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The ACA and Recent Section 1115 Medicaid Demonstration Waivers

Under the Affordable Care Act (ACA), Medicaid plays a key role in efforts to reduce the number of uninsured by expanding eligibility to nearly all low income adults with incomes at or below 138% FPL ($16,105 per year for an individual in 2014); however, the Supreme Court ruling on the ACA effectively made the expansion a state option. As of January 2014, 25 states and DC are implementing the expansion in 2014. Under flexibility provided by the ACA’s Medicaid expansion, as well as pre-existing federal Medicaid law, the Medicaid expansion will be implemented differently across states in terms of what specific benefits are provided and how those services are delivered. Moreover, a limited number of states have obtained or are seeking approval through Section 1115 waivers to implement the expansion in ways that extend beyond the flexibility provided by the law. Section 1115 Medicaid demonstration waivers provide states with an avenue to test approaches in Medicaid that differ from federal program rules. For many years, these waivers offered the only way for states to cover otherwise ineligible childless adults; now, the ACA provides new state plan authority for states to offer Medicaid to this population without the need for a waiver.  While states use Section 1115 waiver authority for a wide range of purposes, this brief focuses on waivers related to implementation of the ACA Medicaid expansion (eligible for ACA enhanced matching funds) or other coverage (not eligible for ACA enhanced matching funds).

Prior to the ACA, states could only cover childless adults and receive federal Medicaid funds by obtaining a Section 1115 waiver.  Section 1115 waivers must be budget neutral for the federal government and in the absence of coverage provided through these waivers, childless adults generally did not have any other coverage options through Medicaid.  Given these considerations, Section 1115 waivers that expanded coverage to these adults, who otherwise would have been uninsured, often included limited benefit packages, higher cost-sharing and/or enrollment caps designed to limit costs.  Since the ACA expands Medicaid to nearly all low-income adults with significant federal funding, the need for and role of waivers to cover adults fundamentally changes.

Using enhanced federal matching funds for those newly eligible for coverage, nearly all states implementing the ACA Medicaid expansion are doing so as set forth by law and will not seek a waiver of federal law.  Like the traditional Medicaid program, the law allows states considerable flexibility to implement the expansion.  Due to this flexibility, the expansion will look different across states, but the majority of states moving forward are implementing the expansion within federal options and rules, and receiving the associated enhanced federal matching funds by filing a State Plan Amendment (SPA).

A limited number of states are pursuing Section 1115 waivers to implement the ACA Medicaid expansion in ways that do not meet federal rules while still accessing enhanced federal matching funds available for newly eligible adults.  To date, the Centers for Medicare and Medicaid Services (CMS) has approved waivers to implement the Medicaid expansion in three states:  Arkansas, Iowa and Michigan.  In addition, Pennsylvania has a waiver proposal that is in the state comment period.  Like before the ACA, waivers must be used to “promote the objectives” of the Medicaid program and they must be budget neutral for the federal government.  The newly approved waivers also followed the new rules related to transparency and have allowed for opportunities for public comment in the process.  Some of the key themes included in these approved and proposed ACA expansion waivers are highlighted in Table 1.

Table ES-1:  Key Themes in ACA Expansion Waivers and Proposals
Premium Assistance
Premiums
Healthy Behavior Incentives
Benefit Changes
Work Requirements
Arkansas (approved)
x
Iowa (approved)
x
x
x
x
Michigan (approved)
x
x
Pennsylvania (proposed)
x
x
x
x
x

CMS has approved some provisions in the waiver requests, but also denied some provisions.  Examining what CMS has approved and not approved can be instructive for other states that may seek waivers in the future to implement the expansion.  As shown in Box ES-1, CMS has approved waivers implementing the ACA’s Medicaid expansion through premium assistance, consistent with earlier guidance; charging premiums for groups at or above 100% FPL; removing certain benefits that are otherwise required, and using healthy behavior incentives. In contrast, CMS has denied requests for premiums for individuals at lower incomes and to impose higher cost sharing. In addition, it has not allowed states to waive the provision of certain benefits. CMS has not yet issued a determination for Pennsylvania’s proposed waiver, which includes work requirement provisions; however, such requirements have never been approved to date.

Box ES-1:  CMS Decisions on Key Waiver Provisions
Approved
- Premium Assistance:  Waivers consistent with CMS guidance, allow for mandatory enrollment in QHPs- Premiums:  For individuals with incomes 100-138%; up to 2% income (= to Marketplace)
- Benefits:  Non-emergency transportation (one year waiver in Iowa)
- Healthy Behavior Incentives:  Tied to reductions in premiums and cost sharing, protocols must be approved by CMS
.
Denied
- Premiums:  Premiums for individuals with incomes < 100% FPL
- Cost-Sharing:  Cost-sharing amounts beyond those allowed under current law
- Benefits:  Waivers of requirements to provide wrap-around benefits for EPSDT and free choice of family planning provider to the extent that Marketplace plans do not offer this coverage
.

Proposed

- Work requirements (never been approved in Medicaid)

Several states have waivers to maintain coverage that was in place prior to the ACA, but this coverage is not eligible for the enhanced ACA matching funds for newly eligible adults.  These states generally fall into 2 categories:  states implementing the Medicaid expansion but using waivers to provide coverage or assistance to individuals with incomes above 138% FPL (Minnesota and the District of Columbia where waivers are in place and Massachusetts, New York and Vermont were waiver extensions are pending) and states not implementing the Medicaid expansion but primarily maintaining pre-ACA coverage expansions (Wisconsin, Indiana and Oklahoma).

Looking forward, many questions about waivers and the ACA Medicaid expansion remain.  There is no deadline for states to participate in the Medicaid expansion.  As states start their legislative sessions for 2015, a number are re-examining decisions about the Medicaid expansion, and additional states may explore the use of waiver authority to implement the expansion. Moreover, states may seek to make changes to existing waivers through waiver amendments so it will be important to monitor how public notice and transparency rules will apply.  In addition, as these waivers are implemented, evaluations will be key to understand their impacts on beneficiaries, providers and states to help inform coverage efforts.

Issue Brief

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ISSUE BRIEF