The 3 ways Trump could reshape health policy through Medicaid waivers

Topics: Health Care Reform, Politics and Policy, Federal Government, Regulatory, Patient Populations, Medicaid, Insurance

By José Vasquez, staff writer

If you've read health care news in recent months, you've seen plenty of headlines about how states—from Kentucky to Utah—want to reshape their Medicaid programs via "waivers." But what exactly do these waivers allow? How can states and the Trump administration use them to reform health care? What has the Trump administration already approved, what is the administration open to, and what might be bridge too far?

To fully understand these questions, it's essential to start with the basics. In part one of this two-part series, American Health Line breaks down everything you need to know about Section 1115 Medicaid demonstration waivers—and the three key ways the Trump administration could use them to reform health care.

What are Medicaid waivers, anyway?

Although we sometimes talk about "Medicaid" as if it were one health care program, it's actually a patchwork of state-by-state programs, each of which provides slightly different coverage. Federal law requires that all states' Medicaid programs cover certain groups (including low-income pregnant women and children, and adults receiving Supplemental Security Income), as well as certain benefits, such as inpatient care and physician visits.  But beyond that, the details vary—in part because some states have sought to modify their Medicaid programs using so-called "demonstration waivers."

The waivers, created under Section 1115 of the Social Security Act, allow states to redefine their Medicaid programs and test new approaches to benefits, eligibility, cost sharing, or provider payments that differ from federal requirements.

CMS reviews every waiver request on a case-by-case basis, looking at whether the requests:

  • Align with the objectives of Medicaid;
  • Are consistent with federal law;
  • Are budget-neutral;
  • Can and should be supported through other federal and non-federal funding sources; and
  • Supplant state-only costs for existing programs or services.

CMS generally approves Medicaid waivers for an initial five-year period and provides states with the opportunity to seek three- to five-year extensions.

3 ways that Trump could use waivers to reshape Medicaid

As you might expect, each presidential administration takes a different approach to deciding exactly which Section 1115 waivers to approve or disapprove. That standard holds true under the Trump administration, which has expressed openness to many waivers that the Obama administration refused to allow. That openness has prompted several states to seek three controversial types of waivers:

1) Work requirements for abled-bodied beneficiaries

The Trump administration early on signaled it would approve Medicaid work requirements for non-elderly, non-pregnant adults without disabilities—a policy the Obama administration had repeatedly rejected, arguing that such requirements were inconsistent with the goals of the Medicaid program.

The Obama administration reasoned that work requirements would "not support the objectives of the Medicaid program" and "could undermine access, efficiency, and quality of care provided to Medicaid beneficiaries." However, the Trump administration sees work requirements as a way "to improve Medicaid enrollee health and well-being."

States seeking the waivers argue that work requirements could encourage more people to join the workforce and, eventually, move them off of federal assistance. In January, CMS OK'd the agency's first work requirement waiver, from Kentucky, and issued guidance for other states on what kind of work requirements it would allow.

Despite legal challenges to that waiver, the agency has gone on to approve similar waivers in three other states: Arkansas, Indiana, and most recently New Hampshire. Work requirement waiver requests from at least six other states are pending, according to KFF's Medicaid Waiver Tracker.

While CMS appears poised to approve the pending requests, CMS Administrator Seema Verma warned that states that have not expanded their Medicaid programs under the ACA could face an additional hurdle to approval: States must avoid creating a so-called "subsidy cliff"—a phenomenon that occurs when families trying to comply with the new work requirements have annual incomes that disqualify them from Medicaid coverage but are too low to receive federal subsidies on the ACA's exchanges. Verma said CMS wants to make sure Medicaid beneficiaries who comply with the work requirements are not pushed off the subsidy cliff and faced with the risk of losing affordable health coverage.

Another challenge for states with approved waivers, experts say, is the administrative burden of tracking the number of hours a Medicaid beneficiary works each month. Some experts have projected states will have to spend tens of millions of dollars to implement work requirements, because states will have to update IT systems and hire personnel to track the number of hours Medicaid beneficiaries work. However, so far, all four approved states have signaled their intent to address those challenges and move forward with the work requirements.

2) Partial Medicaid expansions

Experts also have suggested the Trump administration could allow another waiver request blacklisted under the Obama administration: partial Medicaid expansion. 

To qualify for the highest level of federal matching funds under the ACA, states must expand Medicaid to people with incomes up to 138% FPL. But some states during Obama's administration unsuccessfully sought federal permission for a partial Medicaid expansion—covering people with incomes up to 100% FPL—while still receiving the ACA's enhanced matching funds.

With a new administration in seat, at least three states have requested or are considering asking permission for a partial expansion. Arkansas and Massachusetts have sought permission to scale back their Medicaid expansions, while Utah—a state that so far has declined to expand its Medicaid program under the ACA—is seeking to do so if it can expand the program only to those with incomes up to 100% FPL.

The Trump administration has not made a public decision on Medicaid waivers. In March, the agency deferred a decision on Arkansas' proposal and has been quiet on the subject ever since.

Industry experts say there are a few factors surrounding partial Medicaid expansions that could give the administration pause. First, some experts have argued that partial expansions may not be legal either under the ACA, which specifies the income threshold Medicaid expansion states must cover, or under a Section 1115 waiver, which requires proposals to "test" an idea.

In addition, some experts note partial Medicaid expansions could shift certain health care costs to the federal government. Nicholas Bagley, a health law professor at the University of Michigan, and colleagues in NEJM explained, "Why were states interested in these partial expansions? Starting in 2020, states are responsible for covering 10% of the costs associated with the Medicaid expansion. Because of a drafting mistake, however, the ACA says that the [100% to 138% FPL] population can receive subsidies to purchase a private health plan on the exchanges—but only if they are ineligible for Medicaid. For those people, the federal government bears the entire cost of subsidizing private coverage, with no contribution from the states. As a result, the states save money for every beneficiary whom they can move from Medicaid into their exchanges."

3) Medicaid lifetime coverage limits

The final type of Medicaid waiver that some conservatives have championed is a lifetime limit on how long individuals can remain eligible for Medicaid. Officials in Arizona, for instance, have argued that such a waiver could encourage more Medicaid beneficiaries to find work. But critics have argued that such a waiver would mark a significant shift in policy, positioning Medicaid more as a temporary assistance program than a federal health program.

For now, at least, it appears CMS is unwilling to make that shift. Earlier this month, CMS officially rejected Kansas' request to implement a three-year limit on Medicaid coverage for certain beneficiaries—essentially putting to rest similar proposals by five other states that are pending before the agency.

In announcing Kansas' rejection Verma said, "We seek to create a pathway out of poverty, but we also understand that people's circumstances change, and we must ensure that our programs are sustainable and available to them when they need and qualify for them." CMS did, however, signal its intent to help Kansas officials "identif[y] a workable approach to meeting the state's goals."

The promise of more Medicaid waivers—and legal action

Experts say the stakes surrounding each of the above proposals are high, for Medicaid beneficiaries, state budgets, and hospital and safety net providers.

For instance, Jessica Schubel, a senior policy analyst, in a Center on Budget and Policy Priorities blog post noted hospitals' uncompensated care costs dropped by more than 25% from 2013 to 2015, as more states expanded their Medicaid programs. But she warned waiver requests, particularly those imposing work requirements, will make it more difficult for beneficiaries to maintain their health coverage, which means hospitals and safety net providers could see rebound in uncompensated care costs.

And while it's widely believed that allowing partial Medicaid expansions would result in more—if not all—states expanding their programs, Chris Pope, a senior fellow at the Manhattan Institute, said there remains the legal questions surrounding whether that would hold up in court. Matt Salo, executive director of the National Association of Medicaid Directors, told American Health Line that in some cases the courts will ultimately have to decide what is legal.