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Waivers Can’t Solve the Problems Created by Massive Federal Medicaid Cuts

Updated July 20th

Trump Administration officials are reportedly trying to win Nevada Governor Brian Sandoval’s support for the Senate Republican health bill by offering him a waiver of Medicaid rules that would give Nevada funds to supplement the coverage that would be available to low-income people in the private insurance market. This approach wouldn’t come close to meeting the test Gov. Sandoval has laid out for the health care bill: “I have to be comfortable that those 210,000 [Nevadans covered by Medicaid expansion] are going to continue to enjoy the quality of life and health care that they have right now.” Moreover, the Administration is making promises it can’t keep.

Under the Senate bill, funding cuts would force most or all states to end their Medicaid expansions. To obtain coverage in the private market, poor- and near-poor adults would have to pay 2 percent of their income in premiums for plans with deductibles exceeding $6,000.  As a result, the Congressional Budget Office (CBO) concluded that the large majority of those losing Medicaid expansion coverage would become uninsured: “because of the expense for premiums and the high deductibles, most of them would not purchase insurance.”

Now, Administration officials appear to be promising Nevada that it can fill the gaps in the private coverage with a Medicaid waiver. Specifically, the Administration is suggesting that Nevada could provide a so-called “cost-sharing wrap” to supplement the coverage poor- and near-poor Nevadans could buy in the private market. It’s apparently suggesting that Nevada could pay for that wrap by using the funds it currently spends on expansion to obtain federal matching funds through a Medicaid waiver.

There are a number of problems with this proposal, but the biggest is that Medicaid waivers must be budget neutral for the federal government. That means that once Congress cuts federal funding for Medicaid expansion, states can’t get those federal funds back through waivers.

More specifically, any waiver Nevada obtains would have to keep the federal government’s total spending — counting what it spends on the Senate bill’s tax credits, plus what it spends on the “cost-sharing wrap” — below what it would spend if Nevada were to continue its Medicaid expansion. But by cutting the federal matching rate for Nevada’s expansion from 90 percent to 66 percent (Nevada’s regular matching rate), the Senate bill would cut federal funding for the expansion population by nearly $350 million per year compared to current law (once the bill’s cuts take full effect). That cut is why Nevada would have to abandon its expansion in the first place — but it would also stymie any effort to use a budget-neutral waiver to provide the expansion population with private coverage that offers the same “quality of life and health care” as their current Medicaid coverage.

Instead, any wrap Nevada could afford to provide under a waiver would either cover far fewer people, leave people with far higher deductibles and cost sharing than they have today, or, more likely, both. And that’s before taking into account other benefits low-income Nevadans would lose because they’re covered in Medicaid but not in commercial plans: services such as non-emergency medical transportation, personal care services that help adults with special needs stay in their homes, and Nevada’s additional case management services for Medicaid enrollees with chronic conditions such as diabetes, substance use disorder, or mental illness. Under the Senate bill, states could also waive essential health benefit rules for private market coverage, in which case benefits like maternity care and substance use or mental health treatment could be carved out of coverage as well.  

On top of that, such a waiver would do nothing for low-income Nevadans at slightly higher income levels. About 40,000 Nevadans with incomes below 200 percent of the poverty level (about $25,000 for a single individual) rely on the Affordable Care Act (ACA) marketplace for coverage, and their deductibles would increase from under $1,000 to more than $6,000 as a result of the Senate bill. These changes would cause tens of thousands of mostly lower-income Nevadans to lose private health coverage, the Urban Institute projects. The suggested waiver would also do nothing to mitigate the harm that the Senate bill’s per capita cap would do to seniors, people with disabilities, and families with children covered by Medicaid.   

The Administration has reportedly highlighted that other states, most notably Arkansas, cover their expansion enrollees through private plans, with a supplemental wrap. But that analogy is highly misleading. Arkansas’ waiver builds on the ACA’s subsidy structure, under which tax credits pay for plans that cover 70 percent of the typical enrollee’s medical costs, and cost-sharing reductions (CSRs) for the lowest-income enrollees increase that share to 94 percent, resulting in deductibles that average just $255. In contrast, under the Senate bill, tax credits would pay for plans that would cover just 58 percent of medical costs and CSRs would be repealed altogether, resulting in deductibles of over $6,000. That leaves a far larger gap for a wrap to fill in.

More important, under current law, Arkansas pays the premiums, the cost-sharing subsidies, and fills in gaps in cost-sharing and benefits for the expansion populations, with the federal government matching all of these expenditures at the enhanced rate for expansion (95 percent this year and 90 percent in 2020 and years after that). This arrangement meets budget neutrality requirements because the federal government would otherwise pay that same share of costs for expansion. But if the federal government cuts its funding for expansion, Arkansas’s waiver won’t be sustainable, as Arkansas Governor Asa Hutchinson has explained, nor would a similar approach work in Nevada.

As if these problems weren’t enough, any state relying on the promise of a waiver in lieu of expansion would be taking a big risk. Medicaid waivers are granted and renewed at the discretion of the Secretary of Health and Human Services (HHS), based on whether they promote the objectives of the Medicaid statute, and they’re granted for periods of only five years. The current HHS Secretary thus can’t make any guarantees about waivers after 2022, when the Senate bill’s cuts to expansion funding (and the cuts resulting from the Medicaid per capita cap) would continue to deepen.