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CMS is looking to steer away from a “cookie cutter Medicaid program.” As a result, waiver activity has increased as states test how far they can go.

Innovation and disruption

Medicaid Waivers Bring Opportunities to State Programs

  • Jennifer Boese
  • 4/23/2018

In a speech outlining a new vision for the Centers for Medicare and Medicaid Services (CMS), Administrator Seema Verma spoke in broad terms on the future of Medicaid.

“Our vision for the future of Medicaid is to reset the federal-state relationship and restore the partnership, while at the same time modernizing the program to deliver better outcomes for the people we serve.” Seema Verma, Administrator, CMS

Resetting the “federal-state relationship” could allow states more freedom to innovate, rather than being forced to rigidly adhere to a prescribed program stemming from Washington, DC. Verma emphasized the agency’s willingness to streamline the waiver approval process as well as allow new approaches under Medicaid. As a result, waiver activity by the states continues to be brisk and tests the boundary of how far CMS is willing to let states go.

Medicaid spending increases

Since Medicaid is a jointly funded federal-state program, states are responsible for a portion of their Medicaid costs. Depending on the state, the federal government pays what is called the state’s Federal Medical Assistance Percentages (FMAP) rate. In general, a state’s FMAP ranges between 50 and 74 percent. However, under the Affordable Care Act (ACA), a state could receive full federal funding for “newly eligible” populations covered to 138 percent of the Federal Poverty Level (FPL). Full federal funding for these populations continued through 2016 and decreases to 90 percent in 2020. For 2018, the rate sits at 94 percent.

When looking at Medicaid globally, the growth in both coverage numbers and cost of the program is due to the 32 states that pursued the ACA’s Medicaid expansion. Doing so brought twelve million individuals into new coverage. CMS’ Office of the Actuary projects the cost of expansion at $806 billion by 2025, putting the state’s share of those costs at roughly $65 billion. This means Medicaid now covers one in five individuals nationally, and according to the Kaiser Family Foundation, Medicaid ranks as the second largest budget expenditure in the states, second only to education.

While Medicaid expansion (both the financing and coverage sides) is pushing costs higher in many states, there are other cost drivers that should not be overlooked with respect to Medicaid spending growth:

  • Rising levels of chronic disease, behavioral health, or substance use disorders
  • Higher utilization rates and increasing intensity of services
  • An aging demographic (e.g., growth in long-term services and supports)
  • The economy, including inflationary adjustments

1115 and 1332 waiver options

As all of these moving parts coalesce, various states may feel Medicaid is “crowding out” other programs, setting the stage for an uptick in states seeking waivers. In addition, some states are pursuing waivers rooted in the belief that Medicaid should be a temporary program and a bridge during difficult times — not a long-term approach to health care coverage. These states are ready to test just how far CMS is willing to go in its new approach.

With this in mind, these waiver options are gaining increased attention:

  • 1115 waivers — These waivers allow for states to have added flexibility to experiment with new approaches or demonstrations while still adhering to the fundamental objectives of the Medicaid and Children’s Health Insurance Programs.
  • 1332 waivers — Though not a Medicaid waiver, 1332 waivers can be used in conjunction with an 1115 in order to better align programs and outcomes. The 1332 waiver was created under the ACA to give states the room to innovative their approaches for providing access and coverage while still retaining core ACA protections and requirements.

What’s motivating states?

Every state can establish and adjust their Medicaid programs as long as it is within federal parameters. Through the use of state plan amendments and waivers, states can make multiple large or small changes to any number of aspects such as scope, eligibility levels, and populations. While there are many variations across states, it is possible to see several broad themes in current 1115 and 1332 waiver activity:

  • Increasing beneficiary requirements — Many states are seeking authority to put enhanced requirements on both the traditional and expansion Medicaid populations. These requirements range from co-pays or premiums to curbing unhealthy behaviors like tobacco or drug use.
    Some states are also looking to add a work requirement for certain Medicaid populations — an option not previously allowed by CMS. Set forth in guidance sent to state Medicaid directors on January 11, 2018, CMS outlined how states can institute 1115 waivers to promote “work and community engagement activities.” The agency has already approved three such waivers — Arkansas, Indiana, and Kentucky — and seven additional states (as of March 2018) have pending waivers with CMS. Other states have also expressed interest.
  • Limiting program benefits — While there are still states seeking to expand their Medicaid programs, more states are looking to place tighter restrictions on them. In a variety of pending waivers before CMS, failure to comply with a requirement listed in the preceding bullet point is often coupled with restrictions on program benefits for a beneficiary. For example, states are seeking waivers to dis-enroll individuals for failure to pay premiums, and are instituting mandatory lock-out periods for beneficiary non-compliance. In addition, there are other pending waivers to reduce eligibility levels or institute lifetime limits for Medicaid coverage.
  • Expanding access for behavioral health — States want to increase capacity under their Medicaid program for individuals with behavioral, mental health, or substance abuse disorders. The majority of this waiver activity is for substance abuse needs, particularly in light of the opioid epidemic. States are also seeking to waive payment limitations for Institutions for Mental Disease (IMDs).
  • Reinsurance programs — While only a handful of states have sought 1332 waivers to date, the ones that have been approved have typically established a reinsurance program for the individual exchange market. Much of the uncertainty in this market relates back to the instability in funding of ACA-related cost-sharing reductions (CSRs) for qualifying individuals. With Congress failing to include funding for CSRs in its recently passed omnibus budget bill, expect interest in reinsurance programs to continue in order to shore up the individual exchange market and keep premiums down.

Watch these waivers

When a state pursues certain waivers and receives CMS’s approval, or is declined, it’s an indication to other states of which paths to pursue in their own waiver considerations.

  • As noted above, among the more significant 1115 waiver approvals to date are work requirements. This has already elicited a lawsuit in Kentucky by several Medicaid enrollees and a countersuit. Expect continued interest in this lawsuit and this requirement in the near-term.
  • Five states are seeking waivers to establish a limit to the length of time an individual can be on Medicaid, and one state, Wisconsin, is seeking to be able to require drug screening. Neither policy has been previously approved by CMS. These waivers will test just how far CMS intends to go in resetting the “federal-state partnership,” and how much freedom it will give states to define their Medicaid programs.
  • Arkansas waiver for its Medicaid expansion population. The state is seeking to lower its expansion population eligibility from 138 percent of the FPL down to 100 percent FPL, yet still qualify for the ACA’s enhanced Medicaid funding. (“Full expansion” to 138 percent FPL was required under the previous Administration in order to receive the 100 percent Medicaid funding.)

While CMS already approved the work requirement portion of the Arkansas waiver, it did not act on the “partial expansion” yet. Should CMS approve a partial expansion, this could clear the way for other states to follow suit in one of two ways: Expansion states could decrease their current Medicaid expansion coverage levels anywhere down to 100 percent, and non-expansion states could increase coverage to 100 percent and receive enhanced federal Medicaid funding. Multiple states, such as Wisconsin — which already covers childless adults to 100 FPL — and Utah are interested in this latter option. What waivers could mean for states in the future

CMS’s activities and statements express a clear desire to push policy decisions from the feds down to the states, and show a willingness to entertain and even approve changes to health care programs which, to date, have never been approved.

Since 1332 waivers on reinsurance are targeted at the exchange, they will provide added stability to this market by helping stabilize and lower insurance premiums. There could also be additional interest in 1332 waivers if CMS decides to review the waiver guidance. Should any new guidance be released that loosens restrictions or provides new avenues for states to innovate, additional 1332 waiver activity could occur. States may also be interested in 1332s because of the interplay between lower-income individuals who may churn between the exchange and Medicaid coverage.

For 1115 waivers, it is important to watch and assess their impact on access and coverage in your state. Since much of the 1115 waivers are charting untested waters, there are concerns that lifetime limits, lock-out periods, and related restrictions may result in a loss of coverage. If individuals are unable to then maintain Medicaid coverage, cannot find employment with suitable health insurance, or cannot afford coverage on the exchanges, the end result could be rising uninsured rates, increased churn rates, and higher levels of uncompensated care for providers.

How we can help

For health care providers across the country who continue to provide care to these individuals, it will be important to watch waiver activity closely to ensure you understand what is happening in other states and how your state is impacted. CliftonLarsonAllen’s (CLA) health care professionals are staying up-to-date on health policy and payment transformation across the nation. Our integrated approach ties regulatory and legislative acumen to deep financial and operations knowledge to help prepare you for whatever the future may hold.