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Red States Are Reinventing Medicaid to Make It More Expensive and Bureaucratic

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Since the implementation of the Affordable Care Act’s Medicaid expansion in 2014, 23 states have refused the federal money to offer health insurance to their low-income residents, depriving almost 4 million people of coverage. Slowly, some of the holdout red states are finding a way to say yes, but only if they can claim a conservative twist on expanding coverage. Tennessee last week became the latest state to release details on a proposal for its own unique version of Medicaid expansion via a waiver of Medicaid rules (known as an 1115 waiver). "We made the decision in Tennessee nearly two years ago not to expand traditional Medicaid," Gov. Bill Haslam, a Republican, has said. "This is an alternative approach that forges a different path and is a unique Tennessee solution.”

Versions of Haslam’s statement are common among Republican lawmakers who have negotiated with the Obama administration to pursue this path: They’re willing to accept Obamacare money so long as they can plausibly sell it as not Obamacare, and they want to use their leverage to attach conservative reform ideas to Medicaid. At the Washington Post, Sarah Kliff has called these measures “making Medicaid more Republican.” Arkansas, Iowa, Michigan and Pennsylvania have already advanced unique versions of Medicaid expansion thanks to waivers that feature GOP-backed wrinkles to the program; Indiana has submitted a waiver pending approval from the federal Department of Health and Human Services, while Tennessee, Wyoming and Utah have developed proposals after active negotiations with the feds; and lots of other states are taking a look, including North Carolina, Georgia, and even Texas.

That’s good news for those states' poorer residents, who have been left to fend for themselves while state legislatures offer massive resistance to Obamacare. In practice, however, crafting plans that are ostensibly more conservative has tended to add layers of bureaucracy and administrative complexity. The Republicanized versions of Medicaid thus far have ended up more complicated, confusing, and possibly costlier than the program Republicans refused to expand in the first place.

Take, for example, Arkansas—the state that got the ball rolling for red states seeking GOP twists on Medicaid expansion with its privatized version known as the “private option.” Last month the state got approval for a byzantine new program, called Health Independence Accounts, that imposes co-pays on some beneficiaries unless they pay a small monthly fee. Those who have paid their fees are eligible, under certain conditions, for up to $200 to pay for the costs of private health insurance if their income goes up and they transition off of Medicaid. To run the program, the state will pay a third-party administrator about $15 million annually (covered by the feds as part of the cost of expansion).

Meanwhile, Iowa is now imposing low premiums, tied to a wellness program, on some beneficiaries. “The administrative complexity of the system the state is contemplating is somewhat mind-boggling,” Joan Alker of the Georgetown University Health Policy Institute commented when Iowa’s waiver was approved, adding that “[t]he wellness program is of questionable policy value.” Indiana’s proposal includes small premiums and savings accounts tied to different benefits packages, leaving advocates for beneficiaries worried that low-income adults "face categorization into a bewildering array of benefit plans and options.”

These schemes will put additional bureaucratic pressure on state agencies to implement (or outsource) them. “What we’re talking about does add a layer of complexity to an already complex program,” Matt Salo, executive director of the National Association of Medicaid Directors, told me. However, he added, the additional administrative burdens were the only way to gain coverage for hundreds of thousands of people. “It’s all part of the quid pro quo," he said. "In Arkansas, in Iowa, in Michigan, would the expansion have happened at all if not for these types of things? I think the answer is pretty clearly no."

To expand access to health insurance to low-income Americans, the ACA raised Medicaid eligibility up to 138 percent of the federal poverty level (around $16,000 for an individual, $33,000 for a family of four). Or, that was the plan. Then the Supreme Court threw a curveball with its 2012 ruling: the law was upheld, but each individual state would choose whether to expand Medicaid or not. Many observers thought states would take the deal, since the feds would pay most of the costs—100 percent for the first three years, gradually falling to 90 percent by 2020. But statehouses were packed with lawmakers saying things like “our view is that supporting Medicaid expansion is really embracing President Obama’s law.”

The politics were toxic enough that many GOP-controlled states declined billions of dollars. The refusnik states left a mammoth gap in Obamacare’s intended coverage expansion, pushing the administration to the negotiating table. This opened up a divide within the Republican Party in state legislatures. Some conservatives stuck with middle-finger federalism. Others sought to make a deal.

Critics from both the left and the right suggest that Republicans pushing for alternative versions of Medicaid expansion are simply looking for political cover to accept federal dollars their states need. David Sanders, an Arkansas state senator and one of the key Republican architects of the private option, counters that they were using their leverage to enact conservative reform ideas never envisioned in the ACA. “It’s an opportunity to fundamentally transform the system,” he told me in a phone interview.

Whatever their motivation, red states have been lining up to expand coverage via these demonstration waivers, which are meant to allow states to experiment with the Medicaid program. The experiments red states propose align neatly with GOP talking points, typically focusing on one or more of these ideas: offering private health insurance plans rather than the traditional Medicaid program; “skin in the game” such as cost-sharing or charging even the impoverished some kind of premium; tying coverage to wellness programs; tying coverage to work programs (thus far the Obama administration has drawn a line in the sand and won’t allow work requirements); programs, such as savings accounts, aimed at trying to get poor beneficiaries to act more like consumers with regard to their health care services.

“All of those ideas, leaving aside their policy merits, they all presuppose a pretty intensive level of government involvement in people’s lives,” Alker, an expert on Medicaid waivers, told me by phone. Alker points out that the original proposal by Pennsylvania suggested that the state would eventually be tracking everything from cholesterol level to work history to legal record. (In the end, the feds accepted just four of Pennsylvania’s initial 24 waiver requests.) The implicit bargain has been to offer a social safety net for the poor, but only via an intrusive nanny state.

This is a familiar story: see Florida’s program to drug-test welfare recipients, which lost money and was struck down by the courts. When it comes to programs for poor Americans, some conservative reform efforts lean toward administratively cumbersome, paternalistic programs. Backers of these programs argue that they encourage “personal responsibility,” but implementing them does carry a price tag.

“There’s no question in my mind that the administrative costs associated with these approaches are something that we need to keep a very close eye on,” Alker said. “Fundamentally we know that Medicaid has much lower administrative costs than private insurance. Then you add on top of it all of these different policy objectives that are driven by intense politics. Intense politics don’t usually make for good policy.”

More complex programs can also be more confusing for beneficiaries. State officials in Arkansas have suggested that the Health Independence Accounts would serve as an educational tool, modeling how to be consumers of private insurance, but it's just as likely that beneficiaries will simply be baffled by the genuinely confusing structure and rules. Trying to latch GOP hobby horses onto Medicaid and low-income beneficiaries can make for an awkward fit—in practice, the HIAs aren’t much like private insurance, aren’t much like Health Savings Accounts, and don’t clearly incentivize the most cost-effective ways of using the health care system. To make matters worse, state Republicans have banned state-appropriated outreach funds to help eligible beneficiaries enroll in the private option and navigate the system.

Ultimately, the $15 million a year the HIAs will cost to run is a pittance relative to the total cost of Medicaid expansion. But there are real concerns about whether the private option itself could turn out to be significantly more costly than traditional Medicaid. It’s too early to come to any definitive conclusions on that front, but it’s a huge question for the federal budget as other states explore similar schemes.

Sanders told me that the HIAs are just a “first iteration” and emphasizes that the private option will evolve over time. Part of the goal, he said, was to encourage red states to piggyback off of one other with conservative reform ideas, with an eye toward a second round of waivers that the ACA will make available in 2017 to give states more room to tailor changes. “The ultimate goal is to reach state-based innovation,” Sanders said.

In the meantime, Alker worries that the complexities may discourage people in these states from accessing care. “I don’t have any confidence on the ground that beneficiaries will be clear on what’s going on because the policy itself is very, very complicated,” she said. “I think what’s disheartening about the situation is that the research is very clear that charging premiums to very low-income people will deter enrollment and that charging co-payments will deter them from getting needed care.”

The various GOP-led reforms and the added bureaucratic complexity that come with them are the price for the Obama administration to bring red states into the fold. For Obamacare to broaden coverage, Medicaid programs across the country will look very different from what the law's backers—and its detractors—first imagined.