The Incredibly Expansive Medicaid Machine
Capitalizing on new flexibilities in health insurance for the poor, states are inching closer to health coverage for all.
New Jersey takes health insurance seriously, especially for children who don't have it. When Congress passed the State Children's Health Insurance Program in 1997, a program that allows states to extend health coverage to kids in families at or below 200 percent of the federal poverty level, New Jersey went further. It broadened its Medicaid program to cover kids in families with incomes below 350 percent of the poverty level.
Then, last summer, New Jersey legislators debated broadening Medicaid coverage even further to include some of the state's 950,000 uninsured adults. "Obviously when you talk about dealing with uninsured children, it leads you to the parents," says Deborah Bradley, acting director of New Jersey's Division of Medical Assistance and Health Services. "If you cover parents, you're more likely to cover kids as well."
In keeping with that logic, New Jersey last July passed the FamilyCare Health Coverage Act, which extends health insurance via Medicaid to parents earning less than 200 percent of the federal poverty level and to childless adults earning less than 100 percent of the poverty level. New Jersey's goal was clear, if limited: provide health coverage to 125,000 uninsured adults in three years time.
New Jersey's activism is not that unusual. Over the course of the past year, more than a dozen states have expanded their Medicaid or other health insurance programs to parents of SCHIP children. In the first seven months of 2001 alone, according to the U.S. Department of Health and Human Services, state and local initiatives have brought access to health coverage to about 800,000 uninsured adults. That's only a small dent in the number of uninsured, which is close to 43 million nationwide, but it is nonetheless progress.
The HHS number also underscores a remarkable role reversal. It is the states, not the feds, that are tackling the problem of the uninsured, who were once seen as an almost intractable national problem that required a federal solution. In particular, states are targeting the estimated 5.3 million uninsured parents whose children have access to health insurance through Medicaid or SCHIP.
Health insurance expansion is moving from federal to state agendas in other ways as well. President Bush's HHS director, former Wisconsin governor Tommy Thompson, has been making an effort to offer states unprecedented leeway to develop their own plans. And in January, the Health Care Financing Administration--now known as the Centers for Medicare and Medicaid Services--gave three states permission to use unspent funds from their SCHIP allotments to extend health insurance coverage to SCHIP parents. For states facing shrinking revenues, the ability to tap SCHIP funds is particularly attractive.
Some states are also taking action outside the Medicaid program. Several states, most notably Massachusetts, are exploring ways to help low-income workers buy into private-sector, employer-sponsored health insurance programs. How long the states, given their falling revenues and rising health care costs, will be able to continue to provide these programs is an open question. Meanwhile, they are moving forward.
The most common approach states have been taking to insure the uninsured is to loosen Medicaid income-eligibility requirements so that parents of SCHIP children can enroll in state Medicaid programs. When Congress passed welfare reform in 1996, it gave states virtually unlimited leeway to disregard certain types of income for the purposes of determining Medicaid eligibility. Many states responded by disregarding the costs of child care, transportation or even lump sums of money. Through disregards, states can effectively extend Medicaid eligibility to 100 percent of the poverty level. In other words, states have a backdoor way to expand Medicaid enrollment.
In the past two years, at least nine states--California, Connecticut, Maine, Missouri, New Jersey, New York, Ohio, Rhode Island and Wisconsin--have used income disregards to extend health insurance to families up to or above 100 percent of the federal poverty level. In some cases, the results have been dramatic. In July 2000, Ohio raised its Medicaid eligibility limit from approximately 34 percent of the federal poverty level to 100 percent. The state expected the change to add about 18,000 adults to its Medicaid rolls, an expansion that would cost roughly $23 million. Instead, in the first year of the flexible limits, Ohio found itself with almost 82,000 additional adults who had signed up for its Medicaid program.
This increase isn't due solely to income disregards. During this period, the state also simplified the Medicaid application process and mounted a major marketing campaign. As a result, state officials have no way of knowing how many people enrolled in Medicaid as a result of the income expansion. Their best guess is fewer than half. Even so, it's clear that Ohio's expansion of income disregards resulted in far more enrollees than the state expected.
Ohio officials seem satisfied, if surprised, by the vigor of the response. "We see this as a tremendous success for the state," says Sukey Barnum, chief of the Bureau of Consumer and Program Support in the Office of Ohio Health Plans.
Unanticipated expenses make states nervous, though, and this is especially so at a time when states are scrambling to deal with lower revenues and rising Medicaid costs, which account for roughly 20 percent of state budgets. So it's no surprise that some states have been reluctant to extend access to health insurance through income disregards.
Despite budget jitters, however, three states--New Jersey, Rhode Island and Wisconsin--took HHS up on the offer to provide health insurance to the parents of SCHIP eligible children. A fourth state, Minnesota, applied for and received a similar waiver to cover parents in its MinnesotaCare program in June.
But again, as in the case of Ohio, there are risks in an expansion. When New Jersey created FamilyCare, which broadened Medicaid eligibility to 200 percent of the poverty level and offered to enroll SCHIP parents and other low-income adults, state officials expected to enroll 125,000 adults in three years time. Instead, 118,000 signed up in the first year, forcing the legislature to scramble to provide an additional $25 million for the program. Even that wasn't enough. In August, New Jersey decided to control costs by freezing the enrollment of childless adults at 13,000.
Nonetheless, more expansions along these lines are in the works. In December, California submitted a waiver to use funds from its SCHIP allotment to extend coverage to parents of SCHIP children up to 200 percent of the federal poverty level. Once the waiver is approved, California expects to provide coverage to about 300,000 parents who right now are uninsured.
Not every state is in a position to use SCHIP funds to extend health insurance to parents. Some states, such as New York and North Carolina, are already using their entire SCHIP allotment to insure children. For the roughly two dozen states with unspent SCHIP funds, however, using SCHIP monies to extend health insurance coverage has definite financial advantages. Instead of the regular state-federal Medicaid match, states with SCHIP-fund waivers receive an enhanced match.
HHS Secretary Thompson has intimated that his department intends to approve such waivers as a matter of course. In addition, he unveiled a new model of a waiver program in August, which he said would make it "faster, easier and simpler" for states to expand access to health insurance to low-income citizens through Medicaid and SCHIP. Under that program, states would have more leeway in deciding how much coverage to provide Medicaid applicants who aren't poor enough to automatically qualify for the program. A state could decide to offer its so-called optional beneficiaries fewer benefits or expect them to pay a portion of their treatment costs. Although the approach is controversial--some see it as a way to cut benefits for the 12,000 optional beneficiaries already on the books--the National Governors' Association is pleased with the way Thompson and the Bush administration are handling this aspect of the health insurance issue. In fact, it is very similar to a Medicaid-reform plan NGA unveiled earlier this year. At its core, the NGA proposal would change Medicaid from a program that offers a single, comprehensive benefit package to everyone to a program with different benefit packages for different populations.
The reasoning goes like this: Private, commercial health insurance generally provides benefits equal to somewhere between 75 and 80 percent of Medicaid. Many in the low-income population served by Medicaid need the full package. "But not everybody does," says John Santa, administrator of Oregon's Office of Health Plan Policy and Research. "If some people could stretch a bit, as a result we could give that same kind of private health insurance plan to other people."
That worries some advocacy groups, who are concerned that the flexible approach may encourage states to go too far in reducing the scope of benefits or increasing cost sharing. "In effect," says Leighton Ku, a Medicaid expert with the Washington-based Center on Budget and Policy Priorities, "they've said it's okay to decrease benefits for low-income people to increase benefits for people who tend to be higher up the income scale. This is a little troubling." For Santa, that argument doesn't hold. "It all comes down to a question of what is your priority," he says. "Is it covering as many people as possible or having a benefit plan that is so rich that it's very hard to imagine getting to universal coverage?"
Oregon has made its decision: It's developing a waiver application that would allow it to offer two different benefit plans for its Medicaid enrollees--a rich benefit plan for mandatory enrollees and a less comprehensive plan for optional enrollees.
At this point, there's every indication that Tommy Thompson will look favorably on it.
Another approach that interests some state officials is helping low- income workers buy into employer-sponsored insurance. One way to offer such help is to use SCHIP funds to subsidize private health insurance premiums.
Premium-support programs have several potential advantages. Instead of expanding state Medicaid programs, they keep low-income parents in the private sector, where private employers may pick up part of the cost of coverage. Premium-support programs may also offer more continuous care. Enrollees in public programs lose access to health insurance if their incomes rise too high. Under a premium-support program, the state could simply phase out support as applicants' incomes rose. Finally, many policy makers believe that helping workers purchase employer-sponsored insurance will reduce "crowding out," whereby people with access to private insurance choose to give it up in favor of less expensive, more comprehensive public insurance.
Past efforts to help low-income workers buy into employer-sponsored insurance were hobbled by onerous federal regulations--regulations that have now been loosened. But that hasn't helped the programs succeed. The day-to-day realities of running a premium-support program are proving to be difficult to overcome. That, at least, has been the case in Massachusetts.
Massachusetts created an Insurance Partnership in 1997 to subsidize premiums for low-income people who worked for small businesses where they had access to health insurance but couldn't afford to pay for it. Legislators hoped the IP would not only provide coverage but also relieve pressure on hospitals that were getting stuck with uncompensated care. Legislators set aside $100 million for the program. It went into effect last year.
So far, the IP is covering only around 11,000 people, most of whom are actually low-income, self-employed people. Of greater concern, however, is that the program is extremely expensive to administer. According to state Senator Mark Montigny, who chairs the Ways and Means Committee and was one of the IP's original sponsors, administrative costs eat up as much as 30 percent of the IP's budget. Montigny is now pushing to freeze funding for IP. In its place, he wants to raise the state's tax on tobacco in order to finance a Medicaid expansion using income disregards.
"There's an enormous interest in this kind of approach, but I don't think it works," says John Holahan, the director of the Urban Institute's health policy research center. The problem with premium support, as he explains it, is that the program is dealing with low- income people working at low wages in disproportionately small firms that may or may not offer coverage. If they don't, the subsidies a state would offer through its Medicaid program aren't going to be enough to cover all their employees. If they do offer health insurance, a pretty high share of low income people do take up the offer. As a result, says Holahan, "the only people you're going to reach are the people who were being offered health insurance but didn't take it up."
Still, the Bush administration has signaled strong support for premium-assistance programs. When Thompson unveiled his new model waiver process this summer, he noted that it "places a special emphasis on coordinating Medicaid and SCHIP with private-sector insurance programs."
One thing the Bush administration didn't commit to was more federal funding for state efforts. Indeed, Thompson emphasized that the new proposals would be "budget neutral." While Senate Democrats are pushing to use some of the $28 billion Congress set aside to address the problem of the uninsured over the next 10 years to expand SCHIP to parents, such an infusion of funding is no sure thing. In fact, without new legislation, SCHIP funding will actually decline next year by more than $1 billion. As a result, many state policy makers believe that the only way to expand health insurance coverage is to make existing federal dollars go further. And that could mean changing the Medicaid program itself.