Medicaid Waiver Expansion

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The waivers are very much front and center as states determine if they want to participate in the ACA’s Medicaid expansion, which extends Medicaid benefits to poor, mostly childless adults. The big inducement to expanding Medicaid eligibility is that the federal government will pay 100 percent of Medicaid expenses for the expansion population through the end of 2016. After that, the federal match will eventually taper to 90 percent.

Twenty-two states plus the District of Columbia agreed to the expansion without asking for waivers, but the governors in Arkansas and Iowa wanted the federal government to allow changes in their Medicaid programs — including permission to use Medicaid monies for the expansion population to purchase private insurance on the new state insurance exchanges — before they were willing to consent to the expansion.

HHS agreed to Iowa’s and Arkansas’s waivers last year, which enables the Obama administration to count them among the expansion states. Michigan has an application pending. Pennsylvania is holding hearings now on its proposed waiver application. New Hampshire, Virginia, Indiana and a few other states seem likely to file waiver applications this year as well.

The waivers are technically called “demonstration waivers,” to convey the intention of giving states the ability to tinker with their Medicaid programs in innovative ways intended to lead to improvements in cost efficiencies and delivery of health care. “It was a way to test different approaches in Medicaid programs,” said Teresa Coughlin, a senior fellow at the Urban Institute.

In the early days, Medicaid waivers were used for relatively small changes in the Medicaid programs, for example, experiments in health care delivery methods in particular regions of their states. Eventually, though, waivers grew in scope to sometimes encompass a state’s whole Medicaid program. In the 1980s, for example, a number of states, including Tennessee and Arizona, used waivers to convert their entire Medicaid programs to a managed care system. Because so many states were using waivers for managed care or for long-term nursing home care, separate waivers were eventually created for those areas of change.

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(States can make modifications that don’t depart from federal law through state plan amendments, a far less rigorous process.)

Some states have also used the waiver process to extend Medicaid eligibility or to cover more health services. States, including Arizona, have also used waivers to reduce eligibility or benefits but not below certain federal minimums. Any program changes from waivers carry a big caveat: They can’t cost more money, at least as far as the federal government’s contributions are concerned. Or if they do, the state has to identify ways to offset increased spending. The five-year waivers can be renewed for three-year terms, but the waiver programs must remain revenue neutral.

In their waiver applications, states often claim that their modifications will not cost more thanks to new efficiencies they will achieve to save money. States have also moved money from the funds they received from the federal government for uncompensated health care under the argument that improving Medicaid coverage would reduce the number of uninsured people who show up at hospitals in need of care.

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