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An Early Look at Medicaid Expansion Waiver Implementation in Michigan and Indiana

Michigan and Indiana are among the seven states using a Section 1115 demonstration waiver to implement Medicaid expansions in ways that differ from the terms of the Affordable Care Act (ACA).  While each waiver is unique, Michigan and Indiana’s waivers include some similar provisions.  Some of these features are not found in other waivers approved to date, although additional states have expressed interest in pursuing similar models.

This issue brief explains some of the key components in Michigan and Indiana’s waivers and presents insights based on their early implementation experiences.  The findings are based on 22 in-person and telephone interviews conducted in July and August, 2016 with state officials, providers, health plans, beneficiary advocates, and enrollment assistors in Michigan and Indiana, and incorporate data and reports from the state Medicaid agencies and other publicly available sources. We also conducted four focus groups (two in each state) with beneficiaries enrolled in waiver coverage to learn about their firsthand experiences.

Key Provisions in Michigan and Indiana’s Expansion Waivers

Michigan and Indian’s expansion waivers both include provisions related to premiums, health accounts and healthy behavior incentive programs.  However, the populations subject to premiums, the consequences for failure to pay, the process to effectuate coverage, and the administration of the health accounts and healthy behavior incentive programs vary considerably between the two states. The waiver in Indiana includes some additional provisions including a waiver of non-emergency medical transportation (NEMT) and those that alter the effective coverage date. Both Michigan and Indiana had used Section 1115 demonstration waivers to provide limited benefit coverage to some adults prior to the ACA.  Michigan provided a limited benefit package to childless adults up to 35% FPL, and Indiana provided a limited benefit package with a high deductible health account to parents and a capped number of childless adults up to 100% FPL, called HIP 1.0. Box 1 provides a description of the key provisions in the current ACA expansion waivers.

Box 1:  Description of Key Provisions in Healthy Michigan and HIP 2.0 Waivers

Healthy Michigan was implemented in April 2014.  Expansion adults in Michigan include working parents from 64-138% FPL, jobless parents from 37-138% FPL, and childless adults from 0-138% FPL. Additional changes for those from 100-138% will take effect in April, 2018.

  • Premiums. Expansion adults with income from 100-138% FPL ($990-$1,366 per month for an individual in 2016) pay monthly premiums of 2% of income (about $20 to $27/month) into health accounts. Failure to pay premiums does not result in a loss of Medicaid eligibility, but past due premiums can be recouped from state income tax refunds or lottery winnings. Premium payments are due until after six months of enrollment.
  • Copayments.  Expansion adults make monthly payments into health accounts based on their average copayments, at state plan amounts, for services used in the previous six months. Failure to pay copayments does not result in a loss of Medicaid eligibility, but past due copayments can be recouped from state income tax refunds or lottery winnings.
  • Health Accounts and Healthy Behavior Incentives. Care is provided by health plans in exchange for capitation payments.  In Michigan, compliance with specified healthy behaviors results in a 50% reduction in future premiums for those above poverty and a $50 gift card for those below poverty.

Indiana’s HIP 2.0 was modeled on Indiana’s pre-ACA coverage expansion, HIP 1.0, and implemented in February, 2015.  The waiver applies to expansion adults as well as some traditional Medicaid enrollees including parents. Expansion adults include working parents from 24-138% FPL, jobless parents from 18-138% FPL, and childless adults from 0-138% FPL.

  • Premiums and Effective Coverage Date. Premiums are 2% of income for all waiver beneficiaries (including some traditional Medicaid enrollees such as parents). Those with income from 0-5% FPL (up to $50/month in 2016) pay a flat $1.00/month. Premiums are paid into a Personal Wellness and Responsibility (POWER) health account.  Non-medically frail expansion adults with income from 100-138% FPL must pay a premium to effectuate coverage; those who fail to pay premiums within 60 days are dis-enrolled and locked out of coverage for six months.  Coverage for expansion adults from 0-100% FPL does not begin until payment of a premium or the expiration of the 60-day premium payment period.  Expansion adults from 0-100% FPL who fail to pay premiums within 60 days are moved to a more limited benefit package (HIP Basic, without dental and vision benefits and with more limited prescription drug coverage) and incur point-of-service copayments. Traditional Medicaid enrollees who do not pay premiums are guaranteed state plan benefits. Policies including the Fast Track premium pre-payment option and an expanded presumptive eligibility program are intended to help reduce delays in effectuating coverage.
  • Copayments.  Expansion adults with incomes below poverty who fail to pay premiums receive the more limited benefit package and must make point of service copayments.  HIP 2.0 authorizes a two-year demonstration to test whether graduated copayments ($8 for first visit and $25 for subsequent visits in the same year) discourage non-emergency use of the ER.
  • Health Accounts and Healthy Behavior Incentives. In Indiana, health plans provide care after exhausting the $2,500 POWER account deductible (funded by the state and beneficiary premiums). Beneficiaries who pay premiums and / or receive preventive services can rollover a portion of their share of the unused POWER account balance at the end of the year to apply to the next year’s premiums.
  • Non-Emergency Medical Transportation (NEMT). Indiana received a time-limited waiver of the responsibility to provide NEMT to non-medically frail expansion adults, which CMS extended through the end of the demonstration.1
  • Gateway to Work.  Indiana offers a voluntary state-funded work referral program, which is not part of the HIP 2.0 waiver terms and conditions.

Key Insights From Early Implementation of Michigan and Indiana Waivers

Five key insights emerge from an early look at Michigan and Indiana’s Medicaid expansion waivers.

  1. Medicaid expansion design, whether through state plan authority or waivers, is highly dependent on the features of a state’s underlying Medicaid program. Michigan and Indiana both had implemented limited adult coverage expansions through waivers prior to the ACA, and these expansions along with the states’ pre-existing Medicaid delivery systems influenced the structure and design of their post-ACA waivers. Michigan incorporated its pre-existing capitated managed care delivery system into Healthy Michigan, while Indiana modified its pre-existing high deductible health account model under HIP 2.0.  Regardless of whether a state adopts a traditional expansion or uses a waiver, expanding Medicaid can result in substantial reductions in the uninsured and increased access to needed health care.2
  2. Implementation of complex programs involves collaboration with a variety of stakeholders, sophisticated IT systems, and administrative costs. Both states’ waivers apply different rules based on differences in beneficiary income, health status, or other characteristics, which require time and resources to track.  Challenges with information exchange between the state, health plans, and providers have created some confusion and delays in effectuating coverage in Indiana.  Timely and accurate data about various beneficiary characteristics, such as income level, medical frailty, and healthy behavior status, will trigger different policies and delivery systems under the 2018 changes for those from 100-138% FPL in Michigan’s waiver, thus taking on increasing importance for the state and beneficiaries there.
  3. Premium costs and complex enrollment policies can deter eligible people from enrolling in coverage. Particularly for very low-income populations, even very low premiums may be unaffordable, and the cost of making payments (i.e., purchasing a money order) may add increased financial strain as well as a barrier.  Policies in Indiana that tie the start of the coverage period to making a payment can be a further impediment, deterring some eligible people from enrolling.  In addition, assessing the affordability of premiums in Indiana is challenging because it is difficult to track and adjust premium payment amounts for populations with frequent changes in income and to track how many individuals receive help from third parties to pay premiums.
  4. Health accounts can be confusing for beneficiaries. Beneficiaries in our focus groups as well as advocates and providers in both states did not demonstrate a clear understanding of the policies associated with these models. This feedback shows that these models are hard to understand even in Indiana, a state with long-standing experience with health accounts.
  5. Beneficiary and provider education and tangible incentives appear central to implementing healthy behavior incentive programs. Beneficiaries in both states indicated that gift cards that could be used immediately to purchase needed items were more appealing rewards than decreased cost-sharing amounts in the future, which is understandable, given the low incomes and precarious financial situation of many beneficiaries and the complicated formulas to calculate future cost-sharing reductions.  To date, it is too early to determine if health accounts and healthy behavior incentives can change behavior, lead to more efficient use of health care services, and improve health outcomes, but these items hopefully will be assessed in the formal waiver evaluations.

Looking ahead from a national perspective, it is not yet clear what role Section 1115 Medicaid expansion waivers will play as the new Administration and Congress move to repeal the ACA and debate possible broader changes to Medicaid financing such as a block grant or per capita cap.3  Repeal of the ACA would remove the statutory authority to cover expansion adults and the associated federal financing.  However, given that some other states have expressed interest in pursuing Medicaid expansion waivers with components similar to those in Michigan and Indiana, it is important to understand the administrative framework and early implementation challenges and successes of the models being tested in Michigan and Indiana as more formal evaluations are conducted.

Key Provisions

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Filling the need for trusted information on national health issues, the Kaiser Family Foundation is a nonprofit organization based in Menlo Park, California.