Medicaid
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New Medicaid block grant waiver: Risk disguised as flexibility

February 3, 2020
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On January 30, the Centers for Medicare and Medicaid Services (CMS) unveiled a Medicaid block grant policy guidance to states calling it the ‘Healthy Adult Opportunity’ (HAO). CMS describes the new waiver program as a way for states to seek flexibility in program design for non-disabled adults and to achieve better outcomes. Upon review, however, the guidance reveals itself to be a legally questionable set of exclusionary policy concepts that will increase states’ financial risk, decrease their authority over program design, reduce access to services for multiple populations (including parents, the elderly and disabled), eliminate long-standing oversight protections relative to managed care and encourage institutionalization of older adults.

 While the proposal indicates these policies will not affect the disabled, that technically only applies to those who receive disability payments, meaning there are five million disabled U.S. citizens this could affect.

First, it is important to understand how this policy is constructed from a financial standpoint through the lens of insurance economics. In insurance, the notion of “risk” is defined as the likelihood that an insured event will occur that will require the insurer to pay a claim. In Medicaid today, this risk is shared between state and the federal governments with a guarantee relative to the federal government’s contribution. Under a block grant or per capita cap, federal financing would be tied to a fixed amount that is predetermined. In this way, block grants/per capita caps shift the financial risk of Medicaid back to the states.  

To accommodate this increased risk to states, CMS included a number of policy tools to help states manage costs. Included in this is the ability to impose higher co-payments on drugs and doctor visits, eliminate retroactive and presumptive eligibility for hospitals, eliminate coverage for non-emergency medical transportation, eliminate well-child services for 19 and 20-year-olds, impose work requirements as a condition of eligibility for able-bodied adults without dependents and allow for caps on enrollment. States also have the ability to propose “alternatives” to federal oversight laws for managed care organizations in regards to actuarial soundness and network adequacy. This means states may not have to automatically adjust their payments to managed care based on availability or providers. Additionally, states will have to review their existing regulations relative to their programs, which include laws like “certificate of need” (CON). This provision carries the potential to counteract years of cost-saving policies in long-term care in Ohio where CON laws limited the number of institutional settings in favor of community-based options for older adults (Ohio’s fastest growing demographic). And, while the proposal indicates these policies will not affect the disabled, that technically only applies to those who receive disability payments, meaning there are five million disabled U.S. citizens this could affect.

 The guidance reveals itself to be a legally questionable set of exclusionary policy concepts
It is a well-established policy idea that health care expenditures in the United States are high relative to the outcomes they produce. However, this proposal fails to accommodate the most fundamental and influential economic factors that affect costs in our system and instead leaves policymakers in the untenable position of accommodating increased risk through blunt tools that limit access and reduce benefits. And while some elements may deserve further examination (such as the ability to offer a closed formulary), the overwhelming thrust of these waivers undermines the statutory purpose of the Medicaid program to provide medical services.
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