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Executive Summary: States’ Complex Medicaid Waivers Will Create Costly Bureaucracy and Harm Eligible Beneficiaries[i]

May 23, 2018

Numerous states have proposed or are considering Medicaid demonstration projects, or “section 1115 waivers,” that would take coverage away from people who don’t meet work requirements, pay premiums, or renew their coverage on time, and the Centers for Medicare & Medicaid Services (CMS) has recently approved unprecedented barriers to coverage in several states.  Rather than further the objectives of Medicaid as federal law requires, these proposals undermine Medicaid’s goals by making it harder for people to stay covered and thereby reducing access to care.[1]  These proposals will have additional — and likely unintended — adverse effects due to their complexity, which poses major implementation challenges for states and major challenges for eligible individuals seeking to maintain their coverage.

Challenges for states.  To implement pending and proposed waivers, states will need to undertake a variety of difficult tasks, including: substantially modifying their eligibility systems, creating new systems for beneficiaries to document compliance with the new rules, evaluating this large volume of documentation, informing beneficiaries of the new rules, establishing new systems to exchange data between Medicaid and other programs, acquiring or making new use of claims data from Medicaid managed care plans, training and/or hiring additional caseworkers to make determinations about exemptions and other new rules, and hiring additional staff to address a higher volume of appeals related to coverage denials.

States are also required to develop new processes to identify and assess people protected by the Americans with Disabilities Act (ADA) and either offer them reasonable accommodations that would allow them to meet the new requirements or exempt them from the requirements altogether.

Challenges for beneficiaries.  Even beneficiaries who meet rigid new work requirements, pay premiums, and comply with new procedural requirements will face significant obstacles to keeping their coverage.  For example, people who are working or participating in work-related activities will need to understand the following: which activities qualify toward the requirement and how many hours they must complete (which would vary over time in some states), how to document their hours in these activities, and how to obtain appropriate documentation (for example, from multiple employers).  They also must understand how to report compliance with the work requirement through state-prescribed processes and in accordance with sometimes tight deadlines (for example, within five days of the end of the month in Arkansas).

Likewise, people eligible for exemptions from work requirements will need to understand the criteria for exemptions, obtain documentation to prove they are exempt, sometimes report sensitive health or other information to state caseworkers (regarding a substance use disorder, for example), submit documentation to the state in accordance with state specifications (Arkansas, for example, accepts only online submissions), and periodically renew their exemptions.

This added complexity will lead to high administrative costs for states and the federal government and substantial coverage losses among eligible people, as explained below.

High administrative costs for states and the federal government.  Implementing the steps described above will cost states and the federal government (and in some cases counties) tens of millions of dollars for eligibility system changes, notices, and increased staff to track compliance, address questions, and handle appeals.  A large share of this spending will go to information technology (IT) vendors and other contractors to change notices and forms, reprogram eligibility systems to add and track the new requirements, and establish mechanisms to track premium payments.  States will also need to hire staff to administer and monitor compliance with the myriad new requirements.

For example:

  • Kentucky plans to spend $186 million in state fiscal year 2018 and an additional $187 million in 2019 to implement its approved waiver.
  • Alaska projects that its proposed work requirement would cost the state $78.8 million over six years, including about $14 million per year in annual ongoing costs.
  • A Pennsylvania state official testified that a proposed work requirement would cost $600 million and require 300 additional staff to administer.
  • In Minnesota, counties (which determine Medicaid eligibility in that state) would have to spend an estimated $121 million in 2020 and $163 million in 2021 to implement proposed work requirements.  Counties estimate that it will take on average 53 minutes to process each exemption, 22 minutes to refer a client to employment and training services, and 84 minutes to verify non-compliance and suspend Medicaid benefits.

See the Appendix for a more comprehensive list of available state estimates.

While states and the federal government may ultimately save money on net from the new policies, savings will come entirely from people losing coverage and access to care.  Effectively, these proposals divert some state and federal resources from paying for health care to paying for new bureaucracy.

Moreover, while federal matching funds are available for system changes and increased staffing, no federal funds are available to provide transportation, child care, or job training to help people find jobs and meet the new requirements.  If states choose to provide any services to help enrollees meet new requirements, they will generally bear the full cost of doing so.

Substantial coverage losses among eligible individuals.  Evidence from other eligibility restrictions in Medicaid shows that many eligible people will not overcome the substantial barriers that complexity creates to maintaining coverage.  For example, when Washington State increased documentation requirements and made other changes that made it harder to enroll and stay enrolled, enrollment dropped sharply; enrollment rebounded when the state reverted to its prior processes. Similarly, when parents were required to provide proof of their children’s citizenship, many eligible children lost coverage.

Certain vulnerable groups are particularly ill-equipped to cope with additional red tape, which is why studies of work requirement policies in other federal programs have found that people with physical disabilities, mental health needs, and substance use disorders were disproportionately likely to lose benefits, even though many should have qualified for exemptions.  Likewise, people experiencing homelessness or housing instability are especially likely to get tripped up by requirements to renew their coverage on time, since they may never receive the mail that instructs them to do so.

State errors in implementing new requirements will lead to additional coverage losses among eligible individuals.  Even with large investments in new bureaucracy, past experience from Medicaid and other programs shows that states will still make mistakes, especially as they implement major systems changes.  In fact, two states with newly approved waivers, Kentucky and Arkansas, have struggled to implement other major policy and system changes, leading tens of thousands of enrollees to lose coverage.

The net result is that many or even most of those losing coverage under new state waivers may be eligible enrollees.  For example, among Medicaid enrollees who could be subject to work requirements under CMS guidance, more than 90 percent are working, in school, or report that they are unable to work due to illness, disability, or caregiving responsibilities.  As noted, past experience with introducing or removing red tape or paperwork requirements in Medicaid suggests that coverage losses or interruptions in coverage could affect many more eligible individuals than the individuals who are the notional targets of the policy.[2]

End Notes

[i] The full paper is available at https://www.cbpp.org/research/health/states-complex-medicaid-waivers-will-create-costly-bureaucracy-and-harm-eligible

[1] Hannah Katch et al., “Medicaid Work Requirements Will Reduce Low-Income Families’ Access to Care and Worsen Health Outcomes,” Center on Budget and Policy Priorities, February 8, 2018, https://www.cbpp.org/research/health/medicaid-work-requirements-will-reduce-low-income-families-access-to-care-and-worsen.

[2] In addition, many working people may lose coverage because they do not meet the new work requirements every month. See Aviva Aron-Dine, Raheem Chaudhry, and Matt Broaddus, “Many Working People Could Lose Health Coverage Due to Medicaid Work Requirements,” Center on Budget and Policy Priorities, April 11, 2018, https://www.cbpp.org/research/health/many-working-people-could-lose-health-coverage-due-to-medicaid-work-requirements.