The flexibility fallacy: Why the Senate bill wouldn't give states much more Medicaid flexibility

Topics: Health Care Reform, Insurance, Medicaid, State Government, Politics and Policy, Federal Government, Health Care Legislation

By Josh Zeitlin, Editor

HHS Secretary Tom Price recently said the Senate GOP's proposed overhaul of  Medicaid financing would make the program "much more flexible for states" and let them "provide the coverage that [they] think is most appropriate for [their] constituents."

But the Congressional Budget Office (CBO) said states largely "would not have substantial additional flexibility" under the Better Care Reconciliation Act (BCRA), beyond what's provided by current law.

Who's right?

How Medicaid works today

Currently, the federal government reimburses states for a set percentage of costs incurred by Medicaid beneficiaries, so long as states adhere to certain requirements.

For instance, states must cover certain groups—such as low-income pregnant women and children—and certain benefits, such as inpatient care and physician services. State Medicaid programs also have the flexibility to cover a range of optional eligibility groups and benefits. Mandatory populations receiving mandatory benefits accounted for about half of program spending in fiscal year 2013.

States also can request to waive benefit, cost sharing, eligibility, and provider payment requirements via Section 1115 waivers. The HHS secretary has the authority to grant and renew those time-limited waivers if they "promote the objectives" of the Medicaid program and would not increase federal Medicaid spending.

How the BCRA would change Medicaid

The BCRA would set a cap on per-beneficiary payments to states, which would grow more slowly over time than the average state's currently projected Medicaid cost increases. CBO projected that as a result, federal Medicaid funding would be 26 percent lower in 2026 and 35 percent lower in 2036 than under current law.

So how much more flexibility would accompany these funding reductions?

Well, a little, mostly by giving states more options to curtail enrollment. The most recently released version of the BCRA would:

  • Allow states to conduct eligibility reviews at least every six months for individuals who gained coverage via Medicaid expansion, compared with every 12 months under current law;
  • No longer require states to extend eligibility to children ages 6 to 18 with household incomes of between 100 percent and 133 percent of the federal poverty level (FPL);
  • Remove the requirement that hospitals be permitted to determine whether certain patients are "presumptively eligible" for Medicaid;
  • No longer require states to provide retroactive eligibility beyond the month in which an individual applies for Medicaid coverage; and
  • Allow states to cover and receive federal matching funds for qualified psychiatric hospital services for up to 30 consecutive days and 90 days per year for beneficiaries ages 21 to 65.

But the BCRA wouldn't allow states to change cost sharing, provider payments, or benefits for the 64 percent of current beneficiaries who are children, elderly, or adults with disabilities.

States would have modestly increased flexibility in covering the roughly one-third of Medicaid beneficiaries who are nonelderly, nonpregnant adults without disabilities. States could require most of those individuals to work as a condition of eligibility. (About 60 percent of such individuals were working in 2015, according to the Kaiser Family Foundation). Currently, states can request to impose work requirements via Section 1115 waivers, but they wouldn't have to get the federal government's pre-approval under the BCRA.

States beginning in 2020 would also have the option to receive federal Medicaid funding via block grants, instead of per capita caps, to cover nonelderly adults without disabilities who did not receive coverage via Medicaid expansion.

The block-grant option, as CBO stated, would give states "additional flexibility to make changes to their Medicaid programs—such as altering cost sharing and, to a limited degree, benefits." For instance, state programs could:

  • Impose enrollee cost sharing up to 5 percent of family income annually;
  • Have greater (though still limited) flexibility over the types of benefits provided and the actuarial value of that coverage; and
  • Impose the same work requirements allowed under per capita cap funding.

Under current law, states would have to receive federal waivers to make such changes.

However, CBO doesn't think many states would use the block-grant option. It projected that because block grant amounts, unlike per capita allotments, would not change annually based on program enrollment, the block grant option would be used by only "a few states that expect to decline in population," and it would therefore "have little effect on enrollment in Medicaid."

How the BCRA would change non-Medicaid options for low-income families

There are two additional components of the BCRA that could affect states' Medicaid decisions: its tax credits and its expansion of the ACA's 1332 waiver process.

The BCRA would make it far easier for states to gain approval for the Section 1332 waivers, which allow states to waive several ACA requirements, and would remove the requirement that waivers not adversely affect health insurance coverage and affordability. GOP lawmakers have said that change would offer states increased flexibility. However, while these waivers might allow states to expand their individual insurance markets to potentially capture more of the current Medicaid population, they would not allow states to meaningfully change their Medicaid programs.

Additionally, the BCRA modifies the ACA's tax credits for the individual market: Starting in 2020, these credits would be available to individuals with annual incomes of 0 to 350 percent of the FPL who are not eligible for Medicaid.

That's a lower floor and a lower ceiling than under the ACA, which provides tax credits to those with annual incomes of 100 to 400 percent of FPL.

CBO projected that due to these tax credits, a 40-year old with an annual income of $11,400 who is in a non-Medicaid-expansion state under the BCRA would pay a net premium of $300 for a bronze-level plan and $1,700 for a silver-level plan, compared with $5,500 and $6,500 respectively under the ACA (since the ACA originally envisioned that these individuals would be covered under Medicaid).

That backdrop could make states feel they have more flexibility to cut Medicaid eligibility for non-mandatory populations with incomes under 100 percent FPL. However, CBO projected that starting in 2020, plans' premiums and deductibles would be sufficiently high for low-income individuals that "despite being eligible for premium tax credits, few low-income people would purchase any plan." If states agree with that assessment, they might not feel the tax credits give them any added flexibility.

The big picture: Little new flexibility, with some options to reduce enrollment

So does HHS Secretary Price's argument that the Senate bill would make Medicaid "much more flexible for states so that they can design a program that works for their citizens" hold up to scrutiny?

Not really. The BCRA wouldn't give states much flexibility to veer from Medicaid's current requirements, other to give them a few new options to curtail eligibility and enrollment.

That's not to say Medicaid programs wouldn't change significantly under the Senate bill. States would be more likely than under current law to modify some combination of Medicaid eligibility, benefits, and payment rates. And states might also be more likely to use existing federal waivers to experiment with consumer-driven insurance design or to implement delivery system reforms in Medicaid—experimentation that the Trump administration has openly welcomed.

But those changes would largely be the result of states responding to big reductions in federal funding under the BCRA—not to increased flexibility to design their Medicaid programs as they see fit. Christopher Jacobs, CEO of Juniper Research Group and a former senior policy analyst at The Heritage Foundation, said, "Without that flexibility, states might face greater pressure to find savings with a cleaver rather than a scalpel."

The BCRA would also reduce state Medicaid flexibility in several ways, including by placing new restrictions on the provider taxes many states use to finance their programs. It would also eliminate the state option to allow qualified entities to make presumptive eligibility determinations for adults who might be eligible under Medicaid expansion.

Whether a revised Senate bill, which is expected Thursday, would increase states' flexibility remains to be seen, but at least one key senator wants to see changes. Republican Sen. Ben Sasse of Nebraska recently told the Lincoln Journal Star that there "should be a lot more state flexibility" under the Senate bill so states and governors "have a lot of power to build a Medicaid program that works" for their populations. However, Caitlin Owens reports for Axios that "the Medicaid portions of the revised bill likely will stay largely the same as the first version."