Maintenance of Effort Looms Over Healthy Families, Budget

Federal regulators last month questioned California’s decision to increase premiums in Healthy Families, California’s Children’s Health Insurance Program.  Whether this specific inquiry produces any direct impact, the new scrutiny has implications for state leaders in their effort to fill a $19 billion gap in the California budget.

Officials at CMS sent a letter to the Managed Risk Medical Insurance Board, which administers Healthy Families, questioning whether premium increases approved last year are in compliance with federal law. Part of the health care reform law — an increasingly important matter for many states, including California — requires states to maintain health coverage programs at the same levels as they were before the Affordable Care Act became law on March 23. Failure to adhere to the maintenance of effort provisions could jeopardize California’s share of federal funds for Healthy Families and Medi-Cal, the state’s Medicaid program.

State officials contend that because Healthy Family premiums were increased before the federal health reform law was enacted, the state has not run afoul of maintenance of effort rules.

The ball is now back in CMS’ court. Some stakeholders postulate that CMS officials, who never approved those premium increases, may argue that the increases were not technically in effect before the reform law came into play.  Whether federal regulators needed to sign off on those changes for them to be considered “official” remains unclear.

CMS officials are mum on the particulars.

“All I can say is we’re in discussions with the state, and we haven’t yet made a decision,” CMS spokesperson Jack Cheevers said.

A response from CMS is expected “within a few weeks.”

New Acronym Grows in Notoriety, Respect

The speed with which a new acronym becomes widely recognized gives some indication of its importance. Although it was included in the federal stimulus language last year, the inclusion of maintenance of effort provisions in federal health reform turned MOE into a household term in state legislatures.

In a relatively short four months, MOE has become readily recognized and respected in state capitals all over the country. Sacramento, dealing with the largest budget deficit in the country, is acutely aware of MOE implications. Legislators know that if they increase premiums, decrease services, create new hurdles for applicants or otherwise change Healthy Families from its present state, California stands to lose a significant sum of money. The combined federal contribution for Medi-Cal and Healthy Families is about $26.5 billion a year.

Gloria Nagle, associate regional administrator for CMS’ Region IX Division of Medicaid and State Operations in San Francisco, said MOE is a new wrinkle for federal regulators, just as it is for state policymakers.

“MOE issues are really serious and much more expansive now under the new law,” Nagle said. “ACA (the Affordable Care Act) is new and we’re feeling our way. We’re trying to handle these as carefully and quickly as we can.”

Many states face budget crises and are looking for ways to cut expenses, Nagle said.

“We try here very hard to monitor budget proposals and when we see things that might create problems we say, ‘Ahh, you better run that by us first.’

“We’re trying to identify these issues early before they get too far along in the legislative process. Anything on MOE is first priority for us,” Nagle said.

‘Good News for California’s Kids’

The new adherence to the status quo is “good news for California’s kids,” according to Kelly Hardy, director of health policy for Children Now, a national advocacy group based in California.

“CMS is indicating that they’re going to look pretty stringently at any possible lapses in maintenance of effort, and considering what we saw resulting from those changes last year, that’s a good thing,” Hardy said.

Healthy Families is a smaller program now than it was a year ago. At one point last year, the program covered about 922,000 kids in California. After premium increases and a temporary moratorium on accepting new kids who were put on a waiting list, the program is down to about 856,000 kids now.

“Premium and copay increases were part of it,” Hardy said. “The waiting list in the fall of 2009 really created a big dip in enrollment, and we haven’t recovered from that yet.”

Hardy acknowledged that the new scrutiny could backfire in the current austere atmosphere of Sacramento and cause Gov. Arnold Schwarzenegger (R) to renew his call last year to scrap Healthy Families to save money.

“I’d like to believe that that’s not where he would go,” Hardy said. “Pulling back on Healthy Families would be going in the wrong direction. State and federal governments working together can figure out a way to keep the program intact. That really would be the best thing for California,” Hardy said.

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