Medicaid is a growing economic powerhouse, anchoring the new coverage paradigm under the Patient Protection and Affordable Care Act (PPACA) and wielding increasing influence within the healthcare sector and beyond. Already the largest source of federal funding flowing to states and a major revenue stream for providers, health plans, pharmaceutical companies, and vendors, Medicaid is projected to cover a record 65 million people and expend close to $500 billion dollars in 2014. Twenty-five states and the District of Columbia have expanded their Medicaid programs to include new adult populations under PPACA, and several others are evaluating expansion options, fueled at least in part by mounting research pointing to positive impacts on state and local productivity, jobs and earnings. By 2020, Medicaid could provide health insurance coverage for as many as 1 in 4 Americans.
This growth, combined with increasing sophistication from state purchasers, continued pressure to contain state budgets, and a national drive for payment and delivery reform, will make 2014 a transformative year for Medicaid programs across the country. The following trends will be central drivers behind this transformation in the year ahead.
Trend 1: New wave of Medicaid Expansions: Looking to the private market
In June 2012, the Supreme Court effectively made the Medicaid adult expansion under PPACA optional, and as 2014 begins, half of all states are expanding Medicaid. However, the debate is far from over, and as it continues, look for the remaining states to pursue Medicaid expansion through increasing integration with the private market. States are seeking to re-shape their Medicaid programs in a manner that makes practical and political sense for their constituencies, putting federalism to the test in the form of proposals that incorporate private insurance principles including premiums, cost sharing and incentives for healthy behavior.
For some states, like Arkansas and Iowa, expansion in 2013 turned on being allowed to use Medicaid funds to purchase coverage for some or all expansion adults through qualified health plans (QHPs). While it is too early to assess the impact of this “private option,” initial results in Arkansas show a dramatic increase in the size of the Marketplace, enrolling younger adults into QHPs, and providing commercial-level reimbursement rates for providers. Watch for interest in the private option to grow in 2014.
Several states now considering the private option differ from Arkansas and Iowa in that they already have significant Medicaid managed care (MMC) programs. For these states, the private option raises the question of how to rationalize MMC and QHP coverage. This will create new opportunities and challenges for traditional MMC plans — which have experience treating Medicaid populations but may not have the licensure or capital necessary to secure QHP certification.
Finally, states are looking to make greater use of Medicaid premium assistance in the employer-sponsored insurance (ESI) market, requiring Medicaid-eligible adults with access to ESI to take up that option with the state contributing to the cost of premiums and cost-sharing, and “wrapping” benefits where necessary. Taken together, these premium assistance strategies are driving a convergence of the public and private insurance markets with implications for beneficiaries, providers and issuers alike.
As the implications of non-expansion become more apparent — particularly for racial and ethnic minorities, low-income populations, population health, hospitals, and local governments — states will be under increasing pressure to expand. Facing mandated cuts in their uncompensated care funding, hospital associations will likely redouble their efforts to persuade state officials to embrace broader coverage. They will no doubt be joined by a range of other stakeholders anxious to expand Medicaid before the 100 percent federal matching rate starts its decline at the end of 2016.
Trend 2: Calls for personal responsibility: Expecting “skin in the game”
For many years, states have sought greater flexibility to use cost-sharing in their Medicaid programs and, in regulations published in early 2013, the federal Department of Health and Human Services (HHS) responded by authorizing states to charge more for non-preferred drugs and for non-emergency use of the emergency room. However, some states are looking to go even further. As additional states debate the Medicaid expansion in 2014, we expect the calls for beneficiary “skin in the game” and personal responsibility to ratchet up.
See also: Feds shift Medicaid costs to states
In light of the reality that individuals with incomes between 100% and 138% of the federal poverty level (FPL) would, absent expansion, be required to pay 2% of their income to purchase Marketplace coverage, CMS has provided some expansion states with waivers to increase the financial obligations of beneficiaries in this income range. As 2013 came to a close, CMS approved waivers in Iowa and Michigan authorizing premiums up to 2% of income for adults with income between 100% and 138% of the FPL. Both states reduce the premiums if the enrollee completes a health assessment (Iowa) or meets certain preventive care standards (Michigan). Notably, the states are not permitted to condition eligibility on payment of premiums. Look for more states to jump on this bandwagon in 2014.
The debate on work requirements continues with some state policy makers seeking to require Medicaid beneficiaries to demonstrate they are working or looking for work. Our prediction: It is highly unlikely that HHS will permit states to condition Medicaid eligibility on work requirements that were eliminated in 1996 when Medicaid was delinked from cash assistance.
Finally, the emphasis on healthy behaviors should gain traction as states begin to glean some early lessons from demonstration projects underway in 10 states to provide incentives to Medicaid beneficiaries participating in prevention programs and engaging in healthy behaviors.
Trend 3: Aligning and integrating with the private market
In 2014, look for acceleration of the convergence of commercial and government sponsored insurance markets, playing out in three main arenas:
• Decline of Insurer Market Segmentation – Incentivized by new revenue opportunities, especially in Medicaid expansion states, commercial insurers will enter the Medicaid market in greater numbers. On the flip side, recognizing that their target customers (low-income adults and families) now have access to federal tax credits to subsidize health insurance, Medicaid managed care companies will increasingly seek to compete on the Marketplaces.