Partial Medicaid Expansion and ACA Enhanced Matching

Attempts by states to grapple with the high costs of Medicaid have led some states to full expansion via the Affordable Care Act’s (ACA) matched enhanced funding in which the federal government picks up 90% of the tab, while moving other states to consider alternatives such as partial expansion. 

Utah is the latest state to submit a request to the Centers for Medicare & Medicaid Services (CMS) for a waiver to implement partial Medicaid expansion while retaining coverage by the matched enhanced ACA funds. Although CMS denied similar requests from Arkansas and Massachusetts, it is not clear how Utah will fare given the current political climate led by the Trump administration in which the heads of both the Department of Health and Human Services and CMS have made clear their desire to reduce Medicaid enrollments and federal dollars that fund the program.

Other states are closely watching Utah, therefore, to see how their new waiver request may be received by CMS. Georgia, in particular, may be paying heed to what happens in Utah given the recent passage in the state senate of a bill authorizing partial expansion of Medicaid.

How likely is it that the powers under the Trump administration will accept Utah’s waiver and offer this as an alternative pathway to other states? What will happen to the low-income persons not covered under the partial expansion who would have been covered under full expansion? How will health outcomes and cost be affected?

Experts address these questions under the ongoing uncertainty about the direction CMS may take in offering waivers for partial expansion covered by enhanced ACA funds

What Utah Wants: Template for Other States?

In February 2019, the Utah state government enacted into law new legislation to implement partial Medicaid expansion. Under the new law, the state is directed to submit to CMS a Section 1115 waiver for permission to implement partial expansion that would provide coverage up to 100% of the federal poverty level (FPL) and still retain enhanced matching federal funds as offered through the ACA. Under the ACA, states that implement full Medicaid expansion, defined as coverage up to 138% of the FPL, receive enhanced federally matched dollars (ie, 93% in 2019 and 90% in 2020 and thereafter vs about 60% federal match for states without Medicaid expansion). The waiver specifies that the partial coverage with ACA enhanced matching funds is for a capped number of nonelderly adults up to 100% FPL and that the federal funding would be administered according to a per capita cap.1

A working time line of the proposed partial expansion includes a “Bridge Plan that essentially will be in place while CMS reviews the above waiver. During this period, partial expansion will be implemented at the state’s regular matching rate and be limited to a capped number of nonelderly adults up to 100% FPL. [Note: the state will also need to get a waiver for this provision.

Fallback plans on what to do if the partial expansion with ACA enhanced funds waiver is not approved are being worked out, but to date all eyes are on the possibility of the waiver’s approval and what it may mean for other states.

According to Alexander Shekhdar, an independent Medicaid managed care expert, the inclusion of per capita caps that would limit the number of people enrolled in the partial expansion proposed by Utah is the most obvious alternative pathway to approval that other states may want to follow given the inclusion of per capita cap proposal (along with block grants) as part of the ACA repeal and replace legislation that was debated and ultimately defeated in 2017 in Congress. “If this does open the door for Utah, other states that want to pursue an expansion only up to 100% of FPL and only with per capita caps kind of funding cap on top of it and with certain accessories such as community engagement will probably follow suit,” he said.

Obstacles to Approval

Notwithstanding the potential political cost to state legislators of legislating a partial expansion after the residents of Utah voted for full expansion through a November 2018 ballot initiative (Proposition 3), the legal obstacles may preclude approval of the waiver despite the current favorable political environment. 

Andrey Ostrovsky, MD, chief medical officer and vice president of behavioral health, Solera Health, who previously served as chief medical officer of CMS Center for Medicaid and Chip Services (CMCS), said that approval of the Utah waiver is unlikely under the current law that clearly states that ACA enhanced funding is tied solely to full Medicaid expansion and pointed to the denial by CMS of a similar waiver submitted by Arkansas and Massachusetts that, he said, was blocked basically because it violated the ACA. 

“The statute clearly lays out that the enhanced federal match is only applicable to full Medicaid expansion,” he said. “I think we’d find that if a partial expansion was approved there would be significant legal challenges to that.”

Mr Shekhdar, however, thinks the door could be opened by a slight ambiguity in the language of the ACA that provides a way to interpret the law differently. “It all hinges on interpretation of what Section 2001 of the ACA means,” he said, quoting a section on income eligibility requirements that states “whose income…does not exceed 133 percent of the poverty line…”. [Note: the 138% FPL used to refer to full expansion is based on 133% FPL plus about 5% tied to modified adjusted gross income tax rules.]  

“The statutory language does not say MUST extend to 133 percent,” he said.

Given this opening, Mr Shekhdar thinks that CMS could legally approve a waiver for a special demonstration to permit partial expansion and get the ACA enhanced matching funds. 

Dr Ostrovsky expressed more skepticism. Saying that demonstration would be the mechanism to get the waiver, he nonetheless pointed to the section of the Social Security Act that was modified by the ACA and is not subject to demonstration authorities.

He also emphasized that state’s existing authority to partially expand without receiving the enhanced federal funding match defeats the purpose of a demonstration.

Potential Outcomes of Partial Expansion on Beneficiaries and Payors

One of the key issues that Utah and other states need to consider when looking at partial expansion is what happens to the people who fall within the gap between 100% and 138% of the FPL. One way to cover these people, according to Mr Shekhdar, is through the federal exchange or through a low-income product on the exchange that would be subsidized through tax
credits that the government provides for people between 100% and 400% of the FPL.

Placing this in a broader context, Dr Ostrovsky emphasized the need for states to look at both the short- and long-term considerations. “This is a very serious consideration on whether or not to expand because in the short-term it does increase cost,” he said, emphasizing that Medicaid expenses currently make up about one-third of state budgets. “Even with a 90% federal match, there is still 10% that states are on the hook for that could equate to millions of added expense, “he said. 

However, he underscored the need to put the short-term concerns in context with the benefits over the long-term. “Long-term it is a great investment for states from a public health perspective and financial health,” he said,emphasizing the monies saved over the long run when beneficiaries, who are among the most poor and vulnerable persons with massive health problems, rely on primary care and preventive services instead of high cost resources such as emergency rooms and hospital stays.

Data support this. Findings from a literature review, from the Kaiser Family Foundation, of 202 studies that looked at the impact of state Medicaid expansion found a positive association between expansion and health outcomes in states that implemented full Medicaid expansion, as well as a positive effect on economic measures including reductions in uncompensated care costs for hospitals and clinics.

Given that the population on Medicaid is among the most poor and vulnerable to health risks and with massive comorbidities, Dr Ostrovsky stressed the importance of viewing coverage for this population as a long-term investment that over time reaps benefits by significantly improving health outcomes and reducing health care costs.

“If the federal government is taking seriously, for example, the opioid overuse crisis, how could they possibly advocate for anything that curtails access to coverage to this highly vulnerable population,” Dr Ostrovsky said.

Saying that, he also emphasized that partial expansion is better than no expansion. “Any Medicaid expansion is probably a good thing compared to no Medicaid expansion,” he said. “Is it better or worse in the long-term from a public health perspective to refuse partial Medicaid expansion? I don’t know.”