Republican states get creative to tighten Medicaid rules

While announcing an unprecedented change to the Medicaid program this year, Gov. Matt Bevin declared Kentucky would become a “model for the nation” on transforming the safety net program. The Trump administration had just approved an application he backed that would require certain Medicaid enrollees work, volunteer, or take classes as a condition of staying in the program. Soon after, Trump’s health officials allowed Indiana to follow, and at least eight other states are hoping they’ll be next.

Obamacare’s passage eight years ago brought millions more people into Medicaid, a government-funded healthcare program that comes at little or no cost to enrollees. Though this helped plunge uninsured rates to a historic low, it also met resistance from conservatives who worried about strained resources and who believed the program should cover only the neediest residents, such as pregnant women, children, people with disabilities, and older adults in nursing homes.

Now that the Obama administration has left, conservatives are turning to the Trump White House to allow them to tighten Medicaid in ways they’ve long wanted, mainly through the submission of waivers.

These documents go far beyond the latest work requirements. State requests have included putting lifetime caps on the program, temporarily locking people out of coverage if they fail to renew their membership in a timely way or fail to report changes in income, drug testing recipients, or shifting more people onto private coverage. More states are proposing that certain beneficiaries pay for some of their own medical expenses, which could be a portion of their prescription or a co-pay for a doctor’s visit. Some are looking to encourage healthy habits or charge fees for missed appointments. A handful of states are asking for a combination of these measures.

And the proposals don’t all come from conservatives. In Louisiana, Democratic Gov. John Bel Edwards has embraced the idea of Medicaid work and community involvement requirements. In Massachusetts, where officials created the healthcare system after which Obamacare was modeled, a proposal submitted to the Trump administration would allow Medicaid to negotiate drug discounts and to exclude coverage for drugs that don’t work as well as others.

It’s not clear which of these proposals the Trump administration will accept, and if they are accepted, whether they will be blocked by courts. Advocates already have sued the administration for approving the Kentucky waiver, saying that it does not have the authority to make the changes to Medicaid it authorized.

The string of waiver requests has alarmed supporters of Obamacare, who view them as a thinly veiled attempt at pushing people off of Medicaid. They say adding hurdles to applying or keeping Medicaid benefits could result in affecting people who weren’t the target of the rules, because more paperwork would be required for everyone. They point out that low-income people often do work but struggle with transportation and internet access, and argue that the costs of making sure people are abiding by the new policies could be more expensive than the medical expenses saved by lower enrollment.

“The requirements that people go through the paperwork to show they are eligible is going to be a deterrent, including to people who don’t have time or who don’t understand they need to do it,” said Leslie Dach, who worked under the Obama administration and is now campaign director of the pro-Obamacare group Protect our Care.

Medicaid’s philosophical rift

CMS Administrator Seema Verma has said openly that she sees Medicaid as welfare. (Bloomberg Photo)

Before Obamacare, Medicaid varied by state but generally covered care for pregnant women, people with disabilities, and nursing home care. Obamacare aimed to make the program more uniform. It initially was written to require all states expand Medicaid to cover anyone making roughly $16,642 or less in gross income, without taking into consideration other factors such as assets, whether a person is working, or has an impairment.

Supporters’ rationale was that low-income people could benefit from access to healthcare, which would help reduce costs in the long run and allow beneficiaries to be able to shoulder caregiving or childcare without the added burden of medical expenses. A portion of the people who were sick could receive care through Medicaid and if possible then go back to work, they argued.

But the expansion tore open a philosophical divide between conservatives and liberals. Red parts of the country view Medicaid as a welfare program more akin to food assistance, which they see as intended only for the neediest residents. Blue parts of the country view it as a healthcare program like Medicare for older adults, whose goal should be covering as many people as possible so no one is uninsured. The latter group tends to see the expansion of Medicaid as a significant step toward a healthcare system that is paid for entirely by the federal government.

“It’s unfortunate that the extremes tend to drown out some of the progress that could be made,” said Thomas Miller, health policy expert at the conservative American Enterprise Institute. “There are extremes on both sides. Portions don’t think much of those receiving welfare … and they may think some are not deserving, but there are also others who can’t fathom the idea of asking anything of a Medicaid beneficiary, which I think is also an extreme way of thinking.”

Years ago, states that disagreed with expansion sued, and in 2012, they prevailed in a Supreme Court case that decided Medicaid expansion could be optional for states. As a result, 19 states still have the old system in place for Medicaid, though one of these, Maine, is among that number and is actively moving toward expansion after turning the question to voters.

CMS Administrator Seema Verma has said openly that she sees Medicaid as welfare. One of the “major fundamental flaws” of Obamacare, she told the Wall Street Journal in November, was “putting in able-bodied adults into a program that was designed for disabled people.” She noted that certain populations, such as people with disabilities, may need to be on Medicaid for their whole lives, but that the program should be seen as temporary for others who are “down on [their] luck” and “need some help.”

She has stressed that the intention for programs such as work requirements isn’t to target people already meeting the criteria, and has said the desired outcome is that someone leaves Medicaid as a result of finding a job that offers coverage.

“People moving off of Medicaid is a good outcome, because we hope that that means they do not need the program anymore, that they have transitioned to a job that provides health insurance or that they can afford insurance on their own,” she said in a recent call with reporters. “This policy helps people achieve the American dream.”

Miller’s position is that states should establish programs that work with certain beneficiaries to help them no longer need Medicaid. That includes acknowledging hurdles that exist in some parts of the country where fewer jobs are available.

“It’s not a great idea that Medicaid would be a destination vacation,” he said. “We should be generous in temporary assistance to those who are down on their luck, but it’s not indefinite. You should provide people with a means to get out of that system.”

The waiver opportunity

Under a Democratic governor, Kentucky had once been one of the few deeply red states to embrace Obamacare wholeheartedly through extending Medicaid to the poor and creating an exchange website whose fluid launch was the envy of federal officials that had overseen the troubled rollout of healthcare.gov. But as the state budget faltered and premiums began to rise, voters elected Bevin, an avowed Obamacare foe, to the governor’s mansion.

Bevin initially ran on the promise of repealing the Medicaid expansion, but after he won the nomination, he changed his stance, saying he would instead pursue cost-saving measures. When elected, he turned to the possibility of the Medicaid waiver to do that.

Waivers provide states with an avenue to make changes to Medicaid when they view the program differently from an administration or from other states. Because the program is funded by states and the federal government, any changes must receive a green light by federal rulemakers. CMS put out guidance last year saying that it considered certain ideas about Medicaid to be “novel approaches,” such as making the program sustainable over the long term, and helping people achieve “upward mobility, greater independence, and improved quality of life.”

If a waiver doesn’t get approved under one administration, then state officials will wait for another administration that is more sympathetic to their perspectives. For instance, the Obama administration determined work requirements ran counter to the purpose of Medicaid, while the Trump administration has embraced them as long as they meet a specific set of guidelines that exclude certain recipients, such as people with disabilities.

Waiver requests can take months or years, requiring input by state lawmakers and federal health officials, as well as from the public through a comment period. A document detailing the proposal, called a 1115 waiver, is then submitted to federal officials. They can decide not to approve it, or they may approve only parts of it.

The Trump administration has tried to quicken the process, such fast-tracking waivers that have already been approved in other states and speeding up requests for states that are asking for extensions to existing waivers.

But the applications are not an open-ended invitation for anything a state might want to do, even for an administration that sees itself as flexible toward states’ rights.

The law specifies that states must show their changes don’t create additional cost for the federal government. For instance, when the Trump administration approved a work requirement in Indiana, it did not approve a part of the proposal that asked for $90 a month per beneficiary to help with job searches and training.

A second part of the law on waivers provides more leeway to administrations. It says states must demonstrate that changes are “likely to assist in promoting the objectives of the Medicaid program.”

Limitations still exist within this definition even though there is some administrative discretion, said Matt Salo, the executive director of the National Association of Medicaid Directors.

“It can’t literally be, ‘I’m in the administration and I’m going to make something up,'” he said, but added: “It’s also probably clear that the definitions as established by the Obama administration are not set in stone either.”

The waivers are temporary, and if a state wants to continue with its program it has to re-apply every few years. This can provide opportunities to make changes to programs that didn’t work out as expected. Indiana, for example, changed the way that it collected premiums so people could more easily contribute to their plans online, after learning that roughly 12,500 people became uninsured because they were unable to keep up.

The financial gap

Other than philosophical arguments about coverage, state officials point to their struggles to afford Medicaid as a reason for requesting changes. Under Obamacare’s Medicaid expansion, the federal government’s share of costs gradually falls from covering 100 percent of expansion in 2014 to 90 percent of expansion by 2020. For some states, that will mean billions of dollars in extra spending over time.

States often struggle to pay for Medicaid, since it covers a quarter of the population and state lawmakers must balance their budgets. Paying for the program has come at the cost of cutting from education, pensions and infrastructure.

“Everyone is always struggling with how to pay for Medicaid,” Salo said. “The program has always grown faster than general revenue for states. Trying to figure out how to sustain Medicaid spending has always been an issue.”

Those who support increases on Medicaid spending note that doing so can reduce spending in other areas, such as uncompensated care for hospitals, said Robin Rudowitz, associate director at the Kaiser Family Foundation for the Program on Medicaid and the Uninsured.

Still, when Obamacare expanded Medicaid, more people enrolled than expected. Reports from the Congressional Budget Office show that the agency projected in 2013, after it knew expansion would be optional, that 9 million more people would be enrolled in Medicaid under the expansion by 2016. Instead, 12 million enrolled by that time.

On top of this are roughly 2 million more people who had been eligible for Medicaid without Obamacare but enrolled after they learned they qualified. If all states were to expand Medicaid, 4.5 million more people could be eligible to join the rolls, according to the Kaiser Family Foundation.

Higher enrollment resulted in higher government spending than expected. CBO projections from 2013 indicated that by 2016, the federal government would spend $44 billion more on Medicaid, but the amount ended up topping more than $65 billion in 2016.

In response to taking on a growing share of costs, certain states are looking to change the structure of Medicaid expansion. Arkansas is one example of a state that has asked to be allowed to change the expansion to cover people making 100 percent of the federal poverty level, instead of the current 133 percent. Those who fall into the gap would be covered instead by the Obamacare exchanges, where private healthcare coverage is sold, which would shift more costs onto the federal government.

Salo notes that this was something states had asked for early on. “I firmly believe that if that administration had been more flexible, I think you would have had a lot more states doing the expansion on Day One,” he said.

To cover expansion, other states added taxes on providers such as hospitals and health insurers. Oregon’s Democratic lawmakers initially considered undoing their expansion, but instead allowed voters to determine whether the program should be funded by taxes on hospitals and providers. The measure passed. These approaches are less politically damaging than directly taxing residents, Salo said.

After the initial jolt of increased enrollment, states still have to watch out for other factors that can contribute to difficulties paying for Medicaid bills, such as the emergence of a new, expensive drug that is used by a large portion of enrollees. Costs for caring for people in nursing homes also continue to increase as Baby Boomers age. Or a state’s revenue may be lower than anticipated.

Overall, Medicaid spending in 2016 was $565.5 billion, according to CMS. In 2017, as Republicans failed at their attempts to repeal Obamacare, they not only worked to roll back Medicaid expansion, but also to overhaul how Medicaid worked and turn it into a block grant.

This works by fixing the amount the government spends on the program, rather than matching whatever the costs are to states each year. In return, states would be able to do more of what they wanted with the money.

Chris Jacobs, a conservative policy analyst who runs the consulting firm Juniper Research Group, said states can take these types of approaches on their own, and that they are more cost-efficient than tightening who can qualify.

“There is much more saving in the reform of care and structural changes to the program,” he said.

He pointed to Rhode Island, where the state used a waiver to ask the federal government to fund its Medicaid dollars as a block grant for five years, which is similar to what Republican lawmakers had suggested. As a result, the state moved people from nursing homes to in-home or community-based settings such as assisted living or shared housing. The program also encouraged beneficiaries to shop around for care, including incentives to visit a doctor rather than head to the emergency room.

The Rhode Island example is often used to bolster block grant proposals in Congress, although critics have said that the gains were exaggerated and that under the GOP healthcare plan states would receive less funding than Rhode Island did.

But Salo doesn’t think the cost argument is what’s driving most of the recent waivers behind tightening Medicaid.

“It really is more of an ideological, philosophical position on the role of government and the role of insurance,” he said.

For that reason, adding certain contingencies to Medicaid can make the program more politically palatable for some states, even though critics have framed such a prospect as unnecessary. Some states that haven’t expanded Medicaid have floated doing so with a number of conservative attachments.

“That’s a false choice,” Dach said when asked whether the organization would prefer Medicaid expansion with contingencies rather than no Medicaid expansion at all. “That isn’t a trade-off that needs to happen.”

But whether this and similar proposals can last at all will fall to the courts, beginning with the case involving Kentucky.

“We are about to see the limits of discretion on these waivers,” Rudowitz said. “There is always discretion on approving 1115 waivers, but I think with some of these, we are going to see that the courts might be deciding how far that discretion goes.”