Seven states currently are implementing the Affordable Care Act’s (ACA) Medicaid expansion to low income adults up to 138% of the federal poverty level (FPL, $16,643 per year for an individual in 2017) in ways that extend beyond the flexibility provided by the law through Section 1115 demonstration waivers. While the future of federal legislation affecting the Medicaid expansion is unclear at this time, Section 1115 Medicaid expansion waiver activity continues as states submit amendments, extensions, and new waivers. While no decisions on expansion waivers have been issued under the new Administration to date, the Administration’s March, 2017 letter to state governors signaled some potential policy changes beyond what has been approved in the past. This issue brief focuses on approved (Arizona, Arkansas, Indiana, Iowa, Michigan, Montana, and New Hampshire) and pending (Arkansas, Kentucky, and Indiana) Section 1115 waivers that implement the ACA’s Medicaid expansion. Table 1 below summarizes approved and pending provisions in Medicaid expansion waivers across these states. (See the Appendix Tables for additional detail about each state’s waiver.)

The ACA’s Medicaid expansion changes the role of Section 1115 waivers for coverage expansions, eliminating the need for a state to obtain a waiver to cover childless adults and providing significant federal funding (100% from 2014 through 2016, gradually decreasing to 95% in 2017, and 90% by 2020) for states to expand coverage. Prior to the ACA, a number of states used Section 1115 waivers to expand coverage to childless adults who then could not otherwise be covered under federal rules. Because Section 1115 waivers must be budget neutral for federal spending, according to long-standing federal policy, states could not receive additional federal funds to expand coverage to these adults and, as such, needed to redirect existing federal funds or find offsetting program savings to finance this coverage. The ACA eliminates the historic exclusion of adults without dependent children from Medicaid, enabling states to expand coverage without a waiver and with enhanced federal matching funds. As of August, 2017, 32 states including DC have adopted the expansion, with most implementing traditional expansions as set forth by the law, and seven states using Section 1115 waivers to implement in ways not otherwise permitted under federal law. In March 2017, the Trump Administration sent a  letter to state governors signaling support for waiver provisions including provisions not previously approved like those related to work requirements.Introduction

Key Waiver Policy Findings

APPROVED ACA EXPANSION WAIVERS

As of August, 2017, seven states (Arizona, Arkansas, Indiana, Iowa, Michigan, Montana, and New Hampshire) have approved Section 1115 waivers to implement the ACA’s Medicaid expansion in ways that extend beyond the flexibility provided by the law. Some states sought waiver authority as a politically viable way to expand coverage and receive enhanced federal matching funds. Nearly all of these waivers are limited to provisions related to the Medicaid expansion; these waivers were the mechanisms by which these states first implemented their expansions. The exception is Arizona, which has a long-standing Section 1115 waiver that governs its entire Medicaid program, and which initially implemented a traditional expansion but subsequently obtained waiver authority to alter the terms of that expansion in ways not otherwise permitted under existing law.

While each expansion waiver is unique, they include some common provisions, such as implementing the Medicaid expansion through a premium assistance model; charging premiums beyond what is authorized in federal law; eliminating non-emergency medical transportation, an otherwise required benefit; and using healthy behavior incentives to reduce premiums and/or co-payments (Table 2). Indiana’s waiver includes provisions that had not been approved in other states, such as making coverage effective on the date of the first premium payment instead of the date of application; barring certain expansion adults from re-enrolling in coverage for six months if they are dis-enrolled for unpaid premiums (a three-month lock-out was later approved in Montana); and eliminating retroactive eligibility (later approved in New Hampshire and Arkansas). The retroactive eligibility waivers were conditional, requiring states to implement safeguards to protect beneficiaries from unpaid medical costs incurred just prior to Medicaid eligibility. For example, Indiana expanded its presumptive eligibility program and implemented a prior claims payment program to cover retroactive costs for the mandatory (non-expansion) parents and 19 and 20 year olds covered under its waiver. Arkansas and New Hampshire were required to ensure that eligibility determinations are timely and without gaps in coverage.

The previous Administration denied some specific provisions included in states’ Medicaid expansion waiver proposals, including premiums for beneficiaries with incomes under 100% FPL as a condition of eligibility; elimination of Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) benefits and beneficiaries’ free choice of family planning provider; and work requirements as a condition of eligibility. The previous Administration also denied Ohio’s waiver application, noting that Ohio had implemented a successful traditional ACA expansion and estimated that its proposed policy changes “would lead to over 125,000 people losing coverage each year” compared to the current expansion. CMS also issued policy guidance, consistent with its legal interpretation of the ACA, indicating that states cannot receive enhanced federal ACA expansion funding unless they cover all newly eligible adults through 138% FPL.DENIED ACA EXPANSION WAIVERS OR WAIVER PROVISIONS

PENDING ACA EXPANSION WAIVERS

Three states (Indiana, Kentucky and Arkansas) currently have Medicaid expansion waivers pending before the Centers for Medicare and Medicaid Services (CMS). Indiana proposes to extend its current Medicaid expansion waiver from 2018 through 2021, with some changes, such as a three-month coverage lock-out for beneficiaries who do not timely renew eligibility, a 1% premium surcharge for tobacco users beginning in the second year of enrollment, and outcome-based healthy behavior incentives related to tobacco cessation, substance use disorder treatment, chronic disease management, and employment. Indiana also submitted an amendment to its extension application, which includes conditioning eligibility on work for most adults, changing to a tiered premium structure instead of a flat 2% of income, and ending the premium assistance program for people with access to employer-sponsored insurance, among other changes (see Appendix Table 3). Kentucky has a waiver pending that seeks changes to its traditional expansion including:  implementing sliding scale premiums, requiring premium payment before coverage is effective, locking those above 100% FPL out of coverage for six months for premium non-payment, requiring work as a condition of eligibility for most adults, locking beneficiaries out of coverage for six months for failure to timely renew eligibility, adding a high deductible health savings account, offering a healthy behavior incentive account, and waiving NEMT (see Appendix Table 5). Kentucky also submitted an amendment to its pending application, which includes changing the work requirement from a graduated requirement (beginning at 5 hours/week and increasing to a maximum 20 hours/week) to a flat 20 hour/week requirement; adding disenrollment and lock-out provisions for failing to timely report changes to income or employment, or for making false statements involving work verification; and removing a proposed expansion of presumptive eligibility sites included in the original waiver application (see Appendix Table 5). Additionally, Arkansas submitted a proposed waiver amendment that would reduce Medicaid eligibility for expansion adults from 138% to 100% FPL while continuing to receive enhanced federal matching funds, establish a work requirement, end its premium assistance program for those with access to employer-sponsored insurance, and remove the conditions on its waiver of retroactive eligibility (establishing a hospital presumptive eligibility program, offering coverage during a reasonable opportunity period for verification of immigration status, and completing an eligibility determination mitigation plan).

One other state is preparing a waiver submission to CMS. Arizona completed a state public comment period for a waiver amendment that proposes changes to coverage for all “able-bodied” Medicaid adults, not only those who newly gained coverage under the ACA’s expansion, including a work requirement as a condition of eligibility, a 5-year lifetime limit on benefits, monthly income and work verifications and eligibility renewals, and a one-year lock-out for those who knowingly fail to report a change in income or make a false statement about work compliance. Arizona previously sought similar changes, which were denied by the Obama Administration in September, 2016, but state law requires Arizona to request these components annually. Table 3 summarizes states’ pending waiver requests that have not been approved by CMS to date.

Certain requirements apply to all Section 1115 waivers, not just those that authorize Medicaid expansions. While not required by statute or regulation, CMS has a longstanding policy that waiver financing must be budget neutral for the federal government, meaning that federal costs under a waiver must not exceed what federal costs would have been for that state without the waiver. The ACA also established new rules about transparency and evaluations for all waivers. Recognizing that waivers can authorize changes that impact beneficiaries, providers, health plans, and other stakeholders in important ways, the waiver transparency rules require state and federal public comment periods before all new waiver applications and extensions of existing waivers are approved by CMS. Although the final regulations involving public notice do not require a state-level public comment period for amendments to existing/ongoing demonstrations, CMS has historically applied these regulations to amendments.¹ However, recently, Indiana submitted an amendment to its pending extension application and Kentucky submitted an amendment to its pending waiver application without completing/holding a state-level public comment period before submission.^2 3 In keeping with statutory requirement that Section 1115 waivers test new program approaches, the evaluation rules require states to have a publicly available, approved evaluation strategy and to submit an annual report to HHS that describes the changes occurring under the waiver and their impact on access, quality, and outcomes.OTHER WAIVER PARAMETERS

Looking Ahead

State interest in Medicaid waivers (for expansion and for traditional Medicaid populations as well) as a way to gain flexibility to adapt their programs continues under the Trump Administration. While no decisions on new or amended expansion waivers have been issued to date, the Administration’s March, 2017 letter to state governors signaled some potential policy changes beyond what has been approved in the past. In terms of the waiver approval process, the letter reaffirms support for HHS’s long-standing budget neutrality policy, acknowledges reasonable public input processes and transparency guidelines, offers an expedited process for waiver renewals, and suggests greater consistency in evaluating and incorporating waiver requests that already have been approved in another state. The future of federal legislation affecting the Medicaid expansion is unclear at this time, so Medicaid policy changes authorized through Section 1115 waivers could happen on a faster timeline than federal legislative changes to the program and thus will be a key area to watch.