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Short Analysis
June 2019

Utah Waiver Proposal - A Bad Deal for Utah Taxpayers and Government

The Utah Department of Medicaid released its much-anticipated proposal for a Section 1115 Medicaid waiver seeking a “per capita cap” – or a limit on federal spending – on major portions of its Medicaid program.  If approved by the Trump administration, it would set a new precedent that could have catastrophic effects for state budgets and Medicaid programs in the future. Capping the federal funding for Medicaid means that state taxpayers will face greater risks of rising health care costs, and will result in more pressure on state budgets.

The state is taking public comments on the proposal before submitting a formal waiver submission to the Trump administration. The state’s public comment period is open until June 30, 2019. Public comments can be submitted here. Once the waiver is submitted to federal officials another comment period will open before the waiver is reviewed by the Trump administration.

The waiver proposal is the direct result of a controversial decision by Utah lawmakers to repeal and replace the voter-approved Medicaid expansion ballot initiative that passed in Utah with 54% of the vote in the November 2018 elections. Utah is the first in a small group of states pursuing proposals that would cap the federal funds they receive in the Medicaid program. Lawmakers in both Tennessee and Georgia have passed legislation directing the state agencies to pursue block grant proposals for the Medicaid program.

Utah’s proposal represents a new state-based approach to undermining the funding for Medicaid programs through per capita caps — an effort that was defeated in Congress in 2017. For months, the Trump Administration has been engaged in closed-door discussions with state lawmakers in several states to strike a “deal” to impose caps – or a funding ceiling – on the level of federal funding for state Medicaid programs. This kind of proposal involves major fiscal risk for states, with the supposed quid pro quo new flexibility to cut services or take away coverage if and when they hit their new federal funding cap. Per capita caps are a bad deal for state taxpayers and for state governments. But the Trump administration has a great deal of leverage to push states in this risky direction. A new precedent could be set if Utah’s waiver is approved in its current form.  

Although Utah’s proposal caps federal funding for low-income adults, the Trump administration has stated its intentions to apply caps to all Medicaid beneficiaries, including seniors, people with disabilities and the roughly 35 million children - nearly half of total Medicaid enrollment - who use Medicaid. Per capita caps for Medicaid’s child population would be particularly concerning because the cap for children, given their relatively inexpensive coverage costs, would likely be far lower than for other Medicaid populations. With a low cap for children, states would have less “wiggle room” to adjust their spending and would be less likely to adopt new initiatives to improve access to care or delivery of services for kids.[1]

 

Analysis of Utah’s Waiver Proposal  

Utah is seeking approval from the federal government for the following elements under its proposed Medicaid waiver:

  • To receive the enhanced federal funding (FMAP) for the adult expansion population (adults between the ages 19-64) even though they are only covering part of that population and they have capped enrollment. (Enhanced Federal Match for Partial Expansion)
  • A per capita cap on its federal funding for expansion adults and low-income parents
  • Lock out from the Medicaid expansion for committing an “Intentional Program Violation”—that is, penalizing people who fail to complete documentation requirements by taking their coverage away and forbidding them to return to the program for six months.
  • Work requirements for the Adult Expansion Population
  • Allowing Medicaid funds to provide housing services and supports
  • Up to 12 months continuous Medicaid eligibility even for people who have income changes (this is a positive change).
  • Close off the statutory hospital presumptive eligibility pathway to get Medicaid for low-income adults
  • Additional flexibility for providing managed care
  • Waives Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) for 19 and 20 year old adults
  • Require individuals with employer-sponsored insurance to enroll in the available insurance
  • Targeted Adult Medicaid Population, includes state plan dental benefits provided to certain adults receiving substance use disorder (SUD) treatment

If approved, the waiver would be implemented as early as October 1, 2019 for a five-year demonstration period.

 

Per Capita Cap

Under Utah’s proposed Medicaid waiver, the Centers for Medicare and Medicaid Services (CMS) would set a “per capita cap” which imposes a limit on the level of funding a state can receive from the federal government to administer their Medicaid program. Importantly, state Medicaid programs are jointly funded by the federal and state government and administered by state governments. The level of federal financial support for each state’s Medicaid program is dependent on the federal Medicaid assistance percentage (FMAP). The FMAP is calculated using a formula that takes into account the average per capita income for each state relative to the national average. In other words, for every dollar the state spends on Medicaid, the federal government matches the amount at a rate that varies year to year. This mechanism provides state governments and taxpayers a level of financial security to ensure that as Medicaid spending fluctuates year over year, the state and its residents are not solely responsible for paying the increased costs. However, under a per capita cap, if a state’s Medicaid spend exceeds the federal limit – the cap on spending – the state is then entirely responsible for paying any additional costs. In that case, states would either have to generate additional revenue to cover the increased costs of Medicaid or find ways to reduce spending by cutting services or provider payment rates.

Utah remains in negotiations with CMS about the funding level of the per capita cap. The proposal indicates the state will establish a per enrollee baseline spending amount to set the per capita cap on spending for the first year of the waiver. In other words, the state will receive a fixed amount from the federal government to administer the affected portions of its Medicaid program rather than its current flexible “match rate”. If the costs of administering the Medicaid program exceed the federal funding allotted for Utah, the state will be responsible for paying the additional costs of the program, rather than the federal and state government both sharing in the responsibility to cover those expenditures.

Under Utah’s waiver proposal, the per capita cap funding level will be established for the first year of the waiver and is then projected to increase at a rate of 4.2 percent[2] each year for the five-year waiver period. This is referred to as the “trend rate”.  This 4.2 percent trend rate is based on the Medical Consumer Price Index (CPI-M) which uses a flawed methodology. The proposed trend rate is not likely to keep pace with the current expenditure projections for Utah’s Medicaid program over the length of the waiver— indeed, the Trump administration has formally and publicly projected trillions of dollars in federal cuts to state Medicaid programs using per capita caps set at the proposed CPI-M trend rate.  A per capita cap would almost certainly create a scenario in which Utah, and other states, would either have to increase state taxes or reduce services under the Medicaid program in order to cover any costs that exceed the funding cap, creating financial instability for both the state government and taxpayers.

 

Enhanced Federal Match for Partial Expansion

Utah is also seeking approval for the enhanced 90-10 federal match for a partial expansion of Medicaid for adults up to 100 percent of the federal poverty level. To date, CMS has not approved requests to partially expand Medicaid with the enhanced federal match rate. Federal law clearly stipulates that states are eligible for the 90-10 match rate if they expand Medicaid up to 138 percent of the federal poverty level. Massachusetts and Arkansas have made similar requests to CMS and CMS has not approved those requests. Utah would be the first state to receive approval from CMS to partially expand Medicaid with the enhanced federal match. If approved, the legality of CMS’s approval would almost certainly be challenged. 

If CMS does not approve Utah’s request for the enhanced match, the state would continue to receive its current match rate of 68 percent for the expansion population, creating a major additional fiscal liability for Utah separate from the prosed cap on federal funding. Importantly, Utah is covering fewer people at much higher cost to the state by partially expanding Medicaid, and is leaving millions of dollars in federal funding on the table.

 

Lockouts for Intentional Program Violation

Utah is also proposing to “lock out” or suspend Medicaid eligibility for six months for beneficiaries who commit a “program violation”, including failure to provide documentation to the state of changes in income. If the state imposes a limit – or cap - on enrollment while a beneficiary is suspended for an intentional program violation (IPV), the beneficiary is not allowed to re-enroll in Medicaid until an open enrollment period begins.

 

Waiver of Hospital Presumptive Eligibility

The state’s waiver proposes to eliminate hospitals’ ability to make presumptive Medicaid eligibility determinations for the adult expansion population.[3] Currently, under federal law hospital staff can make a preliminary eligibility determination for uninsured patients that need care. After a patient is deemed “presumptively eligible,” the state performs the full eligibility process to determine if they can continue to receive Medicaid benefits. Presumptive eligibility helps patients get health care as soon as they arrive at the hospital and ensures that doctors and hospitals are reimbursed for that care. By waiving presumptive eligibility, the state would create additional barriers for uninsured patients who receive care at hospitals.

 

Enrollment Cap

CMS granted Utah authority to limit enrollment for its “Adult Expansion” and “Targeted Adult” populations in March 2019, as part of its amendment to its “Primary Care Network” 1115 waiver. According to the state’s current waiver proposal, an enrollment cap would be tied to prior state spending caps, so that the state could cap enrollment if and when its spending hit its budget target. The proposal indicates that the cap on enrollment would take effect “when projected costs exceed annual state appropriations.” In other words, Utah would determine the enrollment limit, stopping people from enrolling in Medicaid and letting them remain uninsured when the anticipated costs for administering the Medicaid program exceed the amount of funding appropriated by the executive and legislative branch to operate the Medicaid program. Utah is imposing a cost-control mechanism that prevents Medicaid-eligible people from enrolling in affordable health care coverage as a way to ration care and control health care costs.

The interaction between the proposed per capita cap and the enrollment cap are important. If the enrollment cap had not already been triggered, once the state hits the per capita cap, thereby assuming full financial responsibility for operating the Medicaid program, the enrollment cap would certainly be triggered, preventing additional Medicaid-eligible families and adults from accessing health care coverage.

 

Work Reporting Requirements

Utah received approval from CMS to implement work requirements on its “Adult Expansion” population in March 2019, as part of its amendment to its “Primary Care Network” 1115 waiver. They are now requesting to implement the work requirement under the new waiver proposal. Utah requires Medicaid beneficiaries who are subject to the work-reporting requirement to: register for work through the state system; complete an evaluation of employment training needs; and complete job training modules. If a beneficiary fails to complete the required reporting activities or fails to qualify for an exemption within a three-month period, it results in a loss in Medicaid eligibility and a loss in coverage for that individual.

Utah is one of ten states that has received approval from CMS to impose work reporting requirements in their Medicaid programs. More than 18,000 beneficiaries lost coverage in a few months in Arkansas due to work reporting requirements.  Arkansas’ work reporting requirement waiver was then suspended by U.S. Federal Judge James Boasberg as a violation of the federal statutory requirement that Medicaid waivers promote the core objectives of the program.

 

Waiver of EPSDT

Utah was given authority under its “Primary Care Network” 1115 waiver to cut Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) benefits for adults ages 19 and 20 in its expansion population and targeted adult population. The state proposes to continue this authority under the proposed waiver. EPSDT covers items such as vision and hearing screening and treatment (e.g., glasses or hearing aids), basic dental, medical, mental health, and developmental services for children and young adults. Congress designed Medicaid with the EPSDT requirement because low-income children and young adults have a distinct need for comprehensive care in order to lead healthy lives. The brain does not develop fully until children reach about age 25. As a result, young adults benefit from frequent screenings and access to comprehensive treatment as their medical needs, particularly mental health needs, continue to evolve.

EPSDT is not a high-cost benefit. Children have the lowest per-enrollee costs of any group covered by the Medicaid program, even though all children receive EPSDT services.[4]

 

Conclusion

There is no benefit—only risk—to a state or its taxpayers for imposing a per capita cap on federal funding, particularly for states looking to expand coverage for the Medicaid population. CMS is leading states down a dangerous path, evidenced by the massive federal savings the Trump administration has projected from per capita caps. Those savings have to come from somewhere.

Utah (and other states that have not expanded Medicaid) should remember that fully expanding Medicaid up to 138 percent of the federal poverty level will trigger the enhanced 90-10 federal matching rate where states are only responsible for 10 percent of the costs of Medicaid expansion. That is an extremely good budget deal for states, which is why Utah’s voters approved it in a ballot initiative and why most states have expanded Medicaid.

 

[1] For more on Medicaid per capita caps and children see https://firstfocus.org/wp-content/uploads/2016/06/Medicaid-Per-Capita-Caps-Fact-Sheet.pdf

[2] This 4.2 percent trend rate is based on the Medical Consumer Price Index (CPI-M), see FUSA article on why this is a flawed trend rate: https://familiesusa.org/blog/2017/05/capita-caps-medicaid-would-result-devastating-funding-cuts

[3] The state already does not allow presumptive eligibility for its targeted adult population.