Research & Commentary: Now Is the Time for States to Pursue Medicaid Reform

Published April 2, 2019

Since the passage of the Affordable Care Act (ACA), the federal government and several states have spent hundreds of billions of dollars on Medicaid expansion and state-based Obamacare exchanges, which give the federal government considerable control over health insurance policies, what policies can cover, and how much they cost. The results have been atrocious. Insurance premiums and deductibles have increased across the board, people are losing the coverage they once had, and health outcomes are not improving.

Fortunately, state policymakers can reassert control and prioritize local needs in their health care markets through the Section 1115 and Section 1332 waiver processes. The Trump administration has encouraged state policymakers to submit waivers to reform their Medicaid and ACA programs, and it has also offered guidance to help states looking to create these important waivers.

As the Trump administration has repeatedly noted, states should not wait until their health care markets are on the verge of collapse before making important reforms at the state level.

Instead of expanding their expensive and failing Medicaid programs, state lawmakers should apply to the U.S. Department of Health and Human Services (HHS) secretary for Section 1115 waivers. States should also apply for Section 1332 waivers, which can be used to reduce the ACA’s financial and regulatory burdens. More than a dozen states have already submitted waivers to the Centers for Medicare and Medicaid Services (CMS) to implement Medicaid reforms such as work requirements and cost-sharing.

Reforming Medicaid is essential to ensuring the program’s long-term survival. Over the past decade, Medicaid rolls have expanded much faster than many states can handle. From 2013 to 2018, the number of people enrolled in Medicaid increased by nearly 28 percent, to more than 67 million recipients. In 2017, the cost of Medicaid reached $581.9 billion.

These costs will continue to rise as an increasingly larger number of states choose to expand Medicaid under the ACA’s provisions. According to a recent report from CMS, Medicaid expenditures are expected to grow at an average annual rate of 5.7 percent from 2017 to 2027, a rate that is much higher than the rate of growth of the U.S. gross domestic product.

According to Modern Healthcare, Congressional Budget Office projections in 2018 found the government is “paying out an average of $6,300 annually for every subsidized enrollee in fiscal 2018. It estimates that number will rise to nearly $12,500 in 2028. In contrast, Medicaid spends $4,230 per non-disabled adult, set to inflate at 5.2% annually to just over $7,000 per person in 2028.”

HHS warns these costs could soon overwhelm federal and state budgets.

Because Congress has been unwilling to pass meaningful reform to fix the ACA, it’s up to the states to take the lead. Section 1115 waiver reform proposals could include Medicaid work requirements; payment enforcement mechanisms, which could encourage enrollees to pay cost-sharing; incentives for enrollees to engage in healthy behaviors; time limits on coverage; monthly income verification and eligibility renewals; payment and eligibility changes; and the incorporation of numerous health care innovations, such as direct primary care.

At the end of March 2019, there were 20 pending Section 1115 waivers across 19 states. Seven of these waivers would add Medicaid work requirements, while three would add eligibility and enrollment restrictions. Five would create benefit restrictions, copays, or incentives for healthy behaviors. So far, eight states have had work requirement waivers approved by HHS.

Proposals states can submit to HHS to reform their Obamacare markets using 1332 waivers include ending the employer mandate and premium tax credit; expanding the use of cost-sharing mechanisms, such as co-pays, premiums, or health savings accounts; and redefining which services are considered “essential health benefits”—benefits all plans must cover under the ACA.

Eight states have received Section 1332 waiver approval. Of these approved waivers, seven were granted to help finance state reinsurance programs, which are designed to help insurers cover high-cost patients in Obamacare exchanges.

Under the Trump administration, CMS has been more than willing to give states the flexibility they need to improve Medicaid. State policymakers should take advantage of this important opportunity, rather than wait for Congress to solve their problems.

The following documents examine Medicaid reform and expansion in greater detail.

Don’t Wait for Congress to Fix Health Care
Heartland Senior Policy Analyst Matthew Glans documents the failure of Medicaid to deliver quality care to the nation’s poor and disabled even as it drives health care spending to unsustainable heights. Glans argues states can follow the successful examples of Florida and Rhode Island to reform their Medicaid programs or submit even more ambitious requests for waivers to the Department of Health and Human Services, an option the Trump administration has encouraged.

The Report Every State Legislator Should Read
In this article published by National Review, Chris Jacobs writes about a new report issued by the Congressional Budget Office that analyzes profit margins for hospitals over the coming decade. It concludes Medicaid expansion will not make a material difference in hospitals’ overall viability.

The Arizona Medicaid Expansion Experience: Beware the Peddlers of Cost-Shifting Claims
This study, written by Naomi Lopez Bauman, Angela Erickson, and Christina Sandefur examines the effects of Medicaid expansion on health care costs and whether it has cut down on the high cost-sharing borne by the insured. The study concludes expansion increased the burden on the privately insured. “The Arizona experience is a cautionary tale for lawmakers: A program should be evaluated based on outcomes, not intentions. Arizona’s expansion not only failed to deliver on its promise to alleviate supposed cost burdens on private payers, it exacerbated them.”

MassHealth Protecting Medicaid Resources for the Most Vulnerable: How Massachusetts Saved Hundreds of Millions through Enhanced Eligibility Verification
In this white paper, Dr. William J. Oliver and Josh Archambault of the Pioneer Institute examine how enhanced eligibility verification allowed MassHealth, the Commonwealth’s Medicaid program, to save significant resources that could be redirected to the care of truly needy Medicaid recipients.

Evidence Is Mounting: The Affordable Care Act Has Worsened Medicaid’s Structural Problems
In this Mercatus Center paper, Brian Blase examines the effect of the Affordable Care Act on Medicaid. Blase’s findings reveal Medicaid expansion has worsened many of the structural problems in the program. “The unanticipated expense casts doubt on the value of the ACA Medicaid expansion. The enhanced federal match incentivizes states to boost ACA expansion enrollment and to categorize Medicaid enrollees as ACA expansion enrollees, and also encourages states to set high fees for ser­vices commonly used by expansion enrollees and high payment rates for insurers participating in states’ Medicaid managed care programs,” wrote Blase.

Research & Commentary: States Pursue Work Requirements for Medicaid–commentary-states-pursue-work-requirements-for-medicaid?source=policybot
Senior Policy Analyst Matthew Glans examines efforts by several states to add work requirements to their Medicaid programs. “Implementing Medicaid work requirements would be a good first step for Medicaid-expansion and non-expansion states toward helping to limit the rising costs of Medicaid,” Glans wrote.

The Oregon Experiment—Effects of Medicaid on Clinical Outcomes–effects-of-medicaid-on-clinical-outcomes?source=policybot
This article from The New England Journal of Medicine examines Medicaid outcomes in Oregon. Oregon gave researchers the opportunity to study the effects of being enrolled in Medicaid (compared to being uninsured) based on data from a randomized controlled trial, the “gold standard” of scientific research. The results showed no improvement in health for enrollees, but it did reveal better financial protections for patients and increased medical spending.

The Value of Introducing Work Requirements to Medicaid
Ben Gitis and Tara O’Neill Hayes of the American Action Forum examine the value of work requirements and argue more work requirements are needed in other safety-net programs, including in Medicaid.


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Health Care News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state, or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact George Jamerson, director of government relations manager at The Heartland Institute, at [email protected] or 804/317-8837.