From $17 Billion to $7 Billion so Far … How Far Will Medicaid Waiver Drop?

A scene from the book and movie “A River Runs Through It” shows a father teaching his son the art of writing. The lesson involves improving the boy’s essays with tight editing. Every time the boy successfully cuts the essay in half, his father says that’s good, now cut it in half again.

That may be happening at the Department of Health Care Services.

Federal officials have asked California officials to trim back a Medicaid waiver plan by more than half, and they could be looking to trim it again.  

In March, the department submitted an ambitious, forward-thinking $17 billion waiver request to CMS officials. The five-year plan was a natural follow-up in principle to the highly successful $10 billion “Bridge to Reform” waiver that helped implement the Affordable Care Act in California.

The idea was to build on the success of implementation by focusing upcoming reform efforts on revamping Medi-Cal’s payment structure and delivery systems. The plan also included an affordable housing component.

In October, though, DHCS officials made it clear that negotiations with CMS officials had resulted in a narrowing of the waiver’s scope — down to a waiver request of $7.25 billion, a drop of about $10 billion.

And there is certainly no guarantee that federal officials will sign off on the truncated waiver proposal. Advocates have speculated it will drop by half again, and perhaps even lower than that.

What Happened to the Waiver Plan?

According to Felix Su, fiscal analyst at the state Legislative Analyst’s Office, the problem is not necessarily the plan itself. The proposed programmatic changes seem reasonable, Su said, but the financial basis of the proposal may be what has caused a problem for federal health officials.

“Everything’s predicated on how much funding there is,” Su said.

The funding is based, in part, on an assumption that California has saved a lot of money by switching over to Medi-Cal managed care, and that federal officials should basically credit the state for those savings.

Su said that notion always nagged at him.

“For a long time it was a head-scratcher for us,” he said. “I mean, what makes managed care so special that we would somehow get all of that money back?”

The funding plan was summed up nicely by a recent LAO report:

“The vast bulk of funding room for the Bridge to Reform comes from the difference between the fee-for-service ‘with-waiver’ projection and the managed care ‘without-waiver’ calculation,” the LAO report said. “California has asked to continue receiving ‘credit’ for managed care savings in Medi-Cal 2020, by again basing its ‘without-waiver’ ceiling on a fee-for-service scenario. This assumption accounts for nearly $18 billion of the $20.5 billion in funding room that the state claims should be available for Medi-Cal 2020.”

State officials wanted almost all of that assumed savings, about $17 billion, to be spent on waiver-related projects.

According to Norman Williams, deputy director of public affairs for DHCS, amendment of the waiver request down to $7.25 billion is accurate. Negotiations with CMS continue, he said in an email statement.

“California is still working with CMS on approval of the waiver renewal,” Williams wrote. “The current waiver expires on Oct. 31, and a waiver renewal or extension is necessary before Nov. 1. While there are no specific federal rules around CMS approving components, we are working to have the package approved as a whole.”

Speculation that the proposal has been halved again, down to roughly $4 billion, is not accurate, said DHCS Information Officer Anthony Cava, also in an email response.

“California’s waiver renewal request has not changed,” Cava wrote. 

He added that the waiver represents vital support for California’s safety net capability.

“California is still working with CMS on approval of the waiver renewal,” Cava wrote. “The renewal is critical to California’s ongoing successful implementation of the [ACA] and contains critical support for our public hospital systems that are a core part of the California safety net and provide needed services to Medi-Cal and the remaining uninsured.”

$7 Billion Still a Lot of Money

Even though it has been trimmed back, the current waiver request still is similar in size to the mammoth five-year, $10 billion Bridge to Reform waiver that helped expand Medi-Cal that now oversees health care for almost one-third of all Californians.

The new waiver has four main components:

  • Expanding the public hospital incentive program to include those hospitals operated by municipalities and health care districts;
  • Caring for the remaining uninsured in California;
  • Improving dental health programs in Medi-Cal; and
  • Setting up the state’s whole-person care pilot program.

Su said he has no predictions about how the deal will be worked out with CMS, but he does think the funding mechanism — that California should get credit for managed care savings — is clearly a tough sell to CMS.

“We’re not prognosticating what the outcome will be, but in the worst-case scenario, their intentions may not [be realized],” Su said. “What they indicated is that $7 billion was the final proposal to CMS, but right now it’s not clear how much of that will be approved.”

The LAO raised a number of concerns about that funding mechanism in their own report. “And DHCS has intimated that these are sticking points in the negotiation,” Su said.

DHCS has the authority to ask CMS to extend the current waiver past Oct. 31 if negotiations over the new waiver need to continue.

“In the worst case [federal officials] could say there’s no credit for more managed care savings, that you’d do that anyway without the waiver,” Su said. “But they could also meet the state partway, and this could maybe be a go.”

Whatever gets worked out between state and federal officials, Su said, there is a strong concern among stakeholders about what might be left behind.

“The more pivotal issue is this was the DHCS vision for a new delivery system and alternate payment models,” Su said.

“With no waiver, it’s a big question from a policy perspective,” Su said, adding, “Does the window close on those new models? For a lot of the stakeholders that might be the greatest disappointment.”

Related Topics

Insight Medi-Cal