Campaign Update


Medicaid (Obamacare) Expansion by Another Name

02/07/2014 | News |

Medicaid expansion is back, only now it goes by another name. With entrenched positions established on Medicaid expansion, some legislators are floating an alternative plan involving premium assistance run through the new federally-facilitated exchange, a plan termed “Marketplace Virginia.” It would probably help to unpack a bit.

Typically, states manage Medicaid coverage directly, but there is another option, called “premium assistance,” in which Medicaid funds are used to purchase private health insurance for beneficiaries. Benefits available under these private plans must be comparable to those available under traditional Medicaid, or, if they aren’t, then the state must provide “wrap-around” coverage to pick up the slack.

A small number of states are exploring tying this concept in with the new health insurance exchanges. To do this, states must receive a waiver from the federal Department of Health and Human Services (HHS); this has taken place in two states, and several more waiver applications are pending.

These waivers, however, are far from automatic—and they’re also nowhere near permanent. The name gives it away: they’re “demonstration waivers,” and they’re to be issued to states on a very limited basis to evaluate such projects through the end of 2016. At that time these waivers will expire and HHS will decide whether each “demonstration” has been successful and whether the waiver in each state will then be replaced by longer-term “State Innovation Waivers,” the terms of which are not known at this time.

So what does this mean for Virginia? Potentially quite a lot.

Firstly, while Medicaid expansion is enormously expensive under any approach, using premium assistance is likely to cost taxpayers even more than traditional Medicaid. The nonpartisan Congressional Budget Office estimates that premium assistance will cost $9,000 per beneficiary per year, compared to $6,000 through the traditional Medicaid delivery system. There are a number of reasons for this, having to do with the way the law distorts markets under both scenarios. Qualifying private insurance plans would have to tailor their plans to Medicaid requirements, losing the (limited) flexibility they typically have in designing coverage options. It’s Medicaid delivered via insurers, but it’s Medicaid nonetheless, with HHS severely limiting the ability of insurers to actually establish competitive plans or adjust co-pay or cost sharing requirements.

Medicaid, meanwhile, operates on extremely low, statutorily established reimbursement rates, whereas private insurers have to pay the market rate. Ultimately, of course, low Medicaid reimbursement rates don’t save money so much as redistribute it, with the costs being passed along to purchasers of private insurance. But the fact remains that, in the process, traditional Medicaid pays out less, at least directly.

And perhaps most disturbingly for those who see premium assistance as a lower-risk alternative to the standard route for Medicaid expansion, the fact that the program runs on a time-limited “demonstration waiver” means that the terms and practices the General Assembly sign off on may not be available to us after two short years—but we’ll still have the program in place.

One of the reasons why Virginia has held back on embracing Medicaid expansion is the fear that the state would wind up footing the bill. Ostensibly, the federal government will initially cover 100% of the cost of expansion, with federal support dropping to 90% over a number of years. This is still far higher than the standard Medicaid reimbursement rate of 50%, and many of us doubt that disparity will persist, or if Virginia and other states will ultimately wind up paying for a significant portion of expansion. This question is all the more pertinent given the hurdles the federal government has yet to clear in paying for operating far more federally-facilitated exchanges than originally anticipated. In short, Obamacare may have been on the books for several years now, but many of the details have yet to be hammered out.

Meanwhile, the exchanges this approach would rely on are hardly glitch-free. After three years and $640 million, the federal government couldn’t even build a working website. Now, nearly four months after the infamous Healthcare.gov went live, it is now more or less operational—at least on a good day, and then, only barely. There remain enormous problems in ensuring that the website pulls the right information and properly communicates with participating insurers. There’s still no way to even enter a change of status—like having a kid!—through Obamacare. And now we want to enroll new Medicaid eligibles into special plans on the exchange only available to them?

Let’s say that Virginia, still wary of Medicaid expansion, pounces on premium assistance as an alternative. What happens in two years, when the demonstration waiver expires? Now we’ve made a commitment to expansion—actually expanded Medicaid—and find ourselves locked in.

Really locked in. For FY 2015, the cost of Medicaid expansion in Virginia is estimated at $2.3 billion (and rising), and that’s without these potentially costly revisions. Should Virginia be left holding the bag—well, that’s quite a large bag.

Although the proposed “Marketplace Virginia” can be artfully distinguished from direct expansion of Medicaid, the end result is the same: the full implementation of Obamacare in Virginia. We’ve seen the impact of Obamacare: canceled plans, skyrocketing premiums, and unaffordable deductibles. Furthering implementation here in Virginia without even securing all of the reforms identified by the Medicaid Innovation and Reform Commission (MIRC) would be a serious mistake.

Medicaid is growing twice as fast as government overall, and taking an ever-increasing share of taxpayer dollars. That unsustainable rate of growth will ultimately threaten core government services. We need to identify ways to expand access to health care in Virginia and across the country, but Medicaid expansion by another name is still Medicaid expansion, and it’s still the wrong approach for our Commonwealth. I’ll be voting against it.

Best regards,

Mark Obenshain

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