By Sara Rosenbaum

Background

In recessionary times, states seek to reduce Medicaid spending; paradoxically, this is when the need for public insurance may be the highest. During the recession that occurred in the early 2000s, two-thirds of all states reduced Medicaid eligibility, removing between 1.2 and 1.6 million children and adults from the program before Congress enacted legislation barring further cuts as a condition of additional federal assistance.^[1] The current recession is far more serious, and state budget shortfalls, far greater.

Federal Medicaid law mandates that participating states extend coverage to certain classes of eligible individuals as a condition of receiving federal funding. The principal mandatory coverage groups are minor children and their parents or caretakers with limited incomes and a link to states’ 1996 eligibility standards governing Aid to Families with Dependent Children programs, low-income infants and children under age 6 with family incomes less than 133% of the federal poverty level (FPL), low-income children 6-18 with family incomes under 100% of the FPL, low-income pregnant women, elderly persons and disabled children and adults who receive Supplemental Security Income (SSI) benefits, children receiving adoption assistance and foster care under Title IV-E of the Social Security Act, and certain low-income Medicare beneficiaries.

Medicaid also gives states the option to cover certain eligibility groups, such as children and pregnant women whose incomes are low but exceed the mandatory eligibility standard, pregnant women and children who are legal immigrants but who have not yet satisfied the five-year waiting period to qualify for Medicaid or the Children’s Health Insurance Program (CHIP), additional low-income Medicare beneficiaries, disabled children and adults whose incomes exceed SSI eligibility levels, low-income uninsured women diagnosed with breast or cervical cancer, low-income nursing home residents, medically needy individuals, and other individuals whose incomes are low but nonetheless exceed the mandatory coverage levels.

In addition, the Secretary of HHS has the power under §1115 of the Social Security Act to allow states to run their Medicaid programs on a demonstration basis, in order to test innovations in Medicaid program design and administration. Under §1115, the Secretary can authorize coverage of additional classes of individuals not recognized under federal Medicaid law. The Secretary has used this demonstration authority to allow states to extend Medicaid to low-income non-elderly adults who otherwise would not qualify for coverage. Section 1115 demonstration authority lasts for a specified term of years, after which the Secretary and state must agree to a renewal. Under CHIP, states may cover “targeted low-income” uninsured children and pregnant women, as well as certain non-pregnant adults under certain circumstances.^[2]

As part of the American Recovery and Reinvestment Act (ARRA), Congress provided states with additional Medicaid “stimulus” funding while imposing a Medicaid and CHIP maintenance of effort (MOE) requirement.^[3] In addition, The Children’s Health Insurance Program Reauthorization Act of 2009 (CHIPRA) augmented state funding to cover low-income children and pregnant women. Under this MOE provision, states that reduce eligibility prior to June 30, 2011 risk losing Medicaid stimulus funds. The ARRA MOE provision covered all state Medicaid and CHIP programs, whether operated under state plan or Social Security Act §1115 demonstration authority.

Changes Made by the Affordable Care Act

The ACA builds on and extends the ARRA MOE, seeking to avert the loss of insurance coverage (as occurred in earlier recessions) between the time that the ARRA stimulus funding runs out and implementation of the ACA’s Medicaid expansions and its Exchange-based subsidized health plan offerings.

• The ACA mandates Medicaid coverage, effective January 1, 2014, for all children and nonelderly adults with family incomes under 133% FPL (138% FPL^[4] when an additional 5% disregard is also included in the calculation). The ACA provides enhanced federal funding for newly eligible individuals who would not have qualified for coverage under traditional Medicaid rules, but states’ regular federal contribution level (known as the FMAP) applies to beneficiaries falling within “traditional” mandatory and optional coverage categories.
• In addition, the ACA requires states to maintain their current adult Medicaid eligibility standards, methodologies, and procedures (including standards, methodologies, and procedures that otherwise would be a state option) until the HHS Secretary determines that a state Exchange is fully operational.^[5] (This date is presumed to be January 1, 2014 under the ACA, but the date is not fixed in statute). In the case of children, the ACA’s MOE extends through September 30, 2019.^[6] As with the Medicaid MOE, the CHIP MOE applies to CHIP “eligibility standards, methods and procedures.”^[7]
• The ACA MOE provisions also apply to states that operate their programs on a §1115 demonstration basis.
• Finally, the ACA provides that during the January 1, 2011-December 31, 2013 time period, the MOE will not apply to eligibility for non-pregnant, non-disabled adults whose income exceeds 133% of the FPL if “the State certifies to the Secretary that, with respect to the State fiscal year during which the certification is made, the state has a budget deficit, or with respect to the succeeding state fiscal year, the state is projected to have a budget deficit.”^[8]

In the face of state budget shortfalls estimated at $125 billion in 2011, a number of states have sought repeal of the ACA MOE provisions.

Implementation

Agency and Key Dates: The Medicaid and CHIP MOE provisions became effective upon enactment. While HHS has not yet issued regulations, it has issued several relevant letters to state health officials.^[9]

• On February 15, 2011, HHS Secretary Sebelius advised Arizona Governor Jan Brewer that the ACA MOE provision does not require that Arizona continue its coverage of low-income adults (whose Medicaid eligibility derives from the state’s §1115 demonstration) beyond the date on which the current demonstration authority expires (September 30, 2011). The letter also advises Arizona that because its freeze on CHIP enrollment was in place at the time of ACA enactment, the ACA MOE provisions do not apply to its CHIP program, and thus, the freeze may remain in effect. The letter details the numerous coverage reductions previously authorized by HHS under the Arizona waiver.
• On February 25th, 2011, Cindy Mann, CMS’ Director of Medicaid, CHIP, and Survey and Certification, issued a letter providing greater detail on the meaning of the ACA MOE provisions. The letter clarifies the following:
  • In keeping with the ACA, exceptions to the MOE apply to states “experiencing or projecting” a deficit in order to permit “eligibility restrictions for certain non-pregnant, non-disabled adults.” The letter sets forth procedures for lifting the Medicaid MOE and includes a state certification form.^[10] The letter provides that in states certifying to the Secretary that the state is (or anticipates) operating under a budget deficit, the ACA MOE would not be applicable to adults who are “not eligible for coverage on the basis of pregnancy or disability and whose incomes are above 133% of the [FPL].”
  • The period during which the ACA MOE provision does not apply would begin no earlier than January 1, 2011 (or the date on which the state submits its certification) and end no later than December 31, 2013 (or a date tied to the certification period, if earlier).^[11]
  • States may apply eligibility restrictions to new applicants, existing beneficiaries, or both, within the classes of individuals whose restricted eligibility is permitted under the ACA (i.e., non-pregnant, non-disabled adults with incomes above 133% FPL).
  • States must follow federal law related to state plan amendments, redetermination of eligibility under another unaffected coverage category, and procedural due process for termination of coverage.
  • The CHIP MOE provisions do not apply to adults covered under a §1115 waiver that utilizes CHIP funds. However, the CMS letter notes that adults covered under a dual Medicaid-CHIP demonstration could be “affected” by the Medicaid MOE provisions.
  • The MOE provisions apply to §1115 demonstrations but, as in Arizona’s case, nothing requires a state to continue a demonstration beyond its term.
  • States may, without violating the ACA MOE, reduce coverage in order to comply with a §1115 Medicaid demonstration budget cap (§1115 demonstrations must be budget neutral). States may anticipate such a cost overrun and reduce eligibility prospectively. This permissive standard represents a new source of state flexibility not explicitly recognized in CMS’ previous ARRA MOE policy.
  • In a reversal of the agency’s previous position in relation to the ARRA MOE, increasing premium payments will not be considered an MOE violation under either Medicaid or CHIP in certain situations: where the state plan or demonstration had “explicit language” in its state plan or demonstration (as of the ARRA or ACA MOE effective dates) permitting automatic premium increases; where premiums are adjusted for inflation, even in the absence of “explicit language” permitting such increases; if the premium adjustments are no greater than the medical component of the Consumer Price Index; or if federal law allows the imposition of premiums.
  • Copayment increases would not be a violation of the MOE.

Key Issues

• How many states will certify a budget deficit in order to reduce coverage to permissible groups? In accordance with the ACA, the HHS guidance permits states to certify the existence of a present or anticipated budget deficit in order to roll back eligibility. How many states will do so?
• Will states take advantage of the authority to impose or increase premiums? Premium increases are exempt from the prohibition on changes in eligibility standards, methodologies and procedures; how many states will impose premium increases as permitted by CMS in its now-revised policy?
• Standards, methodologies, and procedures: Both the Medicaid and CHIP MOE apply to eligibility “standards, methodologies, and procedures.” CMS indicates that unless noted (as in the case of premiums), the definition of “standards, methodologies and procedures” will be the same as that used in implementing the ARRA MOE. As noted above, however, the latest CMS guidance allows certain state flexibilities not permitted under the ARRA MOE. CMS also indicates that it is considering additional changes.^[12] Will any of these previous prohibitions on state restrictions be revisited?
• Will Congress roll back the ACA MOE provisions? The ACA flexibility provisions related to MOE exceptions apply to only certain beneficiary classes (i.e., non-pregnant, non-disabled adults with family incomes above 133% FPL). Thus, a key question becomes whether Congress will expand the groups of individuals whose eligibility can be restricted to include more categories of optional eligibles, thereby adding new state flexibility to the existing ACA MOE exemptions. Under the ACA MOE, pregnant women and children of any income level are protected, as are adults with disabilities, even if their coverage is optional. Furthermore, the only non-disabled, non-pregnant adults whose eligibility can be restricted on the basis of a budget deficit are those whose incomes exceed 133% of the FPL. Given the relatively high eligibility standards for children, it is probably safe to assume that further state flexibility options primarily would affect poor adults. This is because the mandatory income eligibility standards for non-pregnant, non-disabled adults are exceedingly low, since the mandatory income eligibility level is tied to 1996 AFDC eligibility standards. One estimate is that more than 40% of the parents covered under state Medicaid programs are optional, even though their incomes usually are well below the federal poverty level.^[13]

Recent Agency Action

HHS has issued guidance to states, as noted above.

Authorized Funding Levels

Medicaid and CHIP are mandatory spending programs; CHIP is subject to an aggregate annual budget cap.