Gallagher Student Health and Special Risk

Looking back, Part One of this newsletter edition - “Medicaid 101” – was intended to help supplement your basic understanding of the program’s structure, expansion under the Affordable Care Act (ACA), funding, coverage requirements, administration and delivery.

Click here for Part One, distributed in June 2018, in case you missed it.

In this Part Two, we will expand on the topic of Medicaid, exploring potential program changes at both the federal and state level, as well as possible implications for stakeholders within the higher education student health insurance industry.

Proposed Legislative Reform  

The Trump administration asserts that the ACA’s expansion of Medicaid eligibility has only increased federal spending on the program. As described in Part 1 of this newsletter edition, ACA Medicaid expansion allowed the states to offer Medicaid coverage to a larger share of low-income people, resulting in millions gaining coverage and a subsequent spike in enrollment. There have been numerous (unsuccessful) attempts by the current administration to dismantle the ACA including, the American Health Care Act (AHCA) and the Graham-Cassidy Proposal, both of which fell through in 2017.

Many of the more recently proposed policy changes stem from Trump’s promise to reduce the cost of health care spending, with about $1.4 trillion of these proposed savings coming from the Medicaid program (according to projections from the U.S. Department of Health and Human Services). This could result in major changes to the program’s traditional funding structure of a joint partnership between the federal government and the states.

Historical Funding & Enrollment

In the past, federal Medicaid funding has fluctuated with the needs of the states. Eligibility and thus enrollment, increased as a result of certain societal factors, such as recessions, disasters and rising specialty drug costs. With the onset of such events, it made sense that Medicaid enrollment would rise, since the need for assistance did.

The chart below illustrates results from a recent 50-state survey of Medicaid directors, performed by the Henry J Kaiser Family Foundation (KFF); figures represent total U.S. Medicaid spending and enrollment fluctuation since 1998 (before and after ACA Medicaid expansion).

As the figure illustrates, the overall enrollment growth of 2.7% in state fiscal year (FY) 2017 was down significantly from 13.2% in 2015, following ACA expansion. This decelerated growth may be attributable to the slowing of new ACA-related Medicaid enrollment, a stable economy, low unemployment rates and the states’ processing of delayed eligibility redeterminations.

Total Medicaid spending simultaneously grew by 3.9% in FY 2017, and is projected to grow by 5.2% in FY 2018 - also significantly less than the 10.5% growth in state FY 2015 after ACA implementation. Major drivers of recent spending growth may include increased costs of prescription drugs and long-term care services, and increases in payment rates for most provider groups.

The KFF survey projects that states’ Medicaid spending will grow by 6% in their FY 2018, in part because the 32 expansion states are now paying a percentage of ACA Medicaid expansion costs after several years of the federal government covering all costs. Medicaid expansion states began paying 5% of expansion costs in January 2017 (halfway through FY 2017) with states’ portion rising to 6% in January.

Although the Trump administration credits the federal government with bearing the majority of the Medicaid cost burden, the states have also experienced increased spending under the traditional program funding arrangement, due to a decrease in the formula-driven federal match rate for the traditional (pre-expansion) Medicaid population.

Potential Funding Changes

The administration insists their goal is not to leave millions of needy people without coverage. Instead, they say the true objective is to repeal and replace the ACA with solutions that refocus Medicaid coverage for the most vulnerable Americans - the elderly, those with disabilities, children and pregnant women – individuals that Medicaid was intended to serve. Thus, their focus is to reform the program’s fiscal structure – potentially transitioning from “unlimited” federal matching to a per capita allotment or a block grant arrangement for states, beginning in FY 2020.

The current federal matching structure is calculated through a percentage total – the Federal Medical Assistance Percentage (FMAP) - using a formula that bases the match rate on a state’s average per capita income relative to the national average (with a statutory floor of 50%). Therefore, the states are guaranteed matching funds for qualifying Medicaid expenditures, and those with lower average per capita incomes receive a higher match rate than those with higher average per capita incomes. In other words, the current highest possible federal matching rate for Medicaid funds is 1: 1 - $1 in federal funds for every $1 in state spending. This open-ended financing structure allows states to receive federal funding based on actual costs and needs as economic circumstances change…without a finite limit.

• Per Capita Allotments

A per capita allotment means that the federal government would impose a cap on how much to reimburse states per Medicaid enrollee, with no limit on the number of enrollees allowed in each state’s program. The amount provided would be the same for each person in a category (children, adults, the elderly or those with disabilities), irrespective of the beneficiary’s actual health care costs. Each state’s amount would be based on the average per capita spending for people in that category in the base year, growing at a specified rate over time. To explain in simple mathematic terms - if a state’s average annual base year amount spent on elderly enrollees is “A” and the total number of elderly enrollees is “B,” then that state’s per capita allotment for the following year for that particular category will equal A x B.

This design allows states to receive increased funding within a given year if the Medicaid population grows. The hope is that these growth rates prove to be lower than the rates Medicaid spending would otherwise increase, providing not only budget certainty, but also making the program more sustainable long-term. However, administering a system of per capita limits would be rather complex, given the necessary growth rate and inflation calculations.

• Block Grants

Block grants are another proposed federal funding option for the states. As opposed to per capita allotment, block grant funding generally would not change in response to enrollment. Instead, states would receive a pre-set amount of funding for Medicaid based on a percentage of their previous year’s spending and it would only fluctuate with medical inflation costs, as indicated by the Consumer Price Index (CPI) and Producer Price Index (PPI). The states would then be left to decide how to best spend their allotted amount, thus limiting the federal government’s commitment.

The challenge with this proposed solution is that in any given year, the Medicaid population ebbs and flows. Block grants do not account for the fact that Medicaid spending and enrollment growth follows economic cycles. Furthermore, although block grants would hypothetically allow for greater control over Medicaid, they would come with a price for those currently enrolled (i.e. benefits and/or eligibility being modified). For example, Puerto Rico’s Medicaid program struggled to keep up with its health care needs, even before the Zika epidemic and recent hurricane devastation. Such economic factors can potentially cause a state (or in Puerto Rico’s case, a U.S. territory) to quickly meet and exceed a block grant cap on Medicaid funding, drastically affecting coverage for many enrollees with significant health care needs.

An Ongoing Debate

It’s virtually impossible to determine how either of these potential funding changes would affect state budgets, enrollees and providers, if implemented. However, some experts suggest we would see a significant initial dip in funding, eventually plateauing, while enrollment would continue to fluctuate up and down. This could make it more difficult for some states to manage the impact of Medicaid on their budgets year-over-year, especially since states cannot run a budget deficit during difficult fiscal times in the way the federal government can.

Proponents of the administration’s alternative funding suggestions argue that rigid and outdated federal rules and requirements currently prevent states from prioritizing federal resources to their most vulnerable populations and from testing new innovative ideas that could improve access to care and health outcomes. They believe a shift to per capita allotments or block grants would give states more power and flexibility to run programs as they see fit for their unique populations, governing both the quality and quantity of the health care provided - for example, encouraging work, promoting personal responsibility, and meeting the spectrum of diverse needs of their Medicaid populations. The administration continues to voice their desire to work with Congress to give states the flexibility they need to achieve better health outcomes for patients while putting Medicaid on a more sustainable fiscal trajectory. However, critics insist that these methods are a smokescreen to curb federal spending, shift risk to the states and would ultimately hurt low-income citizens.

Flexibility for States through Waivers

For the time being, the federal/state Medicaid funding partnership will remain intact and unchanged, with each state having variances in Medicaid enrollment, expansion and spending budget. However, this doesn’t mean that the states don’t have the authority to modify when it comes to their individual health care programs.

Section 1115 of the Social Security Act gives the Secretary of Health and Human Services (HHS) authority to approve individual states’ experimental, pilot or demonstration projects that promote the objectives of the Medicaid and Children’s Health Insurance Program (CHIP). Under this authority, the Secretary may waive certain provisions of the Medicaid law to give states additional flexibility to design and improve their individual program operations.

States may obtain waivers allowing broad changes in Medicaid eligibility, benefits and cost-sharing and provider payments across their unique programs. While waiver authority is far-reaching, there are some limitations, such as mandated provisions.

Although not set in statute or regulation, a longstanding element of Section 1115 waiver policy is that waivers must be budget-neutral for the federal government. This means that federal costs under a waiver must not exceed what federal costs would have been for that state without the waiver, as calculated by the administration.

Implications of State Waivers

States have used Section 1115 waivers for many purposes. The most popular waivers have centered on delivery system reform, behavioral health, capitated managed care, ACA expansion, program restrictions and healthy behavior incentives. KFF reported, as of August 29, 2018, a total of 45 active and approved waivers across 37 states. Medicaid.gov maintains a state waivers list for more current information on 1115 waiver topics and status.

As more states apply for Section 1115 waivers, we’re seeing a trend of increased administrative requirements tied to Medicaid eligibility. For example, recent waiver approvals for Kentucky, Indiana, Arkansas and New Hampshire include work requirements for Medicaid access. This means that requiring proof of work (or at least an attempt to find work) is being used as a condition of eligibility for certain populations. Medicaid work requirement proposals would generally require enrollees to verify their participation in approved activities, such as employment, job search or job training programs, for a certain number of hours per week in order to receive coverage.

These proposals do include the concept of possibly exempting specific populations, although little detail is available as to exactly who would qualify for these exemptions, how policies would be administered and who would provide work support services. KFF has found that the majority of non-Supplemental Security Income Medicaid enrollees are unemployed for the very reasons mentioned above. Critics argue that imposing work requirements could leave the neediest of our population without coverage. Even CMS has been hesitant to fully approve work requirement waivers on the basis that such a provision would not necessarily further the program’s purposes of promoting health coverage and access. As of the end of September 2018, CMS has fully approved only three state waiver requests to require that Medicaid beneficiaries work as a condition of eligibility, with ten state waiver requests on this topic still pending. Furthermore, a recent analysis of early state work requirements revealed that several Medicaid enrollees are either unaware of the new rules or facing obstacles in complying with the complex process.

The states’ ability to deviate from one uniform set of federal Medicaid guidelines fuels the rising trend of increased program variance among states. However, the federal government seems to be identifying a growing need for more closely monitoring individual states’ Medicaid eligibility requirements in order to manage federal spending costs. Earlier this year for example, the possible need for increased government scrutiny and tighter delivery of care was highlighted when HHS discovered some states had enrolled hundreds of thousands under Medicaid expansion who were potentially ineligible, due to deficiencies in the state’s computers and errors made by caseworkers.

Medicaid & Higher Education Student Health Insurance

Clearly, the future of expanded Medicaid remains dependent upon several moving targets and significant legislative decisions yet to be made. We will wait to see how much funding states will receive or set aside to administer their programs. And if federal funding is significantly reduced or eliminated, we may very well see fewer low-income individuals receiving the necessary assistance. In the meantime, new ideas continue to evolve, as states explore new strategies to cover residents, while working to maintain or drive down costs.

One such initiative being implemented across several states is Medicaid premium assistance programs, which KFF defines as “the use of public funds through Medicaid […] to purchase private coverage.” A handful of states have used Premium Assistance programs for years, with varied objectives, including covering individuals who are not otherwise eligible for public coverage and promoting the use of private coverage to enhance health insurance rates by subsidizing employer premiums. States can design premium assistance programs in accordance with Section 1906 of the Social Security Act, with Section 1115 Medicare waiver authority or with both. There have been 13 states to utilize Section 1115 waivers to grant the use of premium assistance as of the end of August 2018.

Premium Assistance programs are typically targeted at low-income families and use Medicaid or CHIP funds, allowing individuals to purchase private insurance plans. This results in the strengthening of private coverage rates, reduction in substitution of public funds for private dollars and leveraging of employer contributions. Medicaid then becomes available as a secondary option or “wrap coverage,” so members have access to the necessary benefit standards or cost sharing requirements that private insurance companies may generally lack. All current premium assistance programs require states to establish that they are cost-effective, meaning the cost of covering an individual through premium assistance must be the same or less than providing “comparable coverage” to the individual in the direct Medicaid or CHIP program.

Similar to state leaders, we as members of the higher education community must explore ways to assist the financially needy (students), while containing costs. If your institution offers a student health insurance plan (SHIP), whether fully-insured or self-funded, the premium assistance model may be a cost-effective solution.

Looking back, our March 2017 Industry Newsflash, announced the recognition of our Division Chairman, Teresa Koster, as a Risk & Insurance^® Power Broker for her work with the Massachusetts Medicaid department and healthcare exchange to administer the MassHealth Premium Assistance program for SHIPs at both public and private Massachusetts schools. As a result of this initiative, these schools’ SHIP enrollments have increased and the state is saving money. Benefits illustrating the pilot program’s scalable “win, win, win” outcome are outlined below.

Students:

• Receive expanded access to private insurance, providing students a wider network of providers and ability to retain MassHealth benefits
• Given the ability to access out-of-state and out-of-country coverage

Colleges & Universities:

• SHIP premiums stabilize and improve over time
• Student fees (inclusive of SHIP) remain the same or decrease

State Medicaid Programs:

• Offers a cost-effective way of delivering benefits to members who have access to private health insurance by assisting with payments for their SHIP coverage
• Reduces claims costs

Critics of Premium Assistance are concerned that the payer process may narrow provider networks. For example, they ask whether a student would be required to see a physician within both the private plan and Medicaid plan’s network. The answer is no. Considering student health insurance plans (SHIPs) and coordination of benefits, if a patient were to go to a SHIP in-network provider outside of the Medicaid network or receive services that are not covered by SHIP but are by Medicaid, then Medicaid will pay for covered services and for the out-of-pocket costs incurred while on the SHIP (up to what would normally be covered under the Medicaid plan). In this instance, the SHIP is considered the primary plan and would be billed first. To ensure the process runs smoothly, students should present both their Medicaid and SHIP insurance ID Cards before they receive services.

In the case that an institution does not sponsor a SHIP, campus administration would be smart to direct in-state student residents to the Medicaid program, for a cost-effective option with robust benefits.

Although we’ll have to wait and see exactly what the future holds for Medicaid funding on a national scale, we can, in the meantime begin the necessary research and conversations to build partnerships with state leaders on a SHIP Premium Assistance initiative specific to colleges and universities. It may prove very valuable to continue to think “outside the box” as we have through the Massachusetts pilot program, so that higher education students eligible for Medicaid may gain access to more affordable and robust “portable” coverage nationwide.

We strongly encourage all industry partners to familiarize themselves with the topic, trends and possible changes on the horizon for Medicaid; contact us with any outstanding questions for further clarification.

Additional Relevant Publications

As research best practices indicate, multiple sources/opinions should be evaluated in any major change or decision-making process. To that end, below is a list of scholastic and media publications examining the topic of Medicaid, its current trends, possible changes and the potential impact on the healthcare industry:

1. Trump Administration Gives the Green Light for Medicaid Work Requirements
2. Section 1115 Medicaid Demonstration Waivers: The Current Landscape of Approved and Pending Waivers
3. Implications of a Medicaid Work Requirement: National Estimates of Potential Coverage Losses
4. An Early Look at Implementation of Medicaid Work Requirements in Arkansas
5. What Could a Medicaid Per Capita Cap Mean for Low-Income People on Medicare?
6. The Downstream Consequences Of Per Capita Spending Caps In Medicaid
7. Medicaid: What to Watch in 2018 from the Administration, Congress, and the States
8. Heritage Foundation, conservative policymakers unveil block-grant health plan
9. 2017 Power Broker Education
10. Medicaid Expansion Through Marketplace Premium Assistance

Appendix:

“Medicaid and the uninsured – Medicaid Financing: An Overview of the Federal Medicaid Matching Rate (FMAP).” The Henry J. Kaiser Family Foundation, Sept. 2012, https://kaiserfamilyfoundation.files.wordpress.com/2013/01/8352.pdf.

Goodnough, Abby, and Zernike, Kate. “How Medicaid Works, and Who It Covers.” The New York Times, 23 June 2017, https://www.nytimes.com/2017/06/23/health/medicaid-basic-facts.html.

Musumeci, MaryBeth, et al. “Section 1115 Medicaid Demonstration Waivers: The Current Landscape of Approved and Pending Waivers.” The Henry J. Kaiser Family Foundation, 20 Sept. 2018, https://www.kff.org/medicaid/issue-brief/section-1115-medicaid-demonstration-waivers-the-current-landscape-of-approved-and-pending-waivers/.

Lee, Chris. “50-State Survey Finds Medicaid Enrollment Growth Slowing, with an Uptick in Spending Growth Driven by Provider Rate Increases and Rising Costs for Rx Drugs and Long-Term Care.” The Henry J. Kaiser Family Foundation, 19 Oct. 2017, https://www.kff.org/medicaid/press-release/50-state-survey-finds-medicaid-enrollment-growth-slowing-with-an-uptick-in-spending-growth-driven-by-provider-rate-increases-and-rising-costs-for-rx-drugs-and-long-term-care/.

Garfield, Rachel, et al. “Implications of a Medicaid Work Requirement: National Estimates of Potential Coverage Losses.” The Henry J. Kaiser Family Foundation, 27 June 2018, https://www.kff.org/medicaid/issue-brief/implications-of-a-medicaid-work-requirement-national-estimates-of-potential-coverage-losses/.

Wachino, Vikki, and Gronniger, Tim. “The Insufficiency Of Medicaid Block Grants: The Example Of Puerto Rico.” Health Affairs Blog, 12 Oct. 2017, https://www.healthaffairs.org/do/10.1377/hblog20171022.984682/full/.

“Medicaid Waiver Tracker: Which States Have Approved and Pending Section 1115 Medicaid Waivers?” The Henry J. Kaiser Family Foundation, 28 Sept. 2018, https://www.kff.org/medicaid/issue-brief/which-states-have-approved-and-pending-section-1115-medicaid-waivers/?utm_campaign=KFF-2017-December-Medicaid-Waiver-Tracker&utm_source=hs_email&utm_medium=email&utm_content=59537579&_hsenc=p2ANqtz-_MUN1VnfHbeoefBMrGwJS2mwxELGbVfYfpRUpOnKbIIVoY41o_RP13uKGwigODzx4O-ithSoutx5zXFWCRCb-Q7AIyIA&_hsmi=59537579.

Alker, Joan, et al. “Medicaid Premium Assistance Programs: What Information Is Available About Benefit and Cost-Sharing Wrap-Around Coverage?” The Henry J. Kaiser Family Foundation, 1 Dec. 2015, www.kff.org/medicaid/issue-brief/medicaid-premium-assistance-programs-what-information-is-available-about-benefit-and-cost-sharing-wrap-around-coverage/.

Hinton, Elizabeth, et al. “Section 1115 Medicaid Demonstration Waivers: A Look at the Current Landscape of Approved and Pending Waivers.” The Henry J. Kaiser Family Foundation, 13 Sept. 2017, www.kff.org/medicaid/issue-brief/section-1115-medicaid-demonstration-waivers-a-look-at-the-current-landscape-of-approved-and-pending-waivers/.

Morgan, Rachel. “Blueprint Proposals for Medicaid.” National Conference of State Legislatures, 13 Feb. 2017, www.ncsl.org/research/health/actions-toward-health-system-change-2017636210523.aspx+.

Park, Haeyoun. “Republicans’ Changes to Medicaid Could Have Larger Impact Than Their Changes to Obamacare.” The New York Times, 7 Mar. 2017, www.nytimes.com/interactive/2017/03/07/us/politics/medicaid-reform-impact-on-states.html.

Pope, Christopher. “Are Short-Term Limited Duration Plans Bad For The Individual Market?” Health Affairs Blog, 31 Aug. 2017, healthaffairs.org/blog/2017/08/31/are-short-term-limited-duration-plans-bad-for-the-individual-market/.  

“Premium Assistance in Medicaid and CHIP: An Overview of Current Options and Implications of the Affordable Care Act.” The Kaiser Commission on Medicaid and the Uninsured, Mar. 2013, kaiserfamilyfoundation.files.wordpress.com/2013/03/8422.pdf

Risch, James E., and Ron Johnson. “Johnson Leads Senate Letter Urging More Consumer Choice in Health Insurance Markets.” James E Risch, U.S. Senator for Idaho, 7 June 2017, https://www.risch.senate.gov/public/index.cfm/2017/6/johnson-leads-senate-letter-urging-more-consumer-choice-in-health-insurance-markets/.

Rosenbaum, Sara. “The American Health Care Act And Medicaid: Changing A Half-Century Federal-State Partnership.” Health Affairs Blog, 10 Mar. 2017, healthaffairs.org/blog/2017/03/10/the-american-health-care-act-and-medicaid-changing-a-half-century-federal-state-partnership/. 

Soffen, Kim. “There's One Obamacare Repeal Bill Left Standing. Here's What's in It.” The Washington Post, WP Company, 25 Sept. 2017, www.washingtonpost.com/graphics/2017/politics/cassidy-graham-explainer/?utm_term=.c7d0562f899b.

“State Waivers List.” Medicaid.gov, www.medicaid.gov/medicaid/section-1115-demo/demonstration-and-waiver-list/waivers_faceted.html.

The Editorial Board. “A Short-Term ObamaCare Fix.” The Wall Street Journal, 14 Aug. 2017, www.wsj.com/articles/a-short-term-obamacare-fix-1502753239.