Small change, big consequences - partial medicaid expansions under the ACA

Though congressional efforts to repeal and replace the Affordable Care Act (ACA) seem to have stalled, the Trump administration retains broad executive authority to reshape the health care landscape. Perhaps the most consequential choices that the administration will make pertain to Medicaid, which today covers more than 1 in 5 Americans.

Much has been made of proposals to introduce work requirements or cost sharing to the program. But another decision of arguably greater long-term significance has been overlooked: whether to allow “partial expansions” pursuant to a state Medicaid waiver. Arkansas has already submitted a waiver request for a partial expansion, and other states may well follow its lead.

To understand Arkansas’s request, and why it matters so much, some background is in order. Medicaid waivers have long allowed states to experiment with delivery reform and coverage expansions, but waivers became more consequential in 2012, when the U.S. Supreme Court gave states a choice about whether to expand their Medicaid programs to cover everyone with an income of up to 138% of the federal poverty level. Some states sought greater flexibility to expand Medicaid on their own terms, which made participation in the expansion more palatable in Republican-controlled states. After intense negotiations, the Obama administration granted expansion waivers to seven states.

In general, Obama-era expansion waivers permitted adoption of rules congenial to Republican policymakers. Indiana, for example, used its waiver to impose modest premiums and cost sharing on some beneficiaries and to adopt incentives for healthy behavior. Notably, Seema Verma, the current administrator of the Centers for Medicare and Medicaid Services (CMS), oversaw the Indiana waiver’s design and implementation.

These waivers, however, did not grant red states everything they requested. The Obama administration refused to approve waivers that would have conditioned Medicaid eligibility for some beneficiaries on their ability to find work. It denied waivers that would have terminated coverage for beneficiaries with incomes below the poverty level if they failed to make out-of-pocket payments for medical care. And it declined states’ requests to partially expand their Medicaid programs to enroll beneficiaries with incomes up to 100% of the poverty level, but not those between 100% and 138%.

Why were states interested in these partial expansions? Starting in 2020, states are responsible for covering 10% of the costs associated with the Medicaid expansion. Because of a drafting mistake, however, the ACA says that the 100-to-138 population can receive subsidies to purchase a private health plan on the exchanges — but only if they are ineligible for Medicaid.3 For those people, the federal government bears the entire cost of subsidizing private coverage, with no contribution from the states. As a result, the states save money for every beneficiary whom they can move from Medicaid into their exchanges.