Consultant warns of Medicaid waiver pitfalls

The state will be walking into a spending cap trap if it applies for a federal waiver to restructure Medicaid — a trap that could jeopardize the state budget for years to come as well as shift health-care costs and increase insurance premiums for small businesses, according to a study commissioned by the New Hampshire Endowment for Health.

And, the author of the study — Cindy Mann of the Health Policy Institute at Georgetown University – warned, the bigger the waiver, the bigger the trap.

The state Department of Health and Human Services is putting the finishing touches on its plan to modernize Medicaid, recently dubbed GraniteCare. While the department’s closely guarded plans had not been released by deadline, the state has hired consultants to put together a request for a special kind of waiver – known as an 1115 waiver — that would give the state greater flexibility when it comes to Medicaid.

But Mann argued that the waivers and the high-priced consultants that come with them may not be needed at all (see sidebar) and may put the state at risk.

Since 1115 waivers must by law be financially neutral to the federal government, the state must agree to some sort of spending limit, though the amount and type of limitation depends on the waiver sought. Since health costs frequently escalate unexpectedly, the actual spending could easily exceed the cap, she said.

There are currently no such limits on federal Medicaid spending. Federal and state law define the need and the federal government must match – usually dollar for dollar – what the state spends to fulfill that need.

“One of the most important features of Medicaid is you have open-ended federal financing. You give up that guarantee when you walk into an 1115 waiver,” said Mann.

Even a modest increase in health-care costs could put the state at risk for $50 million to $190 million, Mann said, though the state hopes that it can keep at least some of the $100 million it might lose in Medicaid enhancement funds (often referred to as Mediscam) that it currently uses to balance the state budget.

Critics contend that it is unfair that the loss of that Mediscam money – which never went to Medicaid programs but was used to fill funding holes in the general fund — should be the reason used to cut benefits for the state’s neediest citizens.

It is unclear whether the state will strike such a bargain for the waiver. Calls to HHS were not returned by deadline.

While in the past the department has talked about turning Medicaid into a block grant proposal, it has since backed off such language. On the other hand, it has repeatedly talked about applying for an 1115 waiver, both with its consultants and in its various advisory committees.

In a recent interview with The Union Leader, Commissioner John Stephen reportedly said that GraniteCare would require federal waivers, not because it is losing Mediscam money, but because Medicaid as it is currently run is not sustainable due to rising costs.

“If we don’t make some of these changes, the state is going to be faced with two unattractive alternatives, and that would be raising taxes or cutting eligibility and benefits,” Stephen said. “This is not a two-year fix.”

States have been utilizing 1115 waivers for more than a decade to expand coverage, Mann said. What’s driving the latest round of proposals, Mann said, was the need to cut costs.

Oregon, for instance, originally applied for a broad 1115 waiver in the mid-1990s to expand eligibility to include more of the working poor. It recently applied for a waiver to impose premiums on some of its poorest citizens. The premiums, while modest, resulted in Medicaid enrollment being cut in half, causing a sharp increase in emergency room visits, putting a severe strain on local hospitals.

Tennessee, the other early state with a broad 1115 waiver, is now considering using the waiver to restrict coverage by narrowing the definition of what services are medically necessary.

But there is a problem when you try to cut back on such a major insurer, Mann said. In New Hampshire, Medicaid – the state’s largest insurer — covers some 98,000 people a month, and that doesn’t include the long-term coverage it provides for the elderly in the state’s nursing homes. You can’t cut such a program without major repercussions, said Mann.

“It’s like when you bite into s’mores, that marshmallow and chocolate graham cracker sandwich. When you bite into one end, it’s going to ooze out one way or another. If Medicaid covers fewer people, or doesn’t pay for as much coverage, who is going to pick up the price? Providers to stay afloat have to shift those costs to other players, like businesses who pay for most of the private insurance market.”

How big a cost shift depends on the kind of 1115 waiver that is applied for.

“Global” waivers put the state further at risk, because if either the number of recipients or the cost of coverage goes up unexpectedly, the state is on the hook for the difference, Mann said – up to $190 million of federal funding over five years.

A “Per capita” waiver takes demographics into account, but if they miscalculate the cost of health care, the state could be out some $50 million.

The risk could be minimized if the waiver request is narrow, but Mann emphasized that the state could modernize much of Medicaid without any 1115 waivers at all.

The state, for instance, already has four non-1115 waivers, which enable the state to pay for community-based care for residents who would otherwise be institutionalized, she said — a key component of the state’s Medicaid modernization plan. And the state could do other things – like purchase equipment and services competitively – that wouldn’t need any waiver at all.

The problem, she said, is that Medicaid officials – taking the advice of high-priced consultants who write such waivers – often think of waivers as the first step, when it should be the last resort.

Mann also warned that whatever waiver the state presents over the next few weeks to the Legislative Fiscal Committee and the federal government may not be what the public actually gets. Once a waiver proposal is submitted, the final details – especially the financial arrangements — are hammered out between federal and state officials. And the final waiver can be implemented without legislative approval, unless lawmakers insist on a say.

Even after a waiver request goes through, the governor doesn’t have to implement the entire program. In other states, Mann said, the governor implemented the cost-cutting measures, but held back on expansion of services.