level, meaning 350,000 people are now eligible to enroll. All non-disabled adults currently enrolled in HIP will be shifted to the new plan.
“We are very pleased we’re able to expand coverage based on a proven model,” Clere says. “We’re moving forward with something that already has a track record of success and bipartisan support. The original HIP bill was widely supported by legislators on both sides of the aisle.”
Like the original program, HIP 2.0 will require contributions to a health account (up to 2 percent of family income). Rates will range from $1 to $27 per month for an individual, and the state will contribute the remainder up to the plan’s annual deductible.
By keeping up with their monthly contributions, participants will be enrolled in the “HIP Plus” plan. But if they fail to pay their monthly contributions, enrollees below the poverty line will be moved to a more basic plan, which has fewer benefits and requires co-payments for services.
Medicaid does not typically allow disenrollment for failure to pay, because this population has such low income — or none at all. However, a controversial rule will allow those above the poverty line to be locked out of the HIP 2.0 program for six months if they don’t pay premiums.
According to Families USA, an organization that advocates for access to affordable health care, this is the first waiver to include lockouts for non-payment.
“Imposing premiums on Medicaid beneficiaries limits both initial enrollment and enrollees’ ability to retain coverage,” states a letter to the federal government from Families USA. “The premiums proposed in Indiana would be a significant financial burden relative to income, inevitably resulting in program drop-out and depressed enrollment.”
Some consumer advocates point out, too, that the unique and complex program will require a massive education effort to teach enrollees how to use their benefits.
Influencing health behaviors
The HIP 2.0 plan, along with the other Midwestern states’ programs, also aims to encourage certain behaviors. While there are financial incentives for getting an annual checkup, there are penalties for using the emergency room for non-urgent issues ($8 the first time and $25 each time thereafter). But both of these behaviors can be dependent on getting a timely appointment with a provider.
Clere adds that an important element of the program is that, like its predecessor, HIP 2.0 will pay providers at Medicare rates (these rates are considerably higher than those paid under Medicaid).
“Medicaid typically pays low rates, so there are not enough providers and it’s tough to get an appointment, which is what drives people to the emergency room,” Clere says. “If your child has a fever and when you call the doctor they can’t see you for a month, you’re not going to wait.”
Clere is hopeful, too, that the program will have a variety of long-term benefits.
For example, Indiana has typically not fared well on measures of overall health. In the “America’s Health Rankings” report published by United Health Foundation last year, Indiana placed 41st among the states.
“This expansion of coverage should help us improve our ranking as a state, which will have benefits for both individual Hoosiers who will be in better health and for the state as a whole,” he says. “This should improve our quality of life and our attractiveness from a business standpoint, because it doesn’t do us any good to be 41st in anything.”
While Clere supports the HIP 2.0 expansion, he’s also introduced legislation that would address personal responsibility in other ways — including through participation in a financial literacy program. Clere believes that helping enrollees get on the path to financial stability can help them not only keep their health coverage, but foster overall success.
Though the federal government denied Indiana’s request to require unemployed enrollees to take part in career counseling, everyone signing up for the Medicaid expansion will be referred to job training and job search programs.
For now, the federal government is paying for the cost of covering all newly eligible enrollees. But in 2017, the states’ share will begin increasing, which has given some expansion critics pause. Indiana will cover its share through a combination of cigarette-tax revenue and an assessment on hospitals.
Bipartisan compromise led to approval of Iowa Medicaid waiver
While Indiana’s recent Medicaid waiver was the result of negotiations with the federal government, Iowa’s experience began with the need for compromise among state legislators themselves. Partisan control in that state is divided between a Republican governor, a Democrat-led Senate and a Republican-led House.
Senate President Pam Jochum served as co-chair of the conference committee that produced the compromise, which has since enrolled 120,000 people over the past year.
Jochum originally advocated for a straight Medicaid expansion — but she soon realized a compromise would need to be reached with policymakers who were calling for a more limited program (or no expansion at all).
“Our goal is to be the healthiest state in the nation, and we can’t do that if people don’t have health coverage,” she says. So she went to work explaining why she thought a Medicaid expansion would be a good move for Iowa — for example, citing statistics that hospitals in the state were incurring about $1 billion in uncompensated care each year.
“Those of us who are fortunate enough to have health insurance are paying for the uninsured — and in the most costly way, because people were showing up in the emergency room,” Jochum says.
In December 2013, the federal government approved a waiver for Iowa that includes two components. The Iowa Wellness Plan is being offered to adults earning up to 100 percent of the poverty level; it will be much like Medicaid, with benefits similar to those offered to state employees. Monthly $5 premiums will be charged for enrollees with incomes of between 50 percent and 100 percent of the poverty level, but coverage cannot be canceled for non-payment.
Under the Marketplace Choice Plan (for adults earning between 101 percent and 133 percent of the poverty level), new Medicaid enrollees will be offered private health plans through the state’s health insurance exchange. The state will pay premiums directly to the health plans, and enrollees will be asked to contribute a $10 monthly premium.
Beginning this year, Iowans enrolled in both of these new programs can have their premiums waived by participating in certain healthy behaviors — for example, getting an annual checkup or completing a health-risk assessment. All beneficiaries in Iowa’s new plans will be charged a fee ($8) for visits to the emergency room that are deemed non-urgent.
“We are on target to getting everyone insured,” Jochum says.
In Michigan, number of new enrollees tops expectations
Most states in the Midwest have now expanded Medicaid, but getting these bills passed through a legislature and signed by a governor has often proved difficult. That was certainly true in Michigan, where the expansion became law in 2013 after months of negotiations between lawmakers and Republican Gov. Rick Snyder.
Snyder argued that the bill would not only result in net budget savings, but would also help the state have a healthier, more productive workforce.
Critics, however, expressed concern over whether the savings would be enough to offset the future costs to the state when the federal match drops, in 2017 and beyond. (Michigan, along with many other states nationwide, has implemented what is often called a “circuit breaker” provision: the state will bow out of the expansion if projected savings don’t meet goals or if federal matching funds are no longer available.)
The state initially estimated that it would receive a maximum of 470,000 applications under the Medicaid expansion. But by early February — just nine months into program enrollment — more than 533,000 residents had enrolled, Smith says.
In some ways, the program is similar to the one being implemented in Iowa (in fact, the two waivers were both approved in December 2013).
Under the Healthy Michigan plan, newly eligible adults are enrolled in private health plans that contract with the state. Enrollees are subject to co-payments ranging from $1 to $3 for most services and prescriptions. Preventive services, prenatal care and family planning are completely covered. Beneficiaries earning more than the federal poverty level pay monthly premiums amounting to about 2 percent of income, and they can receive reductions in co-pays if they follow certain healthy behaviors. Total out-of-pocket costs are capped at 5 percent of household income.
The recent Medicaid changes and expansions in Michigan, Iowa and Indiana are emblematic of what is occurring across the country.
“It will be interesting to see how legislative discussions go this spring, because the environment has changed significantly,” Smith says.
“It’s a completely different discussion now. ... There is an opportunity for every state to tailor an expansion of coverage that is consistent with conservative principles.”
As a former Medicaid director, Smith has some advice for states considering their options: “Put on your thinking caps. There may be a way to expand Medicaid that has not yet been proposed. I don’t think we’ve seen the end of the innovative ideas.”


Kate Tormey serves as staff liaison to the Midwestern Legislative Conference Health and Human Services Committee.



Waivers allow states to test new ways of delivering care

Medicaid was launched in 1965 as a way for states to offer a “safety net” for the poor. Along the way, the federal government has developed guidelines designed to ensure that certain vulnerable populations receive health care (for example, children, pregnant women and the disabled).
But states also have some flexibility to experiment with new ways of delivering care.
“States are great innovators; there are very smart policymakers in each state who have ideas that might not have occurred anywhere else,” says Vern Smith, a managing principal with Health Management Associates and a former Medicaid director. “If you have the chance to try something at the state level, history shows that other states look at that and leapfrog to come up with something even more innovative.”
Section 1115 waivers have been used by states for decades to temporarily suspend certain Medicaid rules in order to experiment with new cost-saving measures or methods of providing care. These waivers generally need to be cost-neutral for the federal government and maintain coverage for mandatory populations.
Most states expanded their Medicaid programs under the Affordable Care Act by submitting state plan amendments, which don’t seek suspension of Medicaid rules. But five states — Arkansas, Iowa, Indiana, Michigan and Pennsylvania — designed state-specific expansions by submitting Section 1115 waivers.
Medicaid experts anticipate that these expansion models could lay the groundwork for new options that will be available in 2017 under the Affordable Care Act. Using Section 1332 waivers, states can seek approval to suspend certain elements of the health care law — as long as coverage levels stay the same and there is no additional cost to the federal government. States could take their federal Medicaid funding and use it in completely new ways, from designing a “single-payer” system (as Vermont is exploring) to eliminating the individual mandate or offering new types of plans in the state exchange.


Medicaid expansion in Midwest under Affordable Care Act

MARCH 2011
Minnesota takes part in an “early” Medicaid expansion, through an executive order signed by Gov. Mark Dayton. Adults with incomes up to 75 percent of the federal poverty level are shifted from a state-funded health program to Medicaid, allowing the state to draw federal matching funds for these 84,000 enrollees.

JUNE 2012
The U.S. Supreme Court rules that states cannot be required to expand Medicaid under the Affordable Care Act. States can opt out of the expansion, which would cover all Americans earning up to 138 percent of the federal poverty level. The expansion would, for the first time, offer Medicaid to childless adults.

Expanded Medicaid coverage begins in Illinois, Minnesota, North Dakota and Ohio — all of which expanded traditional Medicaid through a state plan amendment. Residents earning up to 138 percent of the federal poverty level (about $16,000 for an individual and $32,000 for a family of four) are eligible for Medicaid.
Expanded enrollment also begins in Iowa, which received approval of a Section 1115 waiver to cover the newly eligible population. The Iowa Health and Wellness Plan uses a combination of Medicaid managed care and subsidies for enrollees to purchase health plans in the state exchange. The federal government approves charging premiums for enrollees below the poverty level (however, beneficiaries cannot lose coverage if they don’t pay).

APRIL 2014
Enrollment begins in the Healthy Michigan plan, achieved through a Section 1115 waiver. Participants are asked to contribute co-pays, and some pay premiums amounting to 2 percent of income. Through engaging in healthy behaviors, participants can receive discounts on their out-of-pocket costs. The plan is estimated to cover about 500,000 adults.
Indiana announces that it has received federal approval to expand Medicaid using the existing Healthy Indiana Plan. HIP 2.0 will continue offering a high-deductible health plan paired with a health savings account, funded jointly by the state and enrollees. For the first time, the federal government approves a lockout period for some low-income beneficiaries who do not pay monthly premiums.