Key Themes in Section 1115 Medicaid Expansion Waivers
Seven states currently are implementing the Affordable Care Act’s (ACA) Medicaid expansion to nearly all low income adults up to 138% of the federal poverty level (FPL, $16,643 per year for an individual in 2017) in ways that extend beyond the flexibility provided by the law through a Section 1115 demonstration waiver approved by the Obama Administration. While Congress debates repeal and replacement of the ACA, including the Medicaid expansion, Section 1115 Medicaid expansion waiver activity is expected to continue under the Trump Administration with waiver amendments, extensions, and new waivers that may change the terms of traditional expansions or implement new expansions. Section 1115 waivers can be used for a variety of purposes. This issue brief focuses on Section 1115 waivers that implement the ACA’s Medicaid expansion and highlights themes in approved, pending, and denied provisions to date as well as key issues to watch looking ahead. Additional detail about each state’s waiver is provided in the Appendix tables.
The ACA’s Medicaid expansion changes the role of Section 1115 waivers for coverage expansions, eliminating the need for a state to obtain a waiver to cover childless adults and providing significant federal funding (100% from 2014 through 2016, gradually decreasing to 95% in 2017, and 90% by 2020) for states to expand coverage. Prior to the ACA, a number of states used Section 1115 waivers to expand coverage to childless adults who then could not otherwise be covered under federal rules. Because Section 1115 waivers must be budget neutral for federal spending, according to long-standing federal policy, states could not receive additional federal funds to expand coverage to these adults and, as such, needed to redirect existing federal funds or find offsetting program savings to finance this coverage. The ACA eliminates the historic exclusion of adults without dependent children from Medicaid, enabling states to expand coverage without a waiver and with enhanced federal matching funds. As of March, 2017, 32 states including DC have adopted the expansion, with most implementing traditional expansions as set forth by the law, and seven states using Section 1115 waivers to implement in ways not otherwise permitted under federal law.
Key Waiver Policy Findings
Approved ACA Expansion Waivers
As of March, 2017, seven states (Arizona, Arkansas, Iowa, Indiana, Michigan, Montana, and New Hampshire) have approved Section 1115 waivers to implement the ACA’s Medicaid expansion in ways that extend beyond the flexibility provided by the law. Some states sought waiver authority as a politically viable way to expand coverage and receive enhanced federal matching funds. Nearly all of these waivers are limited to provisions related to the Medicaid expansion; these waivers were the mechanisms by which these states first implemented their expansions. The exception is Arizona, which has a long-standing Section 1115 waiver that governs its entire Medicaid program, and which initially implemented a traditional expansion but subsequently obtained waiver authority to alter the terms of that expansion in ways not otherwise permitted under existing law.
While each expansion waiver is unique, they include some common provisions, such as implementing the Medicaid expansion through a premium assistance model; charging premiums beyond what is authorized in federal law; eliminating non-emergency medical transportation, an otherwise required benefit; and using healthy behavior incentives to reduce premiums and/or co-payments (Table 1). Indiana’s waiver includes provisions that had not been approved in other states, such as making coverage effective on the date of the first premium payment instead of the date of application; barring certain expansion adults from re-enrolling in coverage for six months if they are dis-enrolled for unpaid premiums (a three-month lock-out was later approved in Montana); and eliminating retroactive eligibility (later approved in New Hampshire and Arkansas). The retroactive eligibility waivers were conditional, requiring states to implement safeguards to protect beneficiaries from unpaid medical costs incurred just prior to Medicaid eligibility. For example, Indiana expanded its presumptive eligibility program and implemented a prior claims payment program to cover retroactive costs for the mandatory (non-expansion) parents and 19 and 20 year olds covered under its waiver. Arkansas and New Hampshire were required to ensure that eligibility determinations are timely and without gaps in coverage.
|Table 1: Themes in Approved ACA Expansion Waivers as of March, 2017|
|Premium Assistance||QHP & ESI||ESI||ESI||QHPiv||QHP|
|Premiums / Monthly Contributions||X||X||X||X||X||X|
|Healthy Behavior Incentives||X||X||X||X|
|Waive Required Benefits (NEMT)||i||X||X|
|Waive Reasonable Promptness||X|
|Waive Retroactive Eligibility||X ii||X||Xv|
|Co-payments Above Statutory Limits||Xiii|
|12-Month Continuous Eligibility||X|
|NOTES: QHP = Qualified Health Plans. ESI = employer-sponsored health insurance. NEMT = non-emergency medical transportation. I AR waiver provides authority for state to not offer NEMT for individuals covered through ESI who do not demonstrate need for services. ii AR’s retroactive coverage waiver is contingent upon the state meeting standards for timely eligibility determinations, offering a reasonable opportunity period for immigration status verifications, and implementing a presumptive eligibility program. iii IN’s cost-sharing waiver was approved under Section 1916 (f), not Section 1115. iv MI’s premium assistance authority is effective in April, 2018. v NH’s retroactive coverage waiver is contingent upon state submission of data showing no gaps in coverage.|
Denied ACA Expansion Waivers or Waiver Provisions
The previous Administration denied some specific provisions included in states’ Medicaid expansion waiver proposals, including premiums for beneficiaries with incomes under 100% FPL as a condition of eligibility; elimination of Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) benefits and beneficiaries’ free choice of family planning provider; and work requirements as a condition of eligibility. The previous Administration also denied Ohio’s waiver application, noting that Ohio had implemented a successful traditional ACA expansion and estimated that its proposed policy changes “would lead to over 125,000 people losing coverage each year” compared to the current expansion. CMS also issued policy guidance, consistent with its legal interpretation of the ACA, indicating that states cannot receive enhanced federal ACA expansion funding unless they cover all newly eligible adults through 138% FPL.
Pending ACA Expansion Waivers
Two states currently have Medicaid expansion waivers pending before the Centers for Medicare and Medicaid Services (CMS). Indiana proposes to extend its current Medicaid expansion waiver from 2018 through 2021, with some changes, such as a three-month coverage lock-out for beneficiaries who do not timely renew eligibility, a 1% premium surcharge for tobacco users beginning in the second year of enrollment, and outcome-based healthy behavior incentives related to tobacco cessation, substance use disorder treatment, chronic disease management, and employment (see Appendix Table 3). Kentucky is awaiting a decision on its waiver application that seeks changes to its traditional expansion, such as sliding scale premiums, requiring premium payment before coverage is effective, locking those above 100% FPL out of coverage for six months for premium non-payment, requiring work as a condition of eligibility for most adults, locking beneficiaries out of coverage for six months for failure to timely renew eligibility, adding a high deductible health savings account, offering a healthy behavior incentive account, and waiving NEMT (see Appendix Table 5).
Two other states are preparing waiver submissions to CMS. Arizona recently completed a state public comment period for a waiver amendment that proposes changes to coverage for all “able-bodied” Medicaid adults, not only those who newly gained coverage under the ACA’s expansion, including a work requirement as a condition of eligibility, a 5-year lifetime limit on benefits, monthly income and work verifications and eligibility renewals, and a one-year lock-out for those who knowingly fail to report a change in income or make a false statement about work compliance. Arizona previously sought similar changes, which were denied by the Obama Administration in September, 2016, but state law requires Arizona to request these components annually. Additionally, Arkansas announced that it will seek waiver amendments, such as reducing Medicaid eligibility for expansion adults from 138% to 100% FPL while continuing to receive enhanced federal matching funds and establishing a work requirement.
Other Waiver Parameters
Certain requirements apply to all Section 1115 waivers, not just those that authorize Medicaid expansions. While not required by statute or regulation, CMS has a longstanding policy that waiver financing must be budget neutral for the federal government, meaning that federal costs under a waiver must not exceed what federal costs would have been for that state without the waiver. Budget neutrality is enforced by establishing a cap on federal funds under the waiver, putting the state at risk for any costs beyond the cap. The ACA also established new rules about transparency and evaluations for all waivers. Recognizing that waivers can authorize changes that impact beneficiaries, providers, health plans, and other stakeholders in important ways, the waiver transparency rules require state and federal public comment periods before all new waiver applications and extensions of existing waivers are approved by CMS. (The rules do not require notice and comment for waiver amendments, but to date, CMS has applied these requirements to waiver amendments.) In keeping with statutory requirement that Section 1115 waivers test new program approaches, the evaluation rules require states to have a publicly available, approved evaluation strategy and to submit an annual report to HHS that describes the changes occurring under the waiver and their impact on access, quality, and outcomes.
State interest in Medicaid expansion waivers as a way to gain flexibility to adapt their programs is likely to continue under the Trump Administration. States, beneficiaries, providers, and other stakeholders will be interested in learning how the new Administration will respond to Medicaid expansion waiver requests, especially those that contain provisions that could lead to less people enrolled in coverage compared to existing expansions. It also remains to be seen whether legal interpretations and guideposts established by the prior Administration, such as not permitting states to access enhanced federal matching funds for partial coverage expansions, will continue to be observed. Decisions on proposals that have not previously been approved under Medicaid, such as whether states could condition Medicaid eligibility on work or set a lifetime coverage limit, also will be key markers for future waiver policy. In addition to states’ substantive waiver requests, stakeholders will be interested in the new Administration’s approach to the waiver process, including the application of federal budget neutrality requirements and the transparency rules and the role that waiver evaluations will play in determining whether certain provisions are approved in other states. While Congress debates fundamental changes to the Medicaid program’s structure and financing and considers ACA repeal, Medicaid policy changes authorized through Section 1115 waivers will be a key area to watch.Appendix