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An Early Look At Ten State HIFA Medicaid Waivers
In an examination of ten Health Insurance Flexibility and Accountability (HIFA) demonstrations, a major Medicaid initiative of the Bush administration, we found that states have adopted varied program designs, reflecting their particular goals and circumstances. Nationally, we estimate that 300,000 people were covered under HIFA demonstrations as of December 2005. Although this is a sizable number, coverage has fallen far short of the 820,000 expected.
A CENTERPIECE OF THE BUSH ADMINISTRATION'S health policy agenda is the Health Insurance Flexibility and Accountability (HIFA) initiative. Introduced in 2001, HIFAa Section 1115 demonstration approach for Medicaid and the State Childrens Health Insurance Program (SCHIP)encourages states to experiment with alternative strategies in an effort to reduce the number of uninsured Americans.1 Under the HIFA initiative, the Centers for Medicare and Medicaid Services (CMS) has given states broad authority to restructure their Medicaid and SCHIP programs, including limiting enrollment, modifying benefit structures, and increasing beneficiaries cost sharing. In addition, states are encouraged to maximize the use of premium assistance programs. In exchange for this increased flexibility, states are expected to expand health insurance coverage. As of December 2005, the CMS had approved waivers for HIFA demonstrations in twelve states, and four more states had pending HIFA waiver applications. Understanding state initiatives developed under the new waiver policy is important, because many of the current proposals being put forward to overhaul Medicaid include features of the HIFA initiative, and several states (most prominently, Florida and Vermont) are implementing waivers that build on the HIFA model with yet broader programmatic changes to Medicaid.2 In this paper we look at HIFA demonstrations in ten statesArizona, California, Colorado, Idaho, Illinois, Maine, Michigan, New Jersey, New Mexico, and Oregonto gain an understanding of how and why states designed their demonstrations as they did. The bulk of our study findings come from case studies carried out between January 2003 and April 2005. Using a structured, open-ended protocol, we interviewed Medicaid and SCHIP officials; policymakers; representatives from health plans, health care providers, and the business community; market observers; and consumer advocates in each study state. Study results provide important practical information to other states considering changing their Medicaid or SCHIP programs. They also offer insights into how states might respond to the Medicaid provisions included in the Deficit Reduction Act of 2005, which changes Medicaids benefit and cost-sharing requirements.
The HIFA initiative simplifies the waiver application process for states and allows more flexibility in how states restructure their Medicaid and SCHIP programs and expand coverage to new populations. Given this flexibility, states, as expected, developed different demonstration designs tailored to meet their specific goals and circumstances. In this section we discuss what motivated states to pursue a HIFA demonstration, because this drove many of their design choices. We then describe the key elements of the demonstrations, highlighting four of the more important design options available under HIFA: the choice of an expansion population, the use of benefit and cost-sharing flexibility, the emphasis placed on premium assistance, and the financing of the demonstration. Motivation and goals. Among the study states, the principal motivation for pursuing a HIFA waiver was to expand coverage and not, as some had feared, to control costs.3 In particular, for many states, the impetus for pursuing a HIFA demonstration originated in a state mandate developed before the HIFA waiver authority became available. For example, in both New Mexico and Idaho, health care stakeholders were motivated by a desire to create public-private partnerships to cover low-income residents, particularly the working uninsured. With the strong backing of major health care players, the Illinois legislature passed a resolution in 2001 directing the state Medicaid agency to explore options for expanding coverage to the parents of children enrolled in publicly financed health programs, including SCHIP; Medicaid; and Rebate, a state-funded premium assistance program for children. Similarly, in 2001 the Maine legislature launched an aggressive plan to expand coverage beyond the traditional populations covered by public programs.4 Oregons pursuit of HIFA was also legislatively driven; however, its primary motivation was to control Medicaid costs rather than to expand coverage. In 2001 the Oregon legislature passed legislation that, among other things, called for a fundamental redesign of the Oregon Health Plan (OHP), the states long-running Medicaid Section 1115 demonstration program. Faced with rising costs, the legislation charged the Medicaid agency with crafting a new OHP that incorporated tougher cost controls. As discussed below, when the HIFA initiative was announced in 2001, the primary challenge for statesat that time confronting some of the biggest budget shortfalls since World War IIwas identifying funding for their share of any coverage expansion that might have been undertaken as part of the waiver program. Because of fiscal problems, Michigan, for example, withdrew its initial waiver application; California never implemented its waiver; and some states (such as Maine and Oregon) scaled back their initiatives. Choice of expansion population. Under the HIFA initiative, states are expected to reduce uninsurance by expanding coverage to low-income people, defined as those with incomes less than 200 percent of the federal poverty level. Within the low-income population, HIFA allows states to expand coverage to groups not traditionally eligible under Medicaid or SCHIP, including higher-income parents and childless adults. In general, childless adults are not eligible for public coverage unless they are aged, blind, or disabled.
The study states sought and obtained approval from the CMS to expand coverage to a variety of populations (Exhibit 1
The size of the planned coverage expansions varied greatly across the states. Illinois, for example, has expanded coverage to parents with incomes up to 185 percent of poverty and low-income people enrolled in several state-funded insurance programs. The state estimates that up to 300,000 people could gain coverage through the waiver initiative. By contrast, New Jerseys HIFA expansion population is very circumscribeda one-time coverage expansion to a maximum of 12,000 parents. Use of benefit and cost-sharing flexibility. Under HIFA policy, states are permitted to offer varied benefit packages and cost-sharing provisions to different groups of Medicaid and SCHIP enrollees. In particular, states can decrease benefits and increase cost sharing for some current Medicaid and SCHIP enrollees. The initiative requires that states abide by a federally established minimum benefit package and impose only nominal cost-sharing provisions for "mandatory" populations that states are required by federal law to cover.6 For other children in Medicaid and SCHIP, cost sharing can be no more than 5 percent of family income. Beyond those populations, HIFA imposes no specific limitations on cost sharing for other groups, such as other higher-income adults in Medicaid and SCHIP. States are granted even broader flexibility in designing the benefit package and setting cost-sharing levels for HIFA expansion enrollees. At a minimum, though, states must offer primary care, including physician services. Coverage of hospital inpatient care is not required. Further, HIFA sets no limits on the level of cost sharing for expansion enrollees.
Current Medicaid and SCHIP enrollees.
For the most part, states did not seek sizable benefit cutbacks or increases in cost sharing for current Medicaid and SCHIP enrollees under their HIFA demonstrations (Exhibit 2
The remaining two states, New Jersey and Oregon, opted to use the flexibility and narrowed the benefit package and increased cost sharing for current Medicaid and SCHIP enrollees. In New Jersey, this entailed eliminating some optional services (most importantly, dental care) and putting limits on others, including mental health and substance abuse (MHSA) services. Although New Jersey officials noted that it was difficult to cut benefits for current enrollees, they decided that a leaner benefit package for a broader group was better policy than providing a more generous package for a smaller group. By far, Oregons demonstration made the greatest use of the benefit and cost-sharing flexibility available under the HIFA initiative. In its initial design, the state sought to strike a balance between cutting benefits and increasing cost sharing to finance a coverage expansion and, at the same time, controlling general OHP program costs. As a result of effective lobbying by different provider groups, Oregon initially chose to rely more heavily on increased cost sharing as opposed to outright elimination of services. Thus, Oregons demonstration began with substantial increases in cost sharing and a somewhat narrower benefit package that was to apply to most "nonmandatory" adult Medicaid enrollees. For example, Oregon increased copayments from nominal amounts to $250 for inpatient hospital care and $50 for nonemergency use of the emergency department (ED). Further, providers were allowed to deny services to enrollees who did not pay the copayment. At the same time, Oregon increased premium levels and imposed stricter penalties for delinquent premium payments. Once Oregon implemented its HIFA demonstration, however, it had to greatly revise this benefit package, largely because of the states rapidly declining fiscal condition and because of lobbying by consumer advocates, who successfully argued that a benefit package emphasizing ambulatory services with lower cost sharing better met the needs of enrollees than a more comprehensive package with higher cost sharing. In response, Oregon reconfigured benefits under the HIFA demonstration so that most nonmandatory enrollees now receive a package that includes primary and preventative care but limited inpatient care coverage. In addition to these changes, a lawsuit in federal court was brought against the U.S. Department of Health and Human Services (HHS) and the Oregon Department of Human Services (DHS) by the Oregon Law Center, claiming that copayment and premium requirements under the demonstration were too high and, as a result, posed an access barrier. Ultimately, the court ruled that the Medicaid statute allowed nominal cost sharing for categorical populations, but not for noncategorical populations, and ordered the state to eliminate all copayments for noncategorical enrollees.7 The court did not eliminate premiums for these enrollees, however, because it did not consider them to be cost sharing. HIFA expansion enrollees. As mentioned above, the HIFA initiative grants broad latitude in designing the benefit package for expansion enrollees. States response to this new flexibility, however, was mixed. Several (Arizona, Colorado, Illinois, and Maine) offer expansion enrollees who receive direct coverage (as opposed to coverage under premium assistance) the same benefit package as that provided to Medicaid or SCHIP enrollees.8 For the most part, these states wanted to keep the programs administratively simple and felt that it would be more costly and confusing to providers and enrollees to operate a program with multiple benefit packages and different cost-sharing structures. Indeed, states reported that having the same benefit design for both current and expansion enrollees eased the transition in the early stages of their demonstrations. At the other end of the spectrum, Michigan and New Mexico developed new and separate benefit packages for expansion enrollees. Compared to Medicaid, Michigan provides a more limited set of services to HIFA expansion enrollees, which, among other things, does not include inpatient care coverage.9 Further, expansion enrollees have a more restricted provider network than Medicaid enrollees. New Mexico, unique among current HIFA demonstrations, created a new commercial insurance product, which is offered to expansion enrollees. The benefits under this product are less generous and have higher cost sharing than the states Medicaid package.
Use of premium assistance.
A central theme of the HIFA initiative is encouraging states to include a premium assistance component in their demonstration, with the goal of leveraging private dollars to help finance health insurance for the low-income population. Premium assistance programs are also viewed as a way to develop ties between public and private insurance sectors. States differ widely in the extent to which premium assistance is featured in their HIFA demonstrations (Exhibit 2 In stark contrast, Idaho, Illinois, New Mexico, and Oregon made premium assistance a focus of their HIFA demonstrations. Idaho and New Mexico developed new programs for their demonstrations, whereas Illinois and Oregon relied on existing programs that had been state-funded prior to their HIFA demonstration. Whether or not a new program was designed, these states had strong political backing and direction to develop initiatives that used private-sector dollars as the foundation for expanding coverage to the uninsured. Finally, under its HIFA demonstration, New Mexico developed a new premium assistance initiative called the State Coverage Insurance (SCI) program. The state, in partnership with health plans, created a commercial insurance product that businesses can buy and offer to their low-income employees and that individuals can buy on their own. Distinct among HIFA initiatives, New Mexicos demonstration offers no direct coverage option to expansion enrollees; only coverage through the SCI program is available. Demonstration financing. As with other Section 1115 demonstrations, HIFA demonstrations must be "budget-neutral"that is, federal costs can be no higher than would be expected to have occurred in the absence of the waiver. In the past, states have used a range of financing strategies to achieve budget-neutrality, including savings from implementing managed care and redirecting Medicaid disproportionate-share hospital (DSH) payments. These strategies continue to be available under the HIFA initiative. In addition, HIFA makes available an important new financing sourcenamely, the states unspent federal Title XXI SCHIP allotments.10 For the federal share of demonstration expenditures, nine of the study states rely on unspent Title XXI allotments and Medicaid. Maine, by contrast, relies solely on its unspent federal Medicaid DSH allotment.11
States employed a range of strategies to finance their share of demonstration costs, including increasing taxes (Arizona, Colorado, Idaho, Maine, and Oregon), receiving federal Medicaid match for programs that previously had been financed exclusively with state funds (Arizona, Illinois, Michigan, and Oregon), and, as noted above, cutting benefits or increasing cost sharing for current enrollees (New Jersey and Oregon) (Exhibit 3
The ten states varied widely in how far along they were in implementing their HIFA demonstrations as of December 2005 (Exhibit 1 Arizona and Michigan, for instance, have fully implemented their demonstrations and have reached coverage expansion goals. New Jersey also met its coverage goal early on; however, the circumscribed nature of its demonstrationwhich targeted only parents on an existing waiting listhas resulted in lower enrollment in recent years as a result of attrition. Illinois, in the planned phase-in of its expansion, worked steadily toward meeting its goal of covering 300,000 people. As of December 2005, the state had enrolled more than 100,000 people, by far the nations largest HIFA demonstration. Demonstration enrollment is expected to continue to climb as the state expanded coverage to parents with incomes up to 185 percent of poverty in January 2006. Colorado and Idaho have also implemented their demonstrations but have much lower-than-anticipated enrollment. In Colorado, for example, this partly reflects a program on the rebound. Because of budget shortfalls, Colorado temporarily closed enrollment to prospective expansion enrollees in September 2003. With an improving revenue picture, the state reopened enrollment in 2004 and began rebuilding the program. In Idaho, eligible children largely enrolled in direct coverage under SCHIP, prompting state officials to extend open enrollment past the initial thirty-day period. However, state officials remained optimistic that enrollment would pick up after implementation of the second phase of the HIFA demonstration, targeting 1,000 low-income adults in small businesses, in the second half of 2005. Maine and Oregon, by contrast, had only partially implemented their planned demonstrations. Maine expanded coverage to childless adults with incomes up to 100 percent of poverty, rather than the planned 125 percent. Despite this, the state had higher-than-projected enrollment and in March 2005 suspended enrollment. Oregon extended coverage to children and pregnant women and implemented its coverage expansion under its premium assistance program. Because of serious fiscal problems, however, it has not implemented its direct Medicaid coverage expansion to childless adults and parents, which was to account for the bulk of the planned 60,000-person coverage expansion under the demonstration. Nationally, we estimate that approximately 300,000 people were insured through these HIFA demonstrations as of December 2005. Although substantial, the expansion in coverage falls short of the projected increase of 820,000 across the ten states. In large part, this is attributable to Californias not implementing its demonstration. Some HIFA expansion enrollees were previously insured through state-financed programs. Thus, part of the enrollment that has taken place under HIFA has been "rolling over" coverage that had been provided under a state-funded program before the demonstrations were implemented. For example, Michigans expansion population includes people who had received some, more limited, health services through a program that had been state-funded before the HIFA demonstration. Likewise, part of the HIFA expansion populations in Illinois and Oregon include people who had been enrolled in state-funded programs. Finally, although coverage increased in some states, the flexibility provided under the HIFA initiative might have caused some people to lose coverage. Most prominently, because of fiscal problems, Oregon took advantage of the flexibility afforded under its waiver and implemented a number of changes to its Medicaid benefit package and cost-sharing policies, as discussed above. Within the first few months after these policies were introduced, enrollment dropped by 45,000.12 Later, Oregon implemented an enrollment cap, which caused enrollment to decline even further. Although it is not clear how Oregon would have responded to its budget crisis if it had not had a HIFA waiver, since the vast majority of the changes taken under the demonstration affected nonmandatory adult enrollees, it is clear that that the waiver initiative allowed the state to respond with more specificity than would have been possible without the waiver. Further, Oregon was also able to respond more quickly to its budget needs, because the flexibility to make many of the cuts had already been granted through its HIFA waiver.
Since 2001, a number of states have initiated important changes in Medicaid and SCHIP through the HIFA demonstration authority. The ten HIFA demonstrations we examined showed that the states adopted varied program designs, reflecting their specific goals and circumstances. Among other things, we found that the principal motivation for pursuing HIFA demonstrations was to expand coverage, and not, as some had feared, to control costs. States showed a particular interest in expanding coverage to groups that historically have been excluded from publicly sponsored coverage, such as childless adults, higher-income parents, and the working poor. Several states possessed a strong desire to provide equitable access to insurance across all low-income populations. We estimate that nationally approximately 300,000 people were covered under the ten HIFA demonstrations by the end of 2005. Reflecting their interest in expanding coverage, most states committed new funds to finance the coverage expansions, which is particularly noteworthy given states dismal fiscal climates. Moreover, the majority of states did not reduce benefits or increase cost sharing for current Medicaid or SCHIP enrollees to help pay for their coverage expansions. Further, all but two states provided their standard Medicaid or SCHIP benefit package to expansion enrollees who received direct coverage. An important exception was Oregon, which had dual goals for its demonstration: broaden coverage and curtail Medicaid costs. Because of persistent budget problems, however, reducing Medicaid costs has been the principal activity under Oregons HIFA demonstration to date. Since the state has implemented its demonstration, it has used almost all of the benefit flexibility provided under its waiver, while expansion in coverage has been limited. The net result has been that tens of thousands of Oregonians have disenrolled from Medicaid, benefits have been cut for many others, and the state has closed enrollment to most nonmanadatory populations. Although Oregon did not plan these changes, the flexibility afforded under HIFA allowed it to make changes quickly in response to serious budget problems. At the same time, that flexibility has allowed it to maintain some coverage for nonmandatory enrollees, which state officials hope to rebuild once its economy improves. To date, the biggest obstacle to states in implementing coverage expansions has been finding state funds. During the past few years, states have been dealing with one of the most severe budget shortfalls in recent history, making it difficult to find funds to support and sustain coverage expansions. California, for example, has yet to implement its coverage expansion because of budget problems. Likewise, New Mexico delayed its demonstration for three years in part because of fiscal issues. Fiscal problems also affected states that did implement their HIFA demonstrations, with many exercising the flexibility to cap enrollment to keep the initiative within budget. Suspending enrollment and using enrollment caps to manage programs through changing fiscal times is akin to the SCHIP policies that some states adopted in the early 2000s.13 Capping or implementing a moratorium on enrollment, however, could be viewed as a blunt policy instrument that moves away from protecting the most vulnerablefor example, those with the lowest incomes or most severe health problems. At the same time, in several of the states we examined, the political will to expand and maintain coverage was sufficiently strong that substantial new state dollars were committed to the HIFA initiativedespite very tough financial situations. Notably, Illinois has expanded coverage for parents with incomes of 39133 percent of poverty under its HIFA demonstration, and it plans to extend eligibility further to 185 percent in 2006. Arizona now covers childless adults with incomes up to 100 percent of poverty and parents up to 200 percent. And, three years after receiving approval, New Mexico recently implemented its demonstration, which covers uninsured adults with incomes up to 200 percent of poverty. Without doubt, the HIFA initiative has introduced considerable change in the health care landscape of many of the states we studied. The impact of these changes is not yet known and is left to future research. For example, understanding how the HIFA initiative has affected access to insurance and health care, as well as state uninsurance rates, is needed. Similarly, an understanding of how the waivers have affected the health care safety net and employers is critical. For example, although not the focus of this paper, early indications of the effects of the initiative on the safety net has been mixed: In Illinois, Michigan, and Maine, the coverage expansions have reportedly reduced safety-net providers burden, whereas in Oregon the opposite effect has been reported. Clearly, assessing the full impact of the HIFA waiver initiative is an important future task. Just as the HIFA initiative was modeled on earlier state Medicaid reform efforts, the newest wave of state Medicaid demonstrations builds on HIFA. For example, mirroring some of the current HIFA demonstrations (New Jersey and Oregon), recently approved waivers in Florida, Iowa, Massachusetts, and Vermont offer tiered benefit packages to enrollees. Premium assistance programs also play a role in the new demonstrations. For example, Vermont wants to expand coverage through premium subsidies to all people with incomes below 300 percent of poverty. The new demonstrations also extend and reshape elements of the HIFA initiative. For example, a hallmark feature of Floridas demonstration is privatizing Medicaid by shifting from a defined-benefit to a defined-contribution program that allows managed care plans to compete for beneficiaries. Further, to control Medicaid spending, some states are shifting away from capping enrollment (as was done under several of the HIFA demonstrations) and using other means to moderate program spending, including a cap on federal spending (Vermont) and establishing a maximum benefit level (Florida). WITH FEDERAL REFORM EFFORTS MOVING SLOWLY, states have taken center stage and are fundamentally reshaping Medicaid along all key program dimensionsfrom eligibility to benefits to financing. With so many changes taking place in Medicaid at the state level, it is particularly important for health care policymakers to carefully track the consequences of the changes for program beneficiaries as well as the broader health care system.
Teresa Coughlin (tcoughli{at}ui.urban.org) is a principal research associate at the Urban Institute in Washington, D.C. Sharon Long is also a principal research associate there, and John Graves is a research associate. Alshadye Yemani is an associate economist at the Congressional Budget Office in Washington. Project funding was provided in part from the Centers for Medicare and Medicaid Services (CMS), Contract no. HHS-500-00-0045. The authors thank the many people who helped with the completion of this study. Most importantly, they thank the many state officials and other informants who gave generously of their time and provided them with the information needed to complete the study. Opinions expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or the CMS.
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