GAO Report: Medicaid "Innovation" Waivers Should Expand, Not Restrict Health Coverage

The “innovation” waivers that states can seek under the Affordable Care Act (ACA) starting in 2017 are designed to bring health coverage to more residents, not fewer—and states must be mindful of vulnerable groups, according to a report issued Friday by the Government Accountability Office (GAO).

The report suggests states that seek to roll back Medicaid expansion will have a difficult time doing so under the "superwaiver" process that is distinct from the 1115 or "demonstration" waiver. That process has been used by several states to make adjustments to the program.

Under the ACA, states can use 1332 Medicaid waivers starting in 2017 to tinker with some of the law’s core provisions, including the individual mandate, employer penalties, rules governing exchanges and covered benefits, as well as premium tax credits. However, the GAO report states that as a practical matter, proposals cannot upend the need for the IRS and the federal exchange, HealthCare.gov, to administer a consistent program across states, one that does not unduly burden the government to make state-specific IT changes, for example.

States that are using the federal exchange will have more limits on using the 1332 process than those that have their own exchange. The report states that “Changes to the calculation of premium tax credits, as well as applying state-specific enrollment periods are examples of changes that cannot be accommodated" for states using the federal exchange.

The most high-profile attempt to change Medicaid expansion is occuring in Kentucky, where Governor Matt Bevin has proposed a 1115 waiver to make several changes to the program. He has said the current Medicaid expansion design, which is credited with insuring 450,000 people and bringing the uninsured rate down from above 20% to 7.5%, is not sustainable. Under the ACA, states will start paying up to 10% of the costs of expansion; payments are scheduled to start in 2017.

Bevin's first announcements on changing Medicaid included plans to pursue the 1332 waiver, but a spokeswoman said that only the 1115 waiver is being pursued. Kentucky had been scheduled to deliver a final waiver proposal to CMS on August 1, 2016, but Bevin delayed the process in light of a flood of comments received on the draft plan.

Healthcare advocates in Kentucky have challenged Bevin’s draft on several points, notably the requirements that able-bodied residents must work or volunteer to get coverage under the ACA provision that allows states to expand Medicaid to those earning up to 138% of the federal poverty level. Opponents have also criticized plans to drop dental coverage for this group, saying it will drive up emergency room visits at a point when hospitals face penalties if these numbers do not fall. Many healthcare leaders, including Drew Altman, president and CEO of the Kaiser Family Foundation, have asked whether Bevin’s plans are even legal, in light of the law surrounding waivers.

The GAO report states that the 1332 waivers must achieve 4 goals: they must cover "at least a comparable" number of people, (2) benefits must be on par with a qualified health plan, (3) coverage and out-of-pocket spending cannot be more expensive than they were without the waiver, and (4) the wavier cannot increase the federal deficit.

Also, the report notes, states seeking waivers must show how it will affect those with low incomes, the elderly, and the chronically ill. Effect on vulnerable populations is key: “Even if a state can demonstrate that a waiver meets the criteria for its overall population, if the waiver reduces coverage, comprehensiveness, or affordability for any of these subgroups, the waiver would fail to meet the criteria,” the report states.

GAO found that HHS and Treasury do not plan to let states develop their own numbers; rather, they must use federal population, growth, and cost trend information. An actuary must certify that benefit levels and how many people will be covered. The report also states that deficit neutrality tests will mean that waivers cannot shift costs on to other federal programs, including traditional Medicaid.

While the 1332 waiver has received little attention, state-level Medicaid experts have been eyeing it for years. In December 2014, Matt Salo, executive director of the National Association of Medicaid Directors, wrote in The American Journal of Accountable Care that these “super waivers” would be worth watching come 2017.

HHS and the Treasury Department are developing tools to accommodate an expected wave of applications, taking a “collaborative” approach that calls for states to work actively with CMS even before a formal plan is submitted. According to the report, HHS believes 1332 waivers must stand on their own, apart from other waivers that might be pending.