ACAP Principles: Program Flexibility in Medicaid

N.B.: This document does not address the financial “flexibility” concepts of block grants or per capita allotments.
Principles related to these financing approaches are addressed here.

Medicaid is a federal-state partnership that provides health coverage to low-income pregnant, aged, blind, and disabled Americans.  As part of a discussion of changing the program, state and federal policymakers have sought to give states greater flexibility in designing and managing Medicaid.

Flexibility has been a trait of the program since its inception because states possess the opportunity to apply for waivers of various provisions of the Medicaid program.  In fact, much of the movement away from fee-for-service and toward managed care in Medicaid is a direct result of such flexibility.  With the enactment of the Affordable Care Act, states were given even greater flexibility through the use of “Section 1332” waivers, effective in 2017. In short, states have used existing program flexibilities to develop innovative programs while maintaining coverage for those who need it.

ACAP believes that flexibility – developed and implemented in recognition of the challenges facing those with lower incomes – can be a valuable tool to help enrollees move toward and attain self-sufficiency.  In an effort to provide the Medicaid health plan perspective to policymakers, this document identifies potential opportunities and pitfalls of added flexibility in the Medicaid program.

  1. Maintain the Medicaid Program’s Guarantee of Coverage. Without a requirement that all eligible individuals can receive Medicaid coverage, states and safety net providers will be burdened with the costs of caring for low-income people, or will resort to waiting lists or enrollment caps, increasing the numbers of uninsured individuals.  Access to health care should not be predicated on participating in other activities, such as job training or work readiness activities, although ACAP supports making these services available to assist individuals in their efforts to attain economic stability.
  1. Ensure Transparent, Verifiable, and Actuarially Sound Rate-Setting by States. Since the early 1990s, states have increasingly turned to managed care to deliver benefits to Medicaid enrollees. In 1997, Congress recognized that plans were vulnerable to being reimbursed at rates that failed to cover the cost of services the state required under their contracts.  In addition, the Government Accountability Office has found inadequate CMS oversight of the rate-setting process to ensure actuarially-sound rates.  As Congress seeks to increase state flexibility through contracting with managed care entities, any reform proposal must maintain actuarial soundness and transparency in rate-setting to ensure that health plans participating in Medicaid managed care programs can provide covered services and promptly, accurately reimburse providers.
  1. Do Not Employ Cost Sharing through Copayments or Premiums for the Purpose of Discouraging Access to Needed Care and Services. Since there is empirical evidence that the use of copayments and premiums negatively impacts coverage for and access to needed health care, particularly for those who have low incomes and have chronic conditions, ACAP plans believe that, if cost sharing is incorporated into health coverage, total cost sharing amounts (premiums and copayments) should be structured to impact the fewest individuals possible and be reflective of program participants’ financial situation and ability to pay.  When used, they should be focused on controlling overutilization and/or encouraging utilization of more cost-effective services, and should not be a barrier to enrolling in the program or accessing needed care. Similarly, cost sharing should not be set so high that providers are penalized when enrollee cannot pay the copayments. While under current regulations individuals may lose access to care if premiums are not paid, and can be denied care if they do not make copayments, they should have opportunities to re-engage without lengthy or permanent lock-out periods.
  2. Ensure Medicaid Contributes to Lifting People Out of Poverty. Addressing the social determinants of health – including job readiness, housing, and other issues – has great potential to help Medicaid enrollees improve health status and, simultaneously, economic stability. While ACAP does not agree that Medicaid enrollees should be required to engage in certain activities – such as seeking employment – as a condition of eligibility, we strongly support providing opportunities for people with low incomes for job training, stable housing, and other critical activities. This critical work – which while increasing front end costs, can result in health system savings – should be recognized and incorporated into any effort to increase Medicaid flexibility.
  1. Avoid Contributing to Bureaucratic Complexity and Cost for Medicaid Enrollees, Providers, and Plans. The federal government should ensure that states don’t increase administrative complexity and cost in the name of “state flexibility.”  For example, a state that adds enrollee cost-sharing may increase significant bureaucratic costs to providers required to collect the cost-sharing portion (or absorb losses as “bad debt”).  Likewise, instituting a premium model on Medicaid health plans may necessitate the addition of bureaucratic costs in the development and collection of premium rates.  The administrative complexity of new requirements, and the cost to implement them, should be taken into account and balanced against their programmatic value.
  1. Maintain Currently-Covered Services. Within federal guidelines, states have considerable discretion in determining what services will be provided under their Medicaid program, including mandatory and optional services and services incorporated in each state’s comprehensive benefits package. Any new Medicaid flexibility must be structured so that enrollees continue to receive all currently covered services.
  1. Evaluate the Impact of Increased Medicaid Flexibility on Enrollees, Providers, Plans, and States. While Medicaid waivers have incorporated evaluations of the impacts of changes to standard Medicaid rules, the rigor of these evaluations has varied.  ACAP believes that rigorous evaluation of the impact of programmatic flexibilities – such as managed care, as well as premiums and copayments, and employment readiness – on access to and utilization of services should be undertaken.  The results of these studies should be incorporated into future waiver approvals.