More States Are Exploring Alternative Medicaid Expansion Plans. What Does That Mean for Health Reform?

Pennsylvania’s now in. Indiana might be next. Is the tide turning on Medicaid expansion? Recent moves by previously entrenched states indicate that might be the case. However, what does it mean for Medicaid nationwide when more states are choosing alternative plans?

The Affordable Care Act calls for Medicaid to be expanded to cover residents with annual incomes up to 138% of the federal poverty level and eliminates categorical eligibility. However, a Supreme Court ruling in 2012 made it optional for states to participate in the expansion. Some states that have been hesitant to increase program eligibility under the law now are looking at alternative ways to expand health coverage to low-income residents.

A recent report that focused on health care reform in the South notes that “Medicaid expansion remains on the table for many” hold-out states there. “Some of those in opposition are moderating their views by considering the private option as a third way in what once was seen as a dichotomous choice,” according to the report, which was issued by the Nelson A. Rockefeller Institute of Government in conjunction with the Brookings Institution and the University of Pennsylvania’s Fels Institute of Government.

Meanwhile, recent research has shown reductions in health care spending and uninsured rates in states that opened the program to more residents. For instance, a Gallup poll found states that have fully embraced the Affordable Care Act — by expanding Medicaid and setting up their own health insurance exchanges — have seen the fastest drops in the uninsured. As of this year’s first quarter, there was a 4.3 percentage-point gap in uninsured rates between states that expanded the program and those that did not.

Hold-Out States Testing the Ground for Alternative Medicaid Plans

Christopher Plein, author of the Rockefeller Institute report and a professor at West Virginia University, told California Healthline, “Many states have adopted a wait-and-see posture over time. They’re hedging their bets because they’re not quite certain of the latitude they will be given.” However, he said, “I think we’re moving out of that phase now and more into sorting out details of implementation and exploring how much discretion and leeway states will have.”

Plein said that while the partisan and political debate about the fundamentals of the ACA “is starting to settle,” a policy debate about the law’s framework is emerging. “Well-established economic interests are going to start to assert influence on some things,” he said, adding, “You see that clearly in some states that are trying to look at the private option or premium subsidies … there are stakeholders interested in drawing on federal Medicaid dollars.” For example, the Rockefeller Institute report notes “the practical financial challenges that many hospitals and health care providers face may well prompt more rigid opponents of Obamacare to revisit their stances on Medicaid expansion.”

Many states already are watching an alternative expansion plan play out in Arkansas. The plan shifts eligible residents into a “private option” through the state’s health insurance exchange. In a recent blog post, Stuart Butler with Brookings wrote that other southern states — such as Florida, South Carolina, Tennessee and Texas — also have explored private option approaches similar to the Arkansas plan. Meanwhile, Pennsylvania recently won approval for its own plan and Indiana likely is next.

Some details of Arkansas’ plan might give states pause, however. Donna Friedsam, health policy programs director at the University of Wisconsin Population Health Institute, in an interview with California Healthline noted that the Government Accountability Office recently criticized CMS for approving the Arkansas waiver without properly testing the plan for budget neutrality. 

Meanwhile, some states still are facing a lot of political roadblocks to expanding Medicaid. After the state Legislature rejected expansion, Virginia Gov. Terry McAuliffe (D) earlier this month announced a multifaceted plan to simply boost insurance, not specifically Medicaid, coverage in the state.

According to the Rockefeller report, states that to date have opposed Medicaid expansion likely will be influenced in coming months and years by:

  • Economic conditions;
  • Election cycles; and
  • Success or failure stories from other states that expanded.

States’ Medicaid Decisions Could Affect Health Care Reform Overall

While hold-out states are exploring expanding Medicaid through alternative routes, doing so could further complicate health reform overall, experts say.

Plein noted that each state looking into alternative Medicaid expansion options is “crafting their own approach.” While some might broadly expand Medicaid to low-income residents, other states might choose to expand Medicaid partially and provide premium subsidies to residents with slightly higher incomes. Because the program could vary from state to state, Plein said “questions will start to emerge” about whether there is parity in coverage. While there are essential health benefits that the program is required to cover, he said that “there can be some differences in additional services that are offered” in each state under the waiver plans — similar to differences that existed before the ACA was enacted.

Friedsam said it is unclear yet “how consumers will fare under these various waiver models.” She said, “The private option model may turn out to be favorable for consumers in that they provide better access to providers. Or this kind of coverage may prove too burdensome for lower income consumers in terms of the degree of cost-sharing required or other personal responsibility provisions attached.”

Friedsam noted that evaluating various waivers to determine whether they are good investments is “very important” as more states apply for them.

Looking to the Future

The Rockefeller Institute report notes that “perhaps the most interesting paths of inquiry are focused on the future and in the tracking of state responses and actions as the ACA plays out.”

According to a Kaiser Family Foundation brief, monitoring “the experiences of [community] health centers in Medicaid expansion and non-expansion states can play a key role in evaluating the impact of health reform.” The brief noted, “As these reforms take hold, health centers in states and communities that more fully benefit from the coverage expansions can be expected to grow, and the scope and quality of their care can be expected to increase. In the same vein, health centers in the nearly two dozen states that, to date, have elected not to proceed with the Medicaid expansion, will likely have less service capacity and less ability to make capital investments and attract personnel, and their services will likely reach fewer people.”

Even if the remaining hold-out states implement alternative Medicaid expansion plans and take more control over their health insurance exchange marketplaces, only time will tell whether the moves help or hinder health care reform. Friedsam said, “Perhaps we’ll learn that [private option] models are a better approach than traditional Medicaid. Or perhaps we’ll learn that they cost too much relative to what can be purchased through traditional Medicaid.”

Around the Nation

Here’s what else is making news on the road to reform.

The ACA and Tax Season: Michael Cohn at Accounting Today reviews IRS Commissioner John Koskinen’s testimony last week to a congressional subcommittee about the potential effects of ACA tax subsidies on the next tax season.

Continued IT Issues for Exchange Site? As the ACA’s second open enrollment period approaches, Darius Tahir writes in Modern Healthcare that insurers are worried about potential IT problems with the federal exchange website.

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