A new block grant initiative by the Center for Medicare and Medicaid Services could significantly change how states structure Medicaid expansion. But it’s not yet clear how many states will take on the risk of capping funds for Medicaid expansion, along with the litigation expected to accompany the change.
CMS announced its Healthy Adult Opportunity policy last week under a section 1115 demonstration waiver, which allows states to test new approaches for their Medicaid programs as long as they meet the objective of providing affordable health coverage and are budget-neutral.
States that opt in would receive reimbursement for Medicaid expansion costs, up to a certain limit. That amount would be based on previous funding amounts, population and inflation.
In exchange, states would be able to propose plans with some changes from current Medicaid expansion plans. For example, they can charge enrollees premiums or other out-of-pocket costs up to 5% of their household income, and impose work requirements. The biggest change, however, is letting states have a closed formulary similar to commercial insurance plans.
A potential motivator for states is that if they meet CMS’ performance standards and come in below budget, they would be able to keep a portion of federal savings. But experts still weren’t sure if that was enough motivation for states to buy into block grants.
“I think most states will try to understand the guidance before they take a step of pursuing it,” said Patricia Boozang, senior managing director for Manatt Health Strategies. “Those states that haven’t expanded… those states might look at this.”
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
Oklahoma would be a likely candidate, as Governor Kevin Stitt helped CMS announce the new policy. Block grants could potentially find footing in North Carolina, where the company’s lawmakers and governor are divided over Medicaid expansion. Notably, some of the largest non-expansion states, Texas and Florida, have been mum on the policy.
Two expansion states, Alaska and Utah, have also expressed support for block grants. But for most states that already have expanded Medicaid, there’s little here of interest, Boozang said.
But even for non-expansion states, some of the options they might have looked for in previous attempts to implement block grants aren’t on the table. For example, states cannot cap enrollment, and they must cover the essential health benefits as defined in the Affordable Care Act.
“In terms of the flexibility, I would point out once states take a closer look, they may be less enamored with the possibilities that come with this demonstration,” she said. “A lot of the flexibilities CMS touts are things states have the ability to do today under (section 1115) demonstrations.”
Capped budgets
For most states, the biggest consideration will be whether to take on the financial risk of capping federal funding. States that come up short would have to make up the difference through state funding. Though CMS has said it would grant exceptions for special considerations, it’s not clear what those would entail. For example, would a bad flu season be covered? A new, high-cost oncology drug? Or an uptick in uninsured during a recession?
“During good times, when costs are low, some people think they’re good ideas. During bad times, when you have a coronavirus outbreak or a bad economy, then block grants don’t look so good,” said Andy Slavitt, a general partner at Town Hall Ventures and former CMS acting administrator. “People are going to end up getting hurt. … There are a basic set of protections that are part of the safety net that are at risk if you start to change this kind of model.”
Patient and provider groups, including the American Medical Association and American Heart Association, have expressed concerns that the policy could ultimately reduce access to care for patients covered under Medicaid expansion. If costs exceed states’ budgets, they may turn to terms such as limiting covered benefits or services, or making it more difficult for people to enroll and stay enrolled.
“The tools that you have to reduce spending in Medicaid are pretty blunt instruments for the most part,” Boozang said. “Providers are concerned that states that accept these caps, one of the blunt instruments they could use is reducing payments to providers.”
For states that choose to opt into block grants, it could take the better part of the year to hammer out the details with CMS. Generally, the agency takes at least six months to approve a waiver, though the current administration might be motivated to prioritize these cases. But it would still take time to negotiate budgets and the specifics of how states would structure the program.
“And it’s going to be a negotiation,” Boozang said. “States want to be careful because they’re going to be taking on more risk.”
Legal risk
On top of the financial risk of block grants, states may also face a legal risk. Boozang expects the situation might look something like when states chose to enact work requirements for Medicaid eligibility through section 1115 waivers last year.
Indiana and Michigan were the latest states to face lawsuits saying the work requirements, which would have resulted in thousands losing coverage, didn’t meet the intent of the Medicaid Act. Other states began to shy away from work requirements as a result.
“It ultimately wasn’t embraced by states because it didn’t adjust to state priorities and exposed states to litigation,” Boozang said. “I think the states would have to expect that they’re walking themselves into litigation if they pursue one of these waivers. The basis for that litigation would be similar to what we’ve seen under work requirements.”
Slavitt expects a similar challenge. He said the block grants don’t honor the statute of Medicaid, to give people as much care as they require.
“This is going to get legally challenged,” he said. “This is a clear violation of the law. It’s also not what 1115 waivers are to be used for. They’re supposed to be pilot innovations, not supposed to be financial hijinks.”
Photo credit: JamesBrey, Getty Images
