A Look at Section 1115 Medicaid Demonstration Waivers Under the ACA: A Focus on Childless Adults

MEDICAID COVERAGE OF CHILDLESS ADULTS

Prior to the enactment of the ACA, childless adults were excluded from the Medicaid program under federal rules. Before the ACA, Medicaid coverage was limited to individuals who met income and other eligibility requirements and fell into one of several specified groups, including children, pregnant women, parents, elderly individuals and people with disabilities. Adults without dependent children, often referred to as childless adults, who did not qualify for Medicaid based on age or disability were ineligible for coverage, and states could not receive federal Medicaid matching funds to cover these adults regardless of how low their incomes were. The only way a state could extend coverage to these adults was through a Section 1115 waiver. However, states could not receive additional federal funds to expand coverage to these adults through a waiver and, as such, needed to redirect existing federal funds or find offsetting program savings to finance such coverage.

In mid-1990s through the early part of 2000, a number of waivers were approved that focused on expanding coverage, often including childless adults. Many of these waivers also implemented broader managed care systems than were permitted under federal Medicaid law at the time. States used savings from mandatory managed care or redirected Disproportionate Share Hospital (DSH) funds to finance substantial coverage expansions for childless adults, and, in some cases, other groups, such as parents. These include waivers approved in Hawaii, Oregon, and Tennessee in 1994; waivers in Delaware and Vermont in 1996; waivers in Maryland and Massachusetts in 1997; and waivers in Arizona and New York in 2001.¹ These waivers generally provided childless adults a comprehensive set of benefits that were equal or largely equivalent to the states’ full Medicaid benefit package and had limited cost sharing requirements.

In 2001, the Bush Administration released a Health Insurance Flexibility and Accountability (HIFA) waiver initiative that provided a streamlined waiver approval process for states using waivers to expand coverage within their “current level” of resources and offered states increased flexibility to reduce benefits and charge higher cost sharing to help finance the expansion.² During the 2001-2010 period, another eight states received waivers expanded coverage to childless adults under the HIFA initiative, including Maine,³ New Mexico, Michigan, Iowa, Indiana, Oklahoma, Utah, and Wisconsin.⁴ Many of these waivers provided these adults more limited benefits and charged them higher cost sharing than otherwise allowed in Medicaid. Moreover, some of these waivers covered these adults through a premium assistance model that allowed the state to use Medicaid funds to subsidize the purchase of private insurance that did not meet minimum Medicaid benefit or cost sharing rules without requiring the state to supplement that coverage with wraparound benefits or cost sharing.⁵ At the same time, some of the earlier managed care expansion waivers, such as in Oregon and Tennessee, began reducing coverage due to difficult budgetary environments. Coverage for childless adults in Tennessee through the TennCare Waiver expired in 2001 due to the fiscal situation in the state.

Currently, 24 states use waivers to provide Medicaid-funded coverage for childless adults. The eligibility levels, benefits, and cost sharing requirements for this waiver coverage vary significantly across states (See Appendix B). Only 9 states provide these adults with benefits that are comparable to the state’s full Medicaid benefits package. The remaining states generally provide these adults with more limited benefits and charge them higher cost sharing than otherwise allowed under Medicaid. Enrollment data for these waivers is hard to capture because states often do not report data for just childless adults. For June 2012, 18 states were able to report separate enrollment data for adults without dependent children; an additional three states reported data that included both parents and adults without dependent children. Of the 2.3 million low-income non-disabled adults covered under expansion programs in these states in June 2012, at least 1.77 million were adults without dependent children.⁶

One of the main ways the ACA seeks to reduce the number of uninsured individuals is by expanding Medicaid to nearly all adults under 138% of the federal poverty level (FPL) starting January 1, 2014. This expansion would make millions of adults newly eligible for the program. The federal government will fund 100% of the cost of covering newly eligible adults for the first three years of the expansion, phasing down to 90% over time. Under the ACA, the Medicaid expansion was intended to occur nationwide. However, the Supreme Court’s ruling on the ACA effectively made the expansion a state option. As of September 2013, 25 states (including the District of Columbia) are moving forward with the expansion, 26 states are not moving forward at this time.⁷  There is no deadline for states to adopt the Medicaid expansion.  If a state does not expand Medicaid, uninsured adults in that state with incomes at or below the federal poverty level will not gain a new coverage option and will likely remain uninsured. However, those with incomes above 100 percent FPL who are ineligible for Medicaid will have access to subsidies to purchase coverage in the new Marketplaces.

Effective April 2010, the ACA also provided states with a new state plan option to expand coverage to childless adults at their regular federal Medicaid matching rates to get an early start on the expansion. States that expanded coverage through this option had to meet federal benefit and cost sharing requirements and could not cap enrollment. At the same time, subject to federal approval, states could still expand coverage to childless adults through a Section 1115 waiver and were no longer restricted from receiving additional federal matching funds for this population since these adults could now otherwise be covered through the state plan. A number of states received waivers to expand coverage through a Section 1115 waiver instead of the ACA state plan coverage group. The waivers deviated from the rules for the state plan group by providing a more limited benefits package, capping enrollment, or implementing on a county versus statewide basis. Since April 2010, seven states (California, Connecticut, Colorado, DC, Minnesota, New Jersey, and Washington) have expanded coverage to childless adults up to 133% FPL through the new ACA state plan option or a waiver to prepare for 2014. All of these states except Connecticut have used waivers as a vehicle for all or some of the coverage expansion.^8,9

Medicaid Expansion Decisions in States with Expiring Childless Adult Waivers

Most (18 of 24) of the states that presently cover childless adults through waivers are moving forward with the Medicaid expansion in 2014, while 6 states are not moving forward at this time (See Appendix B). The 18 states moving forward include 12 states that have covered childless adults under Section 1115 waivers prior to the ACA, as well as six states that have obtained waivers after the enactment of the ACA’s April 2010 state plan option to get an early start on the expansion. To implement the Medicaid expansion under the ACA’s new state plan authority to cover childless adults in 2014, many of these states will need to make changes to their existing waiver coverage to meet the rules of the new state plan authority, such as eliminating enrollment caps, expanding benefits, and reducing cost sharing requirements. At least two of these states (Arkansas and Iowa) are seeking to move forward under new waivers that would implement the expansion in ways that would require a waiver.¹⁰

Six states (ID, IN, ME, OK, UT, and WI) with current Section 1115 waivers to cover childless adults have indicated that they are not moving forward with the ACA Medicaid expansion at this time. However, CMS recently approved one-year waiver extensions in Indiana¹¹ and Oklahoma.¹² In both of these states, the waiver coverage will continue, but coverage will be limited to individuals with incomes below 100% FPL. Current Medicaid beneficiaries with incomes above 100% FPL will be eligible for help purchasing coverage in the new Marketplaces. Indiana will maintain its enrollment cap and other core components of its waiver, which provides more limited benefits than the state’s traditional Medicaid state plan benefits package. Oklahoma will continue to provide limited subsidized coverage under the Insure Oklahoma waiver. Consequently, the waiver coverage groups in Oklahoma and Indiana will not be eligible for the enhanced Medicaid financing available under the ACA Medicaid expansion. Wisconsin has a waiver proposal would reduce eligibility for childless adults in its existing waiver program from 200% to 100% FPL.¹³ Maine plans to let their current Section 1115 waiver for childless adults expire.¹⁴ In the remaining two states in this group, without the Medicaid expansion or a waiver renewal, childless adults covered under the waivers will lose eligibility and likely become uninsured when the waivers expire at the end of 2013.

Parameters of Waiver Authority to Implement the 2014 Medicaid Expansion

Looking ahead to the ACA’s 2014 Medicaid expansion, there are a number of key issues to consider regarding the role of Section 1115 waivers. While states have a range of options and flexibilities related to how they implement the expansion, such as how benefits are designed and care is delivered, some states have expressed interest in seeking additional flexibilities under Section 1115 waiver authority. However, now that adults without dependent children are covered under the ACA with significant amounts of federal funding to do so, the need for and role of waivers for this population fundamentally changes. Through new guidance, CMS has provided some indication of the types of flexibilities it might approve under waiver authority as well as those that the Secretary would not consider to be consistent with the objectives of the program (See Text Box 2).  In addition to new guidance, experience with waivers prior to the ACA will inform waiver activity going forward with consideration of the new options and requirements in the ACA.

Partial Expansions not eligible for enhanced federal funds

In guidance released in December 2012, CMS clarified that states cannot receive the enhanced 100% federal matching rate for partial coverage expansions that do not extend up to 138% FPL (e.g., an expansion only to 100% FPL). However, the guidance indicated that CMS would consider partial expansions through Section 1115 demonstration waivers at a state’s regular Medicaid matching rate, if the Secretary determines that the proposal would further the purposes of the program.¹⁵ The guidance also stated that beginning in 2017, when the 100% federal funding for newly eligible enrollees begins to reduce, further demonstration opportunities will become available to states under the ACA’s new State Innovation Waiver authority, which may be coupled with Section 1115 demonstrations. Under this authority, states would have additional flexibility so long as they offer the same level of coverage and affordability at no additional cost to the federal government.

In August 2013, Wisconsin submitted a waiver application to CMS to implement a “partial expansion” at the regular federal Medicaid matching rate beginning in January 2014. Under the proposed waiver, the state would reduce eligibility for childless adults currently covered in its existing waiver program, BadgerCare, from 200% to 100% FPL.¹⁶ Under the ACA, if not eligible for Medicaid, individuals with incomes at or above 100% FPL will be eligible for subsidies to purchase coverage through the new Health Insurance Marketplaces created by the ACA. Wisconsin also plans to limit coverage for parents to 100% FPL (from 200% FPL). This change does not need waiver authority and was included in the state budget for 2013-2015.

Enrollment Limits Not Permitted

CMS has indicated that, given the significant amount of federal support now available to cover low-income adults under the ACA, it will not authorize enrollment caps or similar policies through Section 1115 demonstrations for the new adult group or similar populations.¹⁷ Prior to the ACA when there was no coverage pathway or financing for childless adults in Medicaid, waiver for this population were approved. However, given the changes in the ACA, CMS noted that these policies do not further the objectives of the Medicaid program, which is the statutory requirement for allowing a Section 1115 demonstration. Some 10 of the 24 states that currently cover childless adults through a waiver, including 6 of the 18 states moving forward with the Medicaid expansion, currently have enrollment caps in place. As such, these caps would need to be eliminated to comply with the minimum federal standards for the ACA’s new adult expansion coverage group in 2014.

Implementing the Medicaid Expansion through a Premium Assistance Model

CMS has noted that it will consider approving a limited number of Section 1115 waivers to implement the Medicaid expansion through a premium assistance model. CMS has issued regulations that provide a state plan option for states to implement the Medicaid expansion through a premium assistance model. CMS also indicated in guidance that it will consider approving a limited number of Section 1115 demonstrations that allow states to use Medicaid funds to purchase coverage for newly eligible Medicaid beneficiaries through the new Health Insurance Marketplaces. The waivers would only be required if a state wants to make premium assistance mandatory. The guidance related to Section 1115 demonstrations for premium assistance specifies that:¹⁸

• Premium assistance enrollees “remain Medicaid beneficiaries and continue to be entitled to all benefits and cost-sharing protections.”
• Beneficiaries have a choice of at least two Marketplace plans;
• Demonstrations include only enrollees eligible for benefits closely aligned with Marketplace packages (e.g., not medically frail); and
• Demonstrations end by December 31, 2016.

The guidance indicates that a state may increase the opportunity for a CMS approval of a demonstration by choosing to target premium assistance to individuals in the new adult group with incomes between 100% and 138% FPL, who are more likely to transition between Medicaid and Marketplace coverage over time due to fluctuations in income.

Arkansas has approval and Iowa submitted a waiver application to use premium assistance Section 1115 waiver authority to implement the Medicaid expansion. Currently, Arkansas and Iowa provide limited coverage for certain childless adults with incomes up to 200% FPL through the ARHealthNetworks waiver program and the IowaCare waiver program, respectively. Both states have plans to implement the ACA’s Medicaid expansion for some or all of those newly eligible for coverage by using premium assistance (See text box below for information on Premium Assistance).¹⁹ The Arkansas waiver was approved on September 27 and the Iowa proposal is still pending at CMS.²⁰ Under the plans, Medicaid funds would be used to purchase coverage for some or all newly eligible Medicaid beneficiaries in Marketplace Qualified Health Plans (QHPs).²¹ Arkansas and Iowa need demonstration waiver authority primarily because their proposals would make premium assistance enrollment mandatory for affected beneficiaries. Iowa also proposes to impose premiums and to waive its obligation to provide wrap-around benefits.  In addition, the Governor in Pennsylvania released a Medicaid reform plan that includes implementation of the Medicaid expansion using premium assistance. Some elements of Pennsylvania’s proposal appear to require waiver approval, including mandatory enrollment in premium assistance.²² Key issues that CMS may consider in evaluating these waiver proposals include how they may affect continuity of care, the impact on access to benefits, how well wrap-around coverage will work, how states will exempt people who are medically frail from the demonstration, what the impact of premiums and cost sharing will be, and whether the demonstrations will be cost effective.²³

Determining Matching Rates for Adults Previously Covered by Waivers

CMS has issued guidance and proposed regulations related to determining the applicable federal matching rate for enrollees currently covered under Section 1115 waivers who transition to a state plan or waiver coverage group under the ACA’s Medicaid expansion in 2014.²⁵ Specifically, the enhanced 100% federal matching rate for newly eligible enrollees applies to adults in the new coverage group for childless adults created by the ACA in 2014 who would not have been eligible for full Medicaid benefits, benchmark benefits, or benchmark-equivalent benefits under the state’s rules as of December 1, 2009. If a state’s December 2009 waiver benefits package was less comprehensive, adults previously covered by such a waiver are eligible for the 100% enhanced federal matching rate under the Medicaid expansion.

Conversely, in states that provided coverage that was equivalent to Medicaid or benchmark coverage, adults transitioning to the newly eligible coverage group are eligible for the state’s regular matching rate, unless the state qualifies as an “expansion state” (described below). Among the states planning to move forward with the 2014 expansion, adults in existing waiver programs in Arkansas, Iowa, Maryland, Michigan, New Mexico, and Oregon would likely receive the 100% enhanced federal matching rate, since these states provide a more limited benefit package compared to their traditional Medicaid programs.

Moreover, expansion states will receive a special matching rate that is higher than the state’s current matching rate and will gradually increase to 90% by 2020 (and which will equal the enhanced federal matching rate available to non-“expansion states” that implement the ACA’s 2014 Medicaid expansion).²⁶ A state qualifies as an “expansion state” if it covered parents and childless adults with incomes up to 100% FPL as of March 23, 2010, and provided coverage that included inpatient hospital care, was not limited to people with employer-based coverage, and was not hospital-only benefits or a high-deductible health plan. The expansion state matching rate could apply to Delaware, Hawaii, Massachusetts, New York, and Vermont. CMS is analyzing the benefits in existing waiver programs to determine which matching rate will apply to adults currently covered by waivers who transition to the Medicaid expansion new adult group beginning in 2014.

Some New Proposals Are Seeking Authority to Waive Premium and Cost-Sharing Rules

Some proposed waivers include broader program changes that would also require waiver approval.  In addition to the premium assistance provisions for those with incomes between 101-138 percent FPL, Iowa also is seeking waiver authority to impose a monthly premium contribution for enrollees with incomes over 50 percent and emergency room copayments. The waiver proposal in Wisconsin would also impose premiums (on a sliding scale) for individuals who qualify through the Transitional Medical Assistance (TMA) program (currently premiums apply for those who qualify through TMA with incomes greater than 133% FPL). The concept paper, released by Governor Corbett in Pennsylvania, calls for premium contributions that could be reduced if individuals participate in health and wellness appointments and actively engage in job search and training programs.²⁷ Michigan enacted legislation to implement that Medicaid expansion that would need waiver approval to impose copays and other contribution requirements for persons between 100 and 133 percent FPL.²⁸

CMS would likely consider statutory and regulatory requirements as well as court decisions related to cost-sharing in reviewing new waivers of this authority.  On August 24, 2011, the U.S. Ninth Circuit Court of Appeals ruled in Newton-Nations et al. v. Betlach and Sebelius, a case that involves the authority to impose heightened, mandatory copays on waiver expansion populations. The Secretary had approved the changes under a Section 1115 Waiver. The Court rejected the copay changes ruling that the Secretary’s review did not satisfy the obligation under the Social Security Act to determine whether the proposal was likely to further the goals of the Medicaid Act and that the review did not adequately “consider the impact of the project on the” persons the Medicaid Act “was enacted to protect.” The Court also questioned whether the project could have an experimental, pilot or demonstration value, expressing doubt that the copayments could “demonstrate something different than the last 35 years’ worth of health policy research” (which consistently concludes that copayments cause low-income people to forego even medically necessary care).

In July 2013, CMS released final rules that streamlined and simplified existing regulations around premiums and cost-sharing while also making some changes to regulations for cost sharing. These regulations maintained the prohibition to charge premiums in Medicaid to individuals with incomes below 150 percent FPL.²⁹ The rules increased the nominal rate for cost-sharing and increased allowable cost-sharing amounts for non-preferred drugs and non-emergency use of the emergency room.  In order to impose higher cost sharing than otherwise allowed a state would need to meet the separate cost sharing waiver requirements under Section 1916(f). Under Section 1916(f), a state may seek a demonstration waiver to charge cost sharing above allowable amounts if the state meets specific requirements and criteria, including testing a unique and previously untested use of copayments and limiting the demonstration to no longer than two years.

New Strategies to Facilitate Enrollment in the Medicaid Expansion Available Through Waivers

CMS has also issued guidance to promote several strategies, which require waiver authority, to facilitate Medicaid enrollment when the ACA’s new streamlined eligibility and enrollment provisions take effect in 2014. Under the ACA, all states must implement changes to streamline, simplify, and coordinate enrollment processes across health coverage programs. These requirements apply to states moving forward and those not moving forward with the Medicaid coverage expansion. CMS’s May 2013 guidance indicates that it will streamline approval of Section 1115 waiver applications that adopt certain targeted strategies to facilitate enrollment. The strategies proposed by CMS are listed below, along with the states that have adopted each option as of September 2013.³⁰ Both states moving forward and those not moving forward with the Medicaid expansion have adopted these strategies:³¹

Targeted Enrollment Strategies and States with Approved Plans
Enrollment Strategy	# of States	List of States
Early Adoption of Modified Adjusted Gross Income (MAGI) Rules	13	Colorado, DC, Hawaii, Illinois, Kansas, Louisiana, Missouri, Nevada, New Jersey, Oklahoma, Oregon, Virginia and Washington
Extension of Medicaid Renewals That Would Otherwise Occur in Quarter 1 of CY 2014	23	Alaska, Arkansas, Connecticut, DC, Florida, Hawaii, Idaho, Illinois, Kansas, Kentucky, Louisiana, Maryland, Mississippi, Missouri, Montana, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Rhode Island, and Vermont
Enrollment in Medicaid Using SNAP	4	Arkansas, Illinois, Oregon, and West Virginia
Parent Enrollment in Medicaid Based on Children’s Eligibility	2	Oregon and West Virginia
12-Month Continuous Eligibility For Adults	0	No States Approved as of 9/15/2013

CONCLUSION