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Medicaid and Insuring the Poor — Where Are We Heading?

Article · October 31, 2016

As the principal source of health insurance for the poor, the dominant payer for long-term services and supports, the most important source of health care financing during public health crises, and the largest source of funding for the health care safety net, Medicaid occupies a central place in U.S. health policy. Medicaid will inevitably continue to evolve as the population ages, population health needs change, poverty persists, and rates of coverage by employer-sponsored insurance continue to decline, especially among workers at smaller, low-wage firms.

The Affordable Care Act mandated the expansion of Medicaid coverage to all nonelderly U.S. citizens and long-term U.S. residents with incomes up to 138% of the federal poverty level. However, the Supreme Court declared this compulsory expansion unconstitutional, converting the mandate into an option. Today, 31 states and the District of Columbia have expanded Medicaid, insuring millions of people who previously lacked coverage. In the remaining 19 states, nearly 3 million working-age adults, a disproportionate number of whom are black, fall into a coverage gap.1

Using special-demonstration authority under the Social Security Act, the federal government has, to date, permitted six of the states expanding Medicaid (Arkansas, Iowa, Indiana, Michigan, Montana, and New Hampshire) to adopt the expansion on an experimental basis. (The government also allowed Wisconsin to modify its long-running Medicaid coverage experiment in order to move previous Medicaid beneficiaries with incomes between 100% and 138% of the federal poverty level into the new health insurance exchanges, or marketplace.) Other states may follow, demanding demonstration status as a condition for initial or continued participation. For example, Kentucky, which originally embraced the Medicaid expansion as enacted, has submitted a demonstration proposal whose approval, according to Republican Governor Matt Bevin, is a condition of continued coverage for more than 400,000 people. Ohio, like Kentucky, sought to convert its Medicaid expansion to demonstration status in order to impose new conditions on coverage, but in September the administration rejected its proposal.

Although the evaluations required under the federal demonstration statute are in an early stage, the demonstrations permitted to date have already led some observers to suggest that Congress should give states the flexibility to routinely modify certain aspects of current Medicaid law, without having to obtain special demonstration authority. It remains to be seen whether Congress will do so, either through targeted reforms or as part of far more sweeping changes that deeply reduce federal funding to the states — changes that have been recommended by House Speaker Paul Ryan (R-WI)2 and presidential candidate Donald Trump. But setting aside the ultimate scope of Medicaid reform, the question of whether to modify Medicaid’s traditional coverage terms for the poor is a vital one in its own right, given the tens of millions of people who depend on it because they are living in poverty.

Although the approved demonstrations vary in certain respects, they have some common features. For example, the experiments make the poor pay more for their coverage, imposing premiums of up to 2% of income for beneficiaries with incomes between 100% and 138% of the federal poverty level. Traditional Medicaid rules, by contrast, establish 150% of the federal poverty level as the lowest threshold for premiums. Some state demonstrations extend the charging of premiums to people with below-poverty incomes; Indiana expects premium payments even from people with no visible income.

Imposing premiums on beneficiaries with incomes between 100% and 138% of the poverty level brings Medicaid policy into alignment with the policy of the new insurance marketplace, where premium subsidies and payment responsibilities begin at the poverty level. In a state that had not expanded Medicaid, the argument goes, people would be responsible responsible for premium payments; in exchange for expanding Medicaid, states should therefore get to use the same threshold that applies to tax-credit assistance.

But these experiments come at a time of mounting concern over whether even subsidized marketplace premiums are too high for Americans with low incomes.3 Furthermore, nothing in the Affordable Care Act’s tax-subsidy structure permits the charging of premiums to people living below the poverty line. Since evaluations are in an early stage, we don’t yet know how allowing states to charge poor people premiums will affect access to and continuity of coverage in this population, but past research suggests that poor populations are highly sensitive to out-of-pocket burdens, even when care is necessary.4 The question of whether to loosen Medicaid’s premium rules demands far closer examination before the law is changed permanently.

Other aspects of the state demonstrations raise important questions. Arkansas has received permission to enroll most residents who are newly eligible for Medicaid in marketplace health plans rather than traditional Medicaid managed care. The Arkansas experiment is a natural evolution of long-standing Medicaid policy that permits states to use federal Medicaid funds to help people buy private coverage. One early evaluation suggests that the Arkansas approach has succeeded in increasing coverage rates and has improved access to care.5 Notably, these early findings reflect only the effects of Arkansas’ shift to private plans — not its introduction of premiums, which came later. Making the Arkansas model a state option makes sense for healthier Medicaid beneficiaries who don’t require more comprehensive coverage. Their inclusion in the health insurance risk pool might keep premium growth rates down, and their own coverage might be more stable over time.

Finally, the federal government is now considering Kentucky’s proposal to alter the terms of its Medicaid expansion. This proposal, which generally mirrors Indiana’s plan, adds a new twist by introducing into Medicaid the type of formal open enrollment periods (with exemptions for children and pregnant women) that characterize the private health insurance market. The concept of open enrollment — setting fixed windows during which eligible people can obtain coverage, supplemented by narrowly drawn “special enrollment periods” — is important for creating a viable private insurance market, because private health insurance involves the purchase of risk contracts and thus depends on maintaining a stable pool of healthy people. The use of open enrollment periods helps protect insurers from people who seek coverage only when they’re sick, thereby skewing the risk pool.

But as a social welfare program, Medicaid is not dependent on the features that are essential to private health insurance. From its origins, Medicaid has operated as a true safety-net program, capable of providing coverage when it is most needed. As an insurer, Medicaid is built to follow special rules that enable it to be there for the unforeseen: catastrophic injuries, newly diagnosed breast or cervical cancer, pregnancy, HIV–AIDS, the opioid crisis, or natural disasters such as Hurricane Katrina or the Zika epidemic. To exclude people from coverage outside fixed periods would be to so radically transform Medicaid as to render it simply an appendage of the commercial insurance market, costing the country Medicaid’s vital first-responder capabilities.

How far Medicaid will move in the future remains to be seen. But expansion demonstrations, both proposed and under way, offer food for thought. Over its lifetime, Medicaid has evolved from a small companion to cash welfare and a means for funding nursing home care into a basic component of the U.S. health insurance system. Even as it changes, Medicaid must retain its ability to effectively cover the poor and respond flexibly to emerging population health needs. The nation needs nothing less.


SOURCE INFORMATION

From the Department of Health Policy and Management, Milken Institute School of Public Health, George Washington University, Washington, D.C.

1. Garfield R, Damico A. The coverage gap: uninsured poor adults in states that do not expand Medicaid — an update. Menlo Park, CA: Kaiser Family Foundation, January 21, 2016 (http://kff.org/health-reform/issue-brief/the-coverage-gap-uninsured-poor-adults-in-states-that-do-not-expand-medicaid-an-update/).
2. Ryan P. A better way: our vision for a confident America. June 22, 2016 (http://abetterway.speaker.gov/_assets/pdf/ABetterWay-HealthCare-PolicyPaper.pdf).
3. Collins SR, Gunja MZ, Doty MM, Beutel S. Who are the remaining uninsured and why haven’t they signed up for coverage? New York: The Commonwealth Fund, April 2016. available at (http://www.commonwealthfund.org/publications/issue-briefs/2016/aug/who-are-the-remaining-uninsured).
4. RAND Health. The health insurance experiment: a classic RAND study speaks to the current health care reform debate. Santa Monica, CA: RAND, 2006 (http://www.rand.org/content/dam/rand/pubs/research_briefs/2006/RAND_RB9174.pdf).
5. Sommers BD, Blendon RJ, Orav EJ, Epstein AM. Changes in utilization and health among low-income adults after Medicaid expansion or expanded private insurance. JAMA Intern Med 2016 August 8 (Epub ahead of print).

This Perspective article originally appeared in The New England Journal of Medicine.

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