Explainer: Medicaid Uncompensated Care Pools

05.21.2015

Nine states have uncompensated care pools (also known as a “low-income pool” in Florida), which help health care providers—primarily hospitals—defray the costs of care that is not paid for. These pools are created through Medicaid Section 1115 waivers. The Centers for Medicare and Medicaid Services (CMS) reviews these waivers during the waiver renewal process. This review process has become controversial because CMS will take into account changes in health coverage under the Affordable Care Act, including Medicaid expansions, as it decides whether to renew these waivers.

What are uncompensated care pools, and what is their purpose?

Nine states have Medicaid-funded uncompensated care pools. These pools, which are time limited, are created through Medicaid Section 1115 demonstration waivers. Funds in these pools go directly to health care providers—they do not provide health coverage.

In general, these pools were created to help hospitals with funding shortfalls. Four factors produce these shortfalls:

Hospitals covering the cost of care when uninsured people seek care at emergency rooms
Hospitals providing charity care
Hospitals absorbing “bad debt” from unpaid medical bills
Hospitals making up for payment differences: Hospitals are generally paid less by traditional (fee-for-service) Medicaid than they are by private insurance. Medicaid managed care payments may be less than fee-for-services rates. So, as more states move to Medicaid managed care plans, differences in payments may increase.

Now, many states—like Massachusetts—are also using their pools to transform their health care delivery systems and make infrastructure investments. For example, states are using money from these pools to modernize hospital facilities.

For more information on Section 1115 waivers:

Which states have uncompensated care pools, and how do they differ from each other?

Nine states have uncompensated care pools:

Arizona
California
Florida
Hawaii
Kansas
Massachusetts
New Mexico
Tennessee
Texas

These pools have different names in different states. For example, Florida’s is called a Low Income Pool (LIP), and California’s is called a Safety Net Care Pool (SNCP).

And while these pools all serve a similar purpose, they are not identical in structure or operation across states. Each pool is the product of negotiations between CMS and the state that made the waiver request.

But while each pool is unique, CMS will consider the same factors when it reviews the waivers for these pools.

How much money is associated with each pool?

Below, we list the amount of federal funding for the uncompensated care pool in each of the nine states listed above using the best available data.¹

Arizona: $94 million in 2015²
California: $236 million in 2015³
Florida: $1.1 billion in 2015⁴
Hawaii: $75 million in 2011 and 2012⁵
Kansas: $34 million in 2016⁶
Massachusetts: $442 million in 2015⁷
New Mexico: $48 million in 2015⁸
Tennessee: $500 million in 2014⁹
Texas: $1.8 billion in 2016¹⁰

Why are these pools generating so much interest now?

CMS has said that it will review these pools when the state waivers come up for renewal. As part of this review process, CMS will take into account changes in health coverage options since the Affordable Care Act (ACA) became fully operational in January 2014, including Medicaid expansions. Furthermore, CMS has said that providing health coverage is the best way to secure access to affordable health care for low-income individuals.¹¹

Several of the states that have these uncompensated care pools are alleging that, by taking the state option to expand Medicaid into consideration when deciding whether or not to renew a state’s uncompensated care pool funding, CMS is coercing states into expanding their Medicaid programs. These states include Florida, which has filed a lawsuit against CMS claiming that the agency is forcing the state to expand Medicaid. Kansas and Texas have announced that they will file friend-of-the-court briefs in support of Florida’s suit. And Republicans in the House of Representatives have announced that they will hold a hearing on the topic this summer.¹²

Has CMS said that it will not renew these uncompensated care pools?

No, CMS has not said that it will not renew these uncompensated care pools. However, CMS has said that as the Section 1115 waivers that authorize these pools come up for renewal, it will review the pools with heightened scrutiny. That applies to all states that have these pools, which is a mix of states that have and have not expanded their Medicaid programs under the ACA. CMS has also stated that it will use the same guiding principles for every uncompensated care pool request that it reviews.

Why is CMS reviewing these waivers more closely?

The health care landscape has changed a great deal over the past several years. The ACA has dramatically increased the number of people with insurance, which has reduced the amount of uncompensated care that hospitals provide, especially in states that have expanded their Medicaid programs.

The ACA has also created more opportunities for states to take up innovative programs to make their health systems, including their Medicaid programs, work better. (This effort is known as “health system transformation.”) As a result, the funding of uncompensated care pools is necessarily shifting.

What factors will CMS take into account when reviewing these waivers?

CMS will be reviewing pools in all states that have these waivers. The Secretary of Health and Human Services and CMS will decide whether and how to approve each uncompensated care pool created by a Section 1115 waiver on a wavier-by-waiver basis. However, CMS will consider the same factors when it reviews the waivers for these pools, including the overall context of the waiver request and state-specific conditions, such as the number of safety net hospitals in the state, the state’s uninsured rate, and whether the state has other Medicaid and non-Medicaid funded programs for low-income health care consumers.

In each review, CMS will also take into account the effects of ACA coverage expansions on uncompensated care. So, as part of this review, the agency is asking each state how any expansions in health coverage will affect the state’s future funding needs for its uncompensated care pool.

The specific principles that CMS has said will guide its review are as follows:¹³

The states’ payments to health care providers must be sufficient to promote provider participation and access and should support plans in managing and coordinating care;
Medicaid payments should support services that are provided to beneficiaries and low-income uninsured individuals; and
Coverage—rather than uncompensated care pools—is the best way to secure affordable access to health care for low-income individuals, and uncompensated care pool funding should not pay for costs that would be covered under a Medicaid expansion.

In states that have yet to expand Medicaid, CMS has indicated that it will take into account whether a state is seeking to use money from its uncompensated care pool to pay for hospital shortfalls that could be reduced if the state expanded Medicaid.¹⁴

Is it appropriate for CMS to conduct this kind of evaluation?

Yes. The Section 1115 waiver program is not a standard part of Medicaid—it is an optional demonstration program that states can use to test new ideas.

Section 1115 waivers, including the waivers for uncompensated care pools, are developed through negotiations between a state and CMS and are approved at the discretion of the HHS Secretary. Key elements of these waivers include the following:

They are time-limited, typically lasting three to five years.
They can be renewed, but renewal is not guaranteed.
As part of the renewal process, CMS must ensure that Medicaid dollars are being spent efficiently and responsibly and that the waiver is furthering the goals and objectives of the Medicaid program.

Does CMS always renew Section 1115 waivers?

No. For a variety of reasons, CMS has modified waivers, allowed states to withdraw their waiver proposals, allowed waivers to expire, not approved waivers, or not approved waivers for the time requested. Here are two examples:

CMS has negotiated one-year extensions of existing Section 1115 waivers, rather than three- or five-year extensions, with both Indiana and Oklahoma. In these negotiations, CMS encouraged the states to re-evaluate their programs in light of new coverage and funding options that are available through the Medicaid program without a waiver under the ACA.¹⁵
On March 1, 2013, CMS denied Connecticut’s request for a Section 1115 waiver, determining that it would not promote the objectives of the Medicaid program.¹⁶

What options does CMS have regarding existing waivers?

CMS can take any of these actions regarding existing uncompensated care pool waivers:

Re-approve the waiver without changes
Re-approve the waiver for a very limited time
Modify the waiver
Restructure or reduce funding for the waiver
Deny the waiver renewal altogether

CMS will work with states during this review process to ensure that each state’s Medicaid program is serving the needs of the state’s Medicaid recipients and to ensure the overall integrity of the program.

In the states that have uncompensated care pools but have not expanded Medicaid, Medicaid expansion is an option that would reduce the state’s need for uncompensated care funding by providing more residents with health coverage.

¹It was not always possible to verify federal funds in each uncompensated care pool with state officials or through publicly available documents for calendar year 2015. However, the amounts shown represent the best data available through public documents (including waiver approvals) and conversations with state Medicaid officials. [Back]

²The amount shown is the federal share for December 2014 through December 2015. In December 2014, CMS reauthorized Arizona’s Safety Net Care Pool Section 1115 waiver for one year. It will expire on December 31, 2015. Centers for Medicare and Medicaid Services, Approval of Arizona’s Request to Extend the Arizona Health Care Cost Containment Waiver, available online at http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Waivers/1115/downloads/az/az-hccc-ca.pdf. [Back]

³Telephone conversation with Jonathan Palisock, Office of the California Medicaid Director, May 12, 2015. California’s Section 1115 Bridge to Reform waiver was approved on August 31, 2005. Since then, the state has submitted numerous amendments and extensions, and the Uncompensated Care Pool was extended for certain services from December 31, 2014, until October 31, 2015. Centers for Medicare and Medicaid Services, Approval of California’s Amendment to 1115 Bridge to Health Waiver, p. 31, available online at http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Waivers/1115/downloads/ca/ca-bridge-to-health-reform-ca.pdf. [Back]

⁴The amount shown is the federal share for state fiscal year (SFY) 2015. The waiver authorizing the pool expires on June 30, 2015. Centers for Medicare and Medicaid Services, Approval of Florida’s Managed Medical Assistance Section 1115 Waiver Request, p. 32, available online at http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Waivers/1115/downloads/fl/fl-medicaid-reform-ca.pdf. [Back]

⁵Office of the Inspector General, Department of Health and Human Services, Hawaii Did Not Comply with Some Provisions of the QUEST Expanded Medicaid Demonstration Project When Determining Eligibility for Federal Reimbursement of Uncompensated Care Costs (Washington: HHS, December 2013), available online at http://oig.hhs.gov/oas/reports/region9/91202084.pdf. [Back]

⁶The amount shown is the federal share for demonstration year (DY) 4, which runs from December 2015 through December 2016. The KanCare waiver expires on December 31, 2017. Centers for Medicare and Medicaid Services, Kansas KanCare 1115 Waiver Approval, p. 40, available online at http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Waivers/1115/downloads/ks/ks-kancare-ca.pdf. [Back]

⁷The amount shown is the federal share for state fiscal year (SFY) 2015, confirmed by phone call with Massachusetts Medicaid officials. Centers for Medicare and Medicaid Services, Massachusetts MassHealth 1115 Waiver Approval, p. 124, available online at http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Waivers/1115/downloads/ma/ma-masshealth-ca.pdf. [Back]

⁸The amount shown is for demonstration year (DY) 2, which runs from January 2015 to December 2015. New Mexico’s Centennial Care waiver expires on December 31, 2018. Centers for Medicare and Medicaid Services, New Mexico Centennial Care 1115 Waiver Approval, p. 46, available online at http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Waivers/1115/downloads/nm/nm-centennial-care-ca.pdf. [Back]

⁹The amount shown is an estimate provided by the Director and Deputy Commissioner of TennCare at the Tennessee Health Care Finance Administration to The Tennessean on April 22, 2014 and confirmed by phone call with the authors on May 11, 2015. The TennCare Section 1115 waiver will expire on June 30, 2016. Centers for Medicare and Medicaid Services, Tennessee TennCare 1115, available online at http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Waivers/1115/downloads/tn/TennCare-II/tn-tenncare-ii-stc-07012013-06302016.pdf; Holly Fletcher, “Feds Review Tennessee’s Uncompensated Care Funding,” The Tennessean, April 22, 2015, available online at http://www.tennessean.com/story/money/industries/health-care/2015/04/22/federal-review-charity-care-funding/26203421/. [Back]

¹⁰The amount shown is the federal share for demonstration year (DY) 5, which runs from December 2015 through September 2016. The Texas Transformation and Quality Improvement Waiver expires on September 30, 2016. Texas Hospitals Association, Medicaid 1115 Waiver – Texas Health Care Transformation and Quality Improvement Program, available online at http://www.tha.org/HealthCareProviders/Issues/FinanceandReimburse098F/MedicaidBBBFWaiver/index.asp, accessed on April 30, 2015; Centers for Medicare and Medicaid Services, Texas Health Care Transformation and Quality Improvement Waiver Approval, available online at http://www.medicaid.gov/Medicaid-CHIP-Program-Information/ByTopics/Waivers/Downloads/TexasHealthcareTransformationandQualityImprovementProgramCurrentApprovalDocuments.pdf. [Back]

¹¹Letter from Vikki Wachino, Acting Director of the Centers for Medicaid and CHIP Services, to the Florida Deputy Secretary for Medicaid, April 14, 2015, available online at http://www.washingtonpost.com/r/2010-2019/WashingtonPost/2015/04/15/Editorial-Opinion/Graphics/florida_medicaid_letter.pdf. [Back]

¹²Peter Sullivan, “GOP to Hold Hearing on ObamaCare ‘Coercion,’” The Hill, May 12, 2015, available online at http://thehill.com/policy/healthcare/241781-gop-to-hold-hearing-on-obamacare-coercion. [Back]

¹³Letter from Vikki Wachino, Acting Director of the Centers for Medicaid and CHIP Services, to the Florida Deputy Secretary for Medicaid, April 14, 2015, available online at http://www.washingtonpost.com/r/2010-2019/WashingtonPost/2015/04/15/Editorial-Opinion/Graphics/florida_medicaid_letter.pdf. [Back]

¹⁴Letter from Vikki Wachino, Acting Director of the Centers for Medicaid and CHIP Services, to the Florida Deputy Secretary for Medicaid, April 14, 2015, available online at http://www.washingtonpost.com/r/2010-2019/WashingtonPost/2015/04/15/Editorial-Opinion/Graphics/florida_medicaid_letter.pdf. [Back]

¹⁵Letter from Cindy Mann, Director of the Centers for Medicaid and CHIP Services, to the Oklahoma Health Care Authority, May 7, 2013, available online at https://dl.dropboxusercontent.com/u/85965051/CMS%20letter%20to%20OK%205-7-13.pdf. [Back]

¹⁶Letter from Marilyn Tavenner, Acting Administrator of the Centers for Medicare and Medicaid Services, to the Connecticut Department of Social Services, March 1, 2013, available online at http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Waivers/1115/downloads/ct/ct-medicaid-low-income-adults-coverage-ar.pdf. [Back]