Evidence-Based Oncology

New Approaches to Medicaid Expansion: Hybrid Plans Offer Alternatives for Covering More People

Published Online: October 22, 2013
Stanton R. Mehr and Mary K. Caffrey
The US Supreme Court’s decision to uphold the Affordable Care Act but allow states to decide whether to expand Medicaid1 has raised a question in many states: Where political leaders have been opposed or split on President Obama’s healthcare reforms, is it smart or foolish to cover more people?

While Republicans oppose healthcare reform more often than Democrats, having a Republican in the state house has not always doomed Medicaid expansion. Arizona Governor Jan Brewer, who famously wagged her finger at Obama on an airport tarmac, nonetheless stared down legislators in her own party until they added 300,000 people to the rolls. For New Jersey’s Chris Christie, having a Democratic legislature made Medicaid expansion easier. However, neither Arizona nor New Jersey set up a state-run exchange to enroll people in health plans.

But in other states, philosophical opposition to expanding a government program and concerns about long-term costs forced full-blown rejection of Medicaid Expansion or, in the case of places like Arkansas, Iowa, and Pennsylvania, attempts at hybrid plans. Waivers would allow states to craft their own versions of Medicaid, most with elements of privatization and one, in Pennsylvania, that would require, for the first time, that most new recipients look for work.

Arkansas Opens the Door

On Friday, September 27, Arkansas Governor Mike Beebe received a phone call from US Health and Human Services Secretary Kathleen Sebelius that his state would be the first granted a waiver to pursue a so-called “private option,” which will allow state residents to use Medicaid dollars to subsidize coverage obtained through private insurance. Up to 6 states may pursue some form of Arkansas’ plan with 2, Iowa and Pennsylvania, filing waiver requests.

Beebe, a Democrat, said the waiver would allow about 218,000 Arkansans to receive private coverage. “Our actions have drawn positive attention from across the country, and now we will focus on getting this insuranceto the Arkansans who need it to lead healthier, more productive lives,” he said in a statement.2

The Arkansas, Iowa, and Pennsylvania plans all feature free-market aspects to the expansion of coverage—a unique “hybrid” strategy palatable to Republican or conservative Democratic

legislators in their own states, and perhaps to conservative lawmakers elsewhere who have resisted expanding any government program.3  Indeed, at the recent Medicare-Medicaid conference sponsored by America’s Health Insurance Plans, Daniel Crippen, executive director of the National Governors Association, said absent the willingness of the Centers for Medicare & Medicaid Services (CMS) to approve hybrid plans, he did not foresee additional Medicaid expansion until after the 2016 election cycle. “If there’s more flexibility, the sooner the expansion will occur,” he said.

Lack of expansion translates directly into lack of coverage. In June, researchers estimated that if 14 states opted out of Medicaid expansion, as allowed by the 2012 Supreme Court ruling, 3.6 million fewer people would be insured than if all of the states participated. These states would lose out on $8.4 billion in federal transfer payments. Furthermore, uncompensated care could cost these states another $1 billion by 2016.4 In most instances, the states’ healthcare industries have been arguing loudly in favor of Medicaid expansion, based on the forecasts for greater revenues resulting from larger populations having coverage and seeking care. This has been putting state governments at odds with major local and regional businesses in largely Republican areas, an uncomfortable position for business-friendly elected officials.

If Pennsylvania’s waiver is approved by CMS, it would be the 26th state to expand Medicaid, and it could provide other hesitant state governors a usable pathway to not only cover more people and but also to accept federal assistance to take part in the program.

Evaluating the Hybrid Proposals

The common element of the hybrid plans is to use the health insurance exchange to increase coverage of the newly insured. Technically, this is not an expansion of Medicaid, though each state would use federal Medicaid dollars to provide subsidies to state residents who would, in turn, use the subsidies to purchase private insurance on the exchanges (now called the marketplace). This is also referred to as a “premium assistance” model.

This approach does not necessarily mean that low-income residents would obtain benefits equal to what they would have received in the traditional Medicaid program. This may be a key objection by critics and CMS alike. To address this gap, CMS would require the states to provide “wraparound coverage,” which would ensure that members have the same level of benefit as any Medicaid beneficiary. This includes paying for any plan cost-sharing requirements above and beyond Medicaid’s own out-of-pocket limits.5 In addition, CMS will require that new beneficiaries have a choice of at least 2 qualified health plans in the marketplace before the agency will approve any section 1115 waiver request.

Arkansas’ plan tightens its eligibility requirements for its state Medicaid program, leaving a greater share of the newly insured population to seek a plan on the exchange (income thresholds

would be ratcheted down to a mere 17% of the federal poverty level, covering those with incomes up to 138% of that benchmark). Arkansas will require those entering the program to use the marketplace to choose a health plan for coverage. If this were voluntary, a section 1115 waiver would not be necessary.

Sandra Cook, consumer assistance specialist for the Arkansas Insurance Department, described the private option as a “win-win” while appearing at Diabetes Innovation 2013, a conference sponsored in Washington, DC, by the Joslin Diabetes Center of Harvard. “Insurers have guaranteed payment for 250,000 lives in Arkansas,” she said, noting it will be at an insurance rate, not the Medicaid rate. This expansion of coverage into areas where the working poor live will encourage young doctors to locate in rural areas, she said, because they will be able to make a living. Private coverage, Cook said, doesn’t carry the “stigma” that some feel when they are on public assistance programs.

Pennsylvania seeks to address Medicaid expansion of the previously uninsured on many levels, including the use of premium assistance and private insurance plans, but notably, Governor Tom Corbett has added a provision onto the state’s section 1115 waiver request: that coverage is contingent on a beneficiary’s actively seeking a job. This may prove to be the most controversial part of Pennsylvania’s application.

Sharon Ward, executive director of the Pennsylvania Budget and Policy Center, issued a white paper September 27 that stated “Federal law and policy prohibit premiums in the Medicaid program for anyone under 100% of the (federal poverty level) and the conditioning of health care coverage on job search and training requirements. The Corbett administration will be applying for a waiver to suspend those provisions of the law. Where CMS comes down on these issues remains to be seen.”6

Additionally, Corbett is seeking to keep children in the state Children’s Health Insurance Program, and out of the general Medicaid program, as directed by the ACA.7 It is not known whether these provisions may be deal-breakers for CMS.

According to the Kaiser Family Foundation, CMS is willing to consider these section 1115 waivers as demonstration projects, and as such, may grant approval to a limited number of requests.5

Whether this policy continues will determine how many states get the opportunity to pursue waivers.

Other Related State Action

On September 16, Michigan’s Republican Governor Rick Snyder signed a law altering the state’s Medicaid program that uses similar principles. In the Michigan law, newly insured beneficiaries can receive their health benefits through private insurance plans (not necessarily through marketplace plans, however).

John Z. Ayanian, MD, MPP, from the Institute for Healthcare Policy and Innovation, University of Michigan, wrote in the New England Journal of Medicine, “The key Democratic goal of expanding Medicaid coverage to low-income adults will be implemented in tandem with Republican objectives to control the state’s healthcare costs, increase the role of private health plans, and require some new Medicaid enrollees to contribute toward the costs of their care.”8

Crippen, of the NGA, said governors care about the quality of care, but they have no choice but to look for ways to control costs. “Until recently, states’ top spending item was education,” he said.

“Healthcare, and Medicaid in particular, has crossed that line and is now the most expensive program in the states. “Governors are looking very hard at the patients that cost the most, why

they cost the most, and how we can change those practice or patterns to reduce their costs,” Crippen said. Demonstration projects in states are just now bearing fruit, and governors will implement what they learn over the next few years, he said.

New Hampshire is another state with a Republican-controlled legislature but with a Democratic governor. Local news organizations have reported that the Republican-controlled state senate has formed a commission to determine if Arkansas’ premium assistance–based hybrid plan would work for the state.2

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