Even if the AHCA Doesn’t Prevail, States Can Still Pursue Their Own Health Care Reforms

On May 4, 2017, the American Health Care Act narrowly passed the House. The bill includes a major overhaul of the Medicaid program and federal rules governing the individual health insurance market, which together cover over a quarter of the U.S. population. It also gives states the option to further waive key provisions of the Affordable Care Act. Passage in the Senate is far from certain, with a number of Republicans vowing to draft their own legislation rather than take up the House’s bill.

While debate over the future of healthcare continues, some states are looking for immediate opportunities under existing law to achieve reforms they have long sought. The vehicle? Waivers.

Waivers allow states to waive certain aspects of federal law, subject to the approval of the Secretary of the Department of Health and Human Services.

A letter from HHS to the nation’s governors makes clear that the new administration is willing to give states greater freedom than they’ve previously known to waive federal Medicaid rules through the use of Section 1115 Medicaid waivers.

A separate letter issued to governors by Secretary Price reminds states that they may use Section 1332 State Innovation Waivers to waive certain ACA requirements. Taken together, these two letters convey that regardless of broader legislative reform efforts, states are likely to be given wide latitude to move forward with their health care agendas. All they need to do is ask.

So what are states likely to ask for?

For that, it’s instructive to look at what they’ve asked for in the past. Namely, requests made in Section 1115 Medicaid waivers that were previously denied; a letter from four Republican governors that offer an alternative to the Medicaid policy changes put forth under the AHCA; and letters from thirty-four governors and state insurance commissioners, in which they provide input on health care reform, following a formal request from the Republican House leadership.

Here’s a list of some of the most notable Medicaid requests:

Apply work requirements to ‘able bodied’ adults as a condition of enrollment. Arizona and Kentucky currently have waivers pending with CMS that include work requirements as a condition of enrollment, and Wisconsin intends to submit one in May.

Increase premiums and out-of-pocket costs. Currently, states can and do require certain beneficiaries to pay Medicaid premiums and may apply nominal out-of-pocket costs to most Medicaid enrollees, but there are rules around who can be charged and how much. Some states want to increase the amount they can charge and require it of more populations, like those with incomes below the poverty line. Wisconsin’s draft waiver would require childless adults with incomes over 20 percent of the federal poverty level (roughly $2,400 a year for a single adult in 2017) to pay monthly premiums.

Dis-enroll or lock-out individuals who breach conditions of enrollment. While premiums and co-pays aren’t new in Medicaid, enforcing them with dis-enrollments and lock-outs are. Indiana was the first state to receive approval from CMS to dis-enroll childless adults from Medicaid for failing to pay premiums, followed by Montana. Wisconsin’s forthcoming waiver contains a similar provision. Kentucky and Indiana have new waivers pending with CMS seeking lock-out periods of up to six months for breaches of enrollment.

Expand residential behavioral health coverage. Under Medicaid law, federal Medicaid funds can’t be used to pay “institutions of medical disease” (IMDs) with more than 16 beds for beneficiaries aged 21 to 64. Several states have called for lifting the so-called “IMD exclusion.” Wisconsin’s forthcoming waiver includes a request to lift the IMD exclusion, stating that this is critical for fighting the state’s opioid epidemic.   

The Individual Market

In the 34 state letters to House leadership, a number of states expressed a desire to stabilize their individual insurance markets and control rising premiums. The most notable proposals to accomplish this included lifting the requirement that Marketplace plans offer the 10 categories of essential health benefits (EHBs); establishing high-risk pools; and creating reinsurance programs for health plans operating on the exchange.

The establishment of high-risk pools and reinsurance programs are not at odds with federal law (in fact, the ACA established temporary funds for both programs), and therefore do not require a waiver. However, by using Section 1332 State Innovation Waivers, states can reallocate their share of federal ACA dollars to help fund these programs. Lifting or loosening the requirement to cover the EHBs, on the other hand, would require a 1332 waiver, or could be achieved through administrative action. For example, the administration can redefine and narrow the specific services and benefits covered by one or more of the essential health benefits.

A number of these requests have already been approved through Medicaid waivers under the previous administration and are likely to be approved under the current administration (Price’s letter specifically says that “meritorious innovations” involving work requirements would be approved). But other requests may be denied, or may be achieved through regulation and sub-regulatory guidance, or administrative changes.

One thing is clear. The “patchwork quilt” of stitched together programs and policies that often describes the Medicaid program, and indeed, the American health care system as a whole, is about to get even patchier, with greater state-by-state variation. But even as they go their own way, states will continue to rely on federal health agencies like HHS and CMS for financial investments and technical support. It is the strength of these state-federal partnerships that will determine the success of state health reform efforts, now and in the future.