HHS guidelines for privatized Medicaid expansion

The Department of Health and Human Services issued a FAQ on Friday regarding its receptivity to state proposals, like the one floated by Arkansas, to use the federal funds for Medicaid expansion through the ACA to offer private insurance through the ACA exchanges to Medicaid-eligibles.

HHS points out that outside the ACA expansion, states already can use Medicaid funds to buy private coverage  (mostly through private group health plans) for Medicaid recipients, provided that the plans are deemed "cost effective" -- that is, "that Medicaid’s premium payment to private plans plus the cost of additional services and cost sharing assistance that would be required would be comparable to what it would otherwise pay for the same services."

The new departure would be using federal money to buy qualified health plans on the new ACA exchanges for those covered by the ACA's Medicaid expansion. It's important to note the context in which HHS will consider "demonstration projects" of this sort: it will do so to "inform policy for the State Innovation Waivers that start in 2017."  In 2017, states can apply to "pursue their own innovative strategies to ensure their residents have access to high quality, affordable health insurance" providing the proposed plan

• Is at least as comprehensive as the coverage that would have been provided under the Affordable Care Act.
• Is at least as affordable as the coverage under the Affordable Care Act.
• Covers at least as many residents as would have otherwise been covered under the Affordable Care Act.
• Will not increase the federal deficit.

Back in 2011, Obama proposed altering the ACA to allow states to apply for waivers in 2014, but Republicans in Congress preferred to try to make the ACA fail rather than try to make it work.  Now, some GOP governors and legislatures are gesturing toward trying to make it work by their lights, i.e., the more privatized and "free market" the better (ironically, the GOP ethos to which Democrats bowed in their design of the ACA).

The problem, as Aaron Carroll recently lamented, is that private insurance always adds cost, particularly in comparison to Medicaid. The CBO, moreover, has estimated that insurance for a Medicaid-eligible person on the exchanges will be 50% more expensive than Medicaid itself:

For the average person who does not enroll in Medicaid as a result of the  Court’s decision and enrolls in an exchange instead,  estimated  federal spending will rise by roughly $3,000 in 2022 -- the difference between  estimated additional exchange subsidies of about $9,000 and estimated Medicaid savings of roughly $6,000 (p.4).

In response to that expectation, proponents of privatizing the Medicaid offering through the ACA have posited that private equivalent will  1) reduce "churning," that is, flitting between Medicaid and the exchanges by those at the upper end of eligibility; 2) increase competition and so reduce costs within the exchanges; and c) slow increases in Medicaid reimbursement rates that a swelling of the ranks would necessitate to prevent even more doctors from refusing to accept Medicaid.

While requiring "cost effectiveness" in these proposals -- that is, "budget neutrality," or no additional cost to the federal government picking up the Medicaid expansion tab, HHS will allow states to forecast savings from at least two of these factors:

With regard to premium assistance demonstrations, HHS will consider states' ideas on cost  effectiveness that include new factors introduced by the creation of Health Insurance Marketplaces and the expansion of Medicaid. For example, states may quantify savings from reduced churning (people moving between Medicaid and Exchanges as a result of fluctuating incomes) and increased competition in Marketplaces given the additional enrollees due to premium assistance. As with all demonstration proposals, the actuarial, economic, and budget justification (including budget neutrality) would need to be reviewed and, if approved, the program and budgetary impact would need to be carefully monitored and evaluated.

Alan Weil, executive director of the National Academy for State Health Policy, implies support for the privatization experiments:

As they should be,CBO’s estimates are based upon historical realities.  But aren’t we unleashing a whole host of changes that will make these numbers converge?  Don’t we expect premiums in the exchange to fall as competition takes hold, new, more efficient delivery models emerge, and as carriers are able to negotiate better prices from hospitals and doctors on behalf of this large, new, price-sensitive population?  Won’t Medicaid rates have to rise in the face of millions of new enrollees if states are to meet the federal requirement of Section 1902(a)(30)(A) that they have sufficient providers to make care available on par with the general population?

At the end of the day, we are talking about the same people with the same benefit package, so why would we expect the cost of meeting their needs to differ by 50% depending upon which program we put them in?  We may start with a gap, but it seems destined to close over time.  And once it does, the cost-effectiveness test is met.

Personally, I'd put my money on Aaron Carroll: offering private health insurance in place of Medicaid is likely to add cost and perhaps provide coverage less well suited to those under or near the poverty line. First, the ACA really is a bipartisan bill without bipartisan votes, in Nancy Pelosi's odd formulation. That is, its success rides on the success of managed competition within a private market -- an idea with a Republican pedigree, adopted by Democrats in an attempt to win Republican support. If the exchanges don't succeed, the ACA doesn't succeed, so having some Republican governors "invest" federal Medicaid dollars and their own credibility in the exchanges does add some bipartisan commitment and is perhaps an acceptable tradeoff. 

Second, the ACA is designed also as a state laboratory -- another nod, perhaps, to Republican propensities -- and a laboratory more generally, replete with pilot programs and experiments given running room in an attempt to discover what works. Accordingly, there is continuity between HHS's receptivity on this front and its preparation for the state waivers that become available in 2017.   If the Medicaid expansion is allowed to be privatized on a limited, experimental basis, as this FAQ suggests, that is not a bad thing.

On the other hand, HHS may be allowing the states to game their cost estimates with a kind of healthcare equivalent of "dynamic scoring," the method of tax plan assessment that builds assumptions of growth unleashed by tax cuts into revenue estimates, and perhaps fudging the requirement that alternatives be "revenue-neutral."  Self-described "health policy enthusiast" Adrianna McIntyre suggests on Twitter that the HHS "memo spends a lot of words dancing around calling "comparable" always consistent with "cost-effective," adding "they frame 'cost-effective' as "generally" meaning comparative. Cost-effective has a standardized definition...Either they're the same or they aren't. It'd be nice to know for sure, but HHS might be waiting on release of final regs."  So let's leave it there for now.