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Short Analysis
February 2015

Indiana’s Medicaid Expansion Waiver: Arguments to Counter Problematic Elements

In late January, the Centers for Medicare and Medicaid Services (CMS) approved Indiana’s request to expand its Medicaid program using a waiver. The good news? Approximately 350,000 uninsured Hoosiers will have a chance to get Medicaid coverage under this waiver. The bad news? As you may have heard, the program has several troubling provisions. Here, we offer arguments—particularly fiscal arguments—to help advocates counter some of these potentially harmful provisions.

There’s no doubt that the problematic elements in Indiana’s waiver will start showing up in Medicaid expansion discussions in other states—both in states that haven’t yet expanded coverage and in some that have. For a more in-depth discussion about why these elements are troubling, read the blog by Joan Alker at Georgetown’s Center for Children and Families. 

For advocates in states where policy makers may suggest the Indiana waiver as a model, we offer the following talking points.

Reasons Why Indiana’s Waiver May Not Be a Model for Other States

  1. Program complexity may produce higher administrative costs: Indiana’s waiver plan is complicated. It includes multiple benefit levels, individual accounts, and income-based penalties for nonpayment of premiums. Those are just some of the variables that the state must administer and track. Setting up and maintaining administrative systems costs money, and experiences in several states have shown that Medicaid program elements like premiums can be costly to administer. Medicaid can be more efficient and less costly to run without premiums and other complicated features. 

  2. Some provisions could lead to higher health care costs for consumers: Indiana’s program includes provisions that can cause beneficiaries to delay coverage, that disrupt their coverage, or that deter people from signing up in the first place. For low-income people, disruptions or delays in coverage often result in disruptions or delays in getting care. Research has found that delayed and disrupted care can increase health care costs. The provisions of the Healthy Indiana waiver that could disrupt or delay coverage include:
    • premiums, which are traditionally not a feature of any Medicaid program because of the low incomes of the populations Medicaid serves. 
    • disenrollment for nonpayment of premiums for enrollees with incomes above the federal poverty level, plus a 6-month lock-out period (meaning people who’ve been dis-enrolled cannot receive coverage for six months) 
    • a potential waiting period for people with incomes below poverty 
    • no retroactive eligibility, meaning that people cannot receive health insurance to cover expenses incurred before they were accepted into the Medicaid program (retroactive eligibility is a standard feature of Medicaid programs and an important one) 

  3. Disruptions in coverage or care could produce higher health care costs for the state: As mentioned earlier, these disruptions can increase the overall amount a state spends on health care. Eventually, states that expand Medicaid will have to pay 10 percent of the cost of their expansion. When that happens, any provisions that have caused delays or disruptions in coverage or care will cost the state more money.

  4. Disruptions in coverage could lower state savings that come from reductions in uncompensated care: When a state expands Medicaid, more residents have health insurance, and the state can expect to reduce its uncompensated care costs. (Uncompensated care is care for which providers are not paid. State and local governments help offset some of those costs.) However, program components that delay or disrupt coverage can produce gaps in care for beneficiaries. They will still need care, they just won’t have insurance to pay for it. The amount that a state saves on uncompensated care under a waiver program that includes provisions leading to gaps in coverage may not be as great as the savings would be if the state pursued a standard Medicaid expansion. 

  5. Disruptions in coverage could lead to higher emergency room use: Program components that leave more people without coverage mean that individuals will continue to turn to emergency rooms for non-emergency care. That care is expensive and can put a strain on the health care system.  

  6. Disruptions in coverage or care mean fewer benefits from Medicaid expansion for businesses: Program components that leave people uninsured, even for short periods, can cost businesses money. For example, when hospitals and other providers must absorb the costs of uncompensated care, they pass those costs on to everyone in the health care system. That includes insurers, who then pass those costs on to employers and other insurance purchasers in the form of higher premiums. In addition, because most of the people who would get insurance through a Medicaid expansion are working, program components that disrupt care can mean a less healthy and less productive workforce.

  7. Indiana already had a limited expansion in place: Indiana is building on a program that was already in operation and that includes many of the elements that were approved in the state’s waiver. Adding new layers of administration to track new program components will still be complex, but it would probably be less complicated and costly to track than it would be for a state that is starting from scratch.

For lawmakers who are focused on reducing costs and government bureaucracy, an expansion that builds on traditional Medicaid with minimal program complexities makes the most sense. Traditional Medicaid has low administrative costs, and it doesn’t put barriers in the way of people getting and keeping insurance. That helps beneficiaries connect with doctors, take care of themselves, and stay healthy, resulting in lower health care costs in the long term and a healthier workforce. And that is sound fiscal policy.