HHS Details Limits to Medicaid Expansion

States that don't expand their Medicaid rolls to include residents at 133% of the federal poverty level won't get 100% of the matching federal funds made available under the Patient Protection and Affordable Care Act, the nation's governors were told Monday.

"Congress directed that the enhanced matching rate be used to expand coverage to 133% of FPL. The law does not provide for a phased-in or partial expansion. As such, we will not consider partial expansions for populations eligible for the 100% matching rate in 2014 through 2016," said a 17-page memorandum sent by Health and Human Services Secretary Kathleen Sebelius.

The memorandum, which touched upon what HHS said were 39 frequently asked questions about Medicaid expansion, market reforms, and healthcare exchanges, left the door slightly open for states that design demonstration programs.

"If a state that declines to expand coverage to 133% of FPL would like to propose a demonstration that includes a partial expansion, we would consider such a proposal to the extent that it furthers the purposes of the program, subject to the regular federal matching rate," said the notice, the 26th item buried on page 11 in the memo.

"For the newly eligible adults, states will have flexibility under the statute to provide benefits benchmarked to commercial plans and they can design different benefit packages for different populations. We also intend to propose further changes related to cost sharing."

The memo went on to state that: "in 2017, when the 100% federal funding is slightly reduced, further demonstration opportunities will become available to states under State Innovation Waivers with respect to the Exchanges, and the law contemplates that such demonstrations may be coupled with section 1115 Medicaid demonstrations."

"This demonstration authority offers states significant flexibility while ensuring the same level of coverage, affordability, and comprehensive coverage at no additional costs for the federal government. We will consider section 1115 Medicaid demonstrations, with the enhanced federal matching rates, in the context of these overall system demonstrations."

For one person, 133% FPL is an annual income of $14,856. For a family of four it is $30,657.

On other issues, the memo noted that the Obama administration no longer supports the Medicaid blended matching rate that it initially proposed. By some estimates the federal government had hoped to save about $100 billion over the next decade by using the blended rates to shift costs to states.

But when the U.S. Supreme Court ruled last June that the Medicaid expansion under the PPACA was optional, the Obama administration had to sweeten the pot to attract more states.

"We continue to seek efficiencies and identify opportunities to reduce waste, fraud and abuse in Medicaid, and we want to work with Congress, states, and stakeholders to achieve those goals while expanding access to affordable health care," the memorandum states.

"The Supreme Court decision has made the higher matching rates available in the Affordable Care Act for the new groups covered even more important to incentivize states to expand Medicaid coverage. The Administration is focused on implementing the Affordable Care Act and providing assistance to states in their efforts to expand Medicaid coverage to these new groups."

 With respect to the reduction of disproportionate share payments for safety net hospitals that are scheduled to begin in 2014, HHS made it clear that it has heard the concerns raised by providers.

The memo states that "the law directs HHS to develop a methodology to reduce DSH funding over time in a way that is linked to reductions in the number of uninsured or how states target their funds. We have heard from states and healthcare providers about their concerns related to this change and are exploring all options. The Department will propose this methodology for public comment early next year."

Bruce Siegel, MD, president/CEO of the National Association of Public Hospitals and Health Systems, said in prepared remarks that he was "greatly encouraged" by the details in the memorandum, particularly as it relates to DSH payments and the "expansion of Medicaid consistent with the scope of the Affordable Care Act. The agency's guidance follows the letter and spirit of the law and takes an important step toward significantly reducing the ranks of the uninsured."

NAPH estimates that by 2019 between 6 million and 10 million people could remain uninsured than when Congress passed the PPACA. That could increase hospitals' uncompensated care costs by more than $53 billion for the period.

"This swelling demand for safety net services, along with planned cuts to federal funding for the very hospitals that provide it, could take a terrible toll on access to care for the uninsured and underinsured," Siegel said.

"We look to the promise of reform to expand healthcare coverage as broadly as possible and call on lawmakers to preserve the funding we have. We also urge the administration to work with states to ease their transition to an expanded Medicaid program and support innovative approaches to enhancing access to care."

Also Monday, HHS announced that six states have had their health insurance exchange plans conditionally approved, which means they are on track to meet all deadlines for the program, which begin assisting consumers with their enrollment options on Oct. 1, 2013. Those states are: Colorado, Connecticut, Massachusetts, Maryland, Oregon, and Washington. 

"We are excited to be reviewing applications from other states making progress in building their Exchange," Sebelius said in an HHS blog post. "We will make many more announcements like this in the weeks and months to come and expect that the majority of states will play an active role operating their Exchanges."