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Ending Medicaid’s Retroactive Coverage Harms Iowa’s Medicaid Beneficiaries and Providers

The Centers for Medicare & Medicaid Services (CMS) has granted a section 1115 waiver to let Iowa end Medicaid payments for medical costs that beneficiaries incurred up to three months before enrolling in Medicaid if they were eligible for Medicaid during that period. As we’ve written, state demonstration projects under the Social Security Act’s section 1115 should test new approaches to providing health care to low-income people that further Medicaid’s core objectives: providing comprehensive health coverage to low-income people so they can get the health services they need. Iowa’s waiver will do nothing to advance that mission. Rather, it will save the state and federal government money at the expense of vulnerable individuals and health providers.

Retroactive coverage, a feature of Medicaid since 1972, provides financial security to vulnerable beneficiaries, especially seniors and adults with disabilities who need long-term services, and it helps prevent medical bankruptcy. Retroactive coverage is important because seniors who need institutional long-term services and supports may not be familiar with Medicaid or its eligibility rules. In addition, it’s often not clear when Medicaid eligibility begins, given that beneficiaries must first spend down their available assets. The eligibility determination is complex, and people often need help assembling information on family income and assets.

While helping vulnerable individuals, retroactive coverage helps ensure the financial stability of health providers by paying for medical services that would otherwise go uncompensated. It reimburses hospitals and other safety net providers for care they have provided during the three-month period, helping them meet their daily operating costs and maintain quality of care. With retroactive coverage no longer available, those providers will be responsible for much of those costs.

This policy shift could make it harder for seniors to get the nursing home care they need when they need it. After Iowa asked for the 1115 waiver, the chief financial officer of an Iowa-based nursing home company wrote to CMS stating, “with the state requesting elimination of (retroactive payment), our nursing homes will no longer admit any prospective resident who is Medicaid-pending, or will become Medicaid-pending shortly after admission.” By denying admission, nursing homes prevent seniors and people with disabilities from getting the care they need, potentially leading to unnecessary and lengthy hospital stays.

CMS gives three reasons for approving the waiver: it will (1) encourage “beneficiaries to obtain and maintain health coverage, even when healthy”; (2) encourage seniors and people with disabilities “to apply for Medicaid expeditiously when they meet the criteria for eligibility”; and (3) align “Medicaid and commercial coverage to facilitate smoother beneficiary transition.” Yet the waiver doesn’t appear to test whether eliminating retroactive coverage accomplishes these goals. CMS approved the waiver on October 27, and the state implemented the new policy on November 1, without any outreach or education to prospective beneficiaries. To see whether eliminating retroactive coverage achieves the state’s professed goals, CMS or the state should conduct outreach and education, as well as rigorous monitoring and evaluation.

Such evaluation would likely reveal the waiver’s true cost. Eliminating retroactive coverage will reportedly affect about 40,000 Iowans, which the state claims will save it and the federal government over $36 million. But the waiver will just shift those costs to vulnerable individuals and health providers.