Medicaid in the 2021 White House Budget Proposal

By Sara Rosenbaum, Morgan Handley and Maria Velasquez

As usual, the President’s Budget for America’s Future, along with its appendices and the HHS documents, devotes more ink to Medicaid than virtually any other single programmatic topic.  Through both regulatory action and legislative proposals, the administration targets Medicaid in a variety of ways, from eliminating the expansion population to overhauling the eligibility determination process, mandating work as a condition of eligibility, and introducing numerous other eligibility and coverage restrictions.

Medicaid ideas are scattered throughout this disorganized set of documents.  For example, the budget documents note in passing, under a heading related to ensuring religious freedom, the plan to eliminate Medicaid payments for covered family planning and preventive care payments in the case of entities that provide abortions (essentially eliminating the free choice of provider principle that has been part of the program for 50 years). [1] Presumably we will see regulatory revisions of the freedom of choice rule soon.  

Much of the rhetoric and general discussion comes under the “Program Integrity” and fraud, waste and abuse headings. Thus for example, a rollback of eligibility for the low income population is characterized as cleaning up the errors in the eligibility determination process. 

Medicaid Reform Goal; Budget Impact

The goal, according to the administration: to “restore balance, flexibility, integrity, and accountability to the State-Federal Partnership.” [2]  The grand total of savings exceeds $919,5 billion over 10 years. The biggest savings come from the President’s Health Reform Vision Allowance (about $1 trillion, primarily funded by targeting the  Medicaid expansion population which yields $744 billion in 10-year savings). [3]  

Other key sources of savings are: making work requirements mandatory ($152.4 billion); requiring documentation of legal U.S.  residence before eligibility begins ($2.6 billion); reducing the maximum level of home equity permitted for beneficiaries receiving long term care  ($34.250 billion); continuing Medicaid disproportionate share hospital (DSH) reductions (nearly $32.4 billion); applying an asset test to the MAGI population whose eligibility now is based on income alone (low income children and adults) ($2.2 billion); increase Medicaid cost sharing for non-emergency use of emergency care ($1.8 billion); a general fraud, waste, and abuse target for improper payments (over $17.5 billion); a general category known as Medicaid program integrity and wasteful spending ($21.3 billion); reduce federal payments for Medicaid eligibility workers ($6.3 billion)

Highlights

1. Improper payments

Under the banner of improper payments (which include both fraud and abuse as well as the much larger category of unintended payment errors), the budget targets Medicaid eligibility determinations as source of such payments. Ironically, the administration’s strategy for reducing improper payments associated with Medicaid eligibility is to increase  the eligibility restrictions, which likely would increase the risk of error.  In other words, what the administration means by “improper payment” in a Medicaid eligibility context is not  simply errors associated with erroneous income calculations or other eligibility factors related to the MAGI population (e.g., state of residence, age, and so forth); instead what it appears to mean is eligibility criteria that are relatively generous.  Thus, for example, the budget proposes: to reimpose an asset test on the MAGI population for whom income alone is the determining factor; stricter immigration status verification;  and reduction in the maximum allowable home equity for beneficiaries who use long term care. The administration would strengthen existing improper payment recovery procedures to make it easier to recover against states for improper payments. Bear in mind that payment at the enhanced 90% FMAP would be considered an “improper payment”.  That is, beneficiaries who are completely eligible for coverage as pregnant women, adults with disabilities, or low income parents may become the focus of improper payments because they are misclassified as expansion beneficiaries when in fact they are eligible under traditional rules.  Indeed, CMS explicitly notes [4] its focus on eligibility determinations involving individuals eligible under a category that qualifies for enhanced federal match as a key source of error. The agency also links these improper classification activities to its Medicaid and CHIP Scorecard, which focuses not only on health care performance but on states’ eligibility determination and enrollment activities.[5]

A key proposal to watch – which already is moving ahead – is the reimposition of more frequent eligibility redeterminations. Under current law, such redeterminations happen annually.  However, if circumstances change in between annual periods that would affect eligibility (e.g., regular fluctuations in incomes from hourly wages) the law requires that they be reported as they occur, with more frequent redeterminations. In other words, there is no annual guaranteed eligibility option for adults. The typical adult might experience multiple income shifts over a year because of seasonal or other changes in income. For this reason, a snapshot at any given time thus would reveal some number of adults who are in between the annual redetermination period but ineligible owing to what might be modest changes,but changes sufficient enough to hit the upper income cliff. (Also note that, at least in an expansion state, such a shift should  in fact increase federal outlays since the person should be moved into Marketplace coverage). 

CMS is likely to issue new regulations permitting states to redetermine beneficiary eligibility more frequently than the current twelve month cycle contemplates; it is unclear how much of the savings that would flow from reducing the number of improper eligibility determinations versus savings from the depressive enrollment effects of frequent redeterminations. We assume that the Foundation may wish to comment on these rules when issued. 

The budget also proposes increased federal involvement in oversight of eligibility determinations and provider certification, which CMS says are also major drivers of improper payments. At the same time, the budget phases down the federal financial participation rate for eligibility workers back to 50 percent from its 75 percent level, by 2024. Tightened procedures would include more detailed data matching requirements, state penalties for noncompliance with provider enrollment regulations, and increased state-federal cooperation on recouping improper payments. The budget supports finalization of the proposed rules related to supplemental payments.

The bottom line – watch for a rulemaking that overhauls eligibility simplification and that encourages states to do away with the annual redetermination process.  Also watch for changes that clarify “data matching requirements to ensure taxpayer resources are not supporting ineligible beneficiaries.” [6] This would yield an estimated savings of about $17.1 billion over 10 years.  

      2. Work requirements/community engagement

The proposed budget would convert the administration’s legally imperiled Section 1115 community engagement demonstrations into a new eligibility restriction that would require “able-bodied, working-age adults to find employment, train for work, or volunteer (community service) to receive benefits.” The budget narrative emphasizes work requirements as conserving Medicaid resources for “the most vulnerable populations;” OMB estimates that work requirements would save $152.4 billion over ten years. CMS notes 11 approvals to date and 9 pending before the agency.  (A couple more are in the state pipeline; CMS does not mention states that have withdrawn or called a halt – IN, ME, KY, VA).  CMS positions this proposal as “improv[ing] consistency between requirements for federally funded public assistance programs”.  (In the case of SNAP however, the requirement is limited to adults without children. No such limit is proposed here). Moving the requirements to a permanent statutory limitation on eligibility would, of course, take care of the legal problems that have arisen in the administration’s effort to proceed through demonstration powers.  

3. Benefits and cost sharing

The administration would “empower states with additional tools to strengthen and modernize their Medicaid programs [and] additional flexibility round benefits and cost sharing, such as increasing copayments for non-emergency use of emergency department to encourage appropriate use of healthcare resources.”[7] This, along with state flexibility to restrict eligibility through restoration of an assets test are characterized as restoring “balance, flexibility, integrity, and accountability” to the partnership.  Notably this set of proposals falls under the “President’s health reform vision”. 

      4.  Other areas of interest

The CMS section of the HHS budget lays out a series of regulatory activities mixed in with proposed legislative changes, as follows: 

• Making Medicaid fiscally sustainable by implementing the DSH allotment reductions contained in the ACA ($44 billion in savings FY2020 – FY2025)
• Tightening 1115 budget neutrality expectations  as laid out in a policy memo in 2018, https://www.medicaid.gov/sites/default/files/federal-policy-guidance/downloads/smd18009.pdf. [8]  Presumably what CMS is alluding to is moving all 1115 states to acceptance of an aggregate cap as the quid pro quo for getting 1115 approval. This issue merits closer scrutiny, particularly because CMS is pressing states to proceed with opioid treatment demonstrations that expand state flexibility around inpatient care  (22 such demonstrations approved).  CMS is also encouraging more 1115 activity in connection with adults with serious mental illness and children with serious emotional disorders. 
• Tightening drug rebate calculations by excluding generics from the estimates and imposing penalties on manufacturers that misrepresent drug costs through misclassification. (These changes have become law already)
• Encouraging extended postpartum coverage, although CMS notably does not commit to yearlong unqualified eligibility but instead notes extensions for family planning services and SUD treatment.  
• “Facilitating patient-centered markets,” by permitting states to impose an asset test  on the MAGI population (which would require legislation but certainly could be done via 1115)
• Proceed with the DSH allotment reduction and tighten DSH payments  by deducting third party payments received from other payers
• Impose cost sharing for non-emergency use of emergency departments  either via legislative amendments or through 1115 demonstrations
• Tighten documentation requirements for U.S. legal status by requiring proof of eligibility prior to receiving coverage (currently coverage can begin while the document review process is pending)
• Eliminate state discretion to establish a higher home equity value than the statutory minimum  for beneficiaries receiving long term services and supports (an important option in states with exceptionally costly real estate markets). CMS estimates 10-year savings of over $34 billion
• Streamline the fair hearing process by allowing states to bar appeals to the state Medicaid agency when another entity has made an adverse determination (for example, a determination made by the Exchange).  A state could block any appeal to the agency with special expertise in Medicaid, in other words. 
• An extended one-year postpartum coverage option but apparently only for women with women diagnosed with a substance use disorder.  (Current law recognizes a family planning eligibility group, but this, of course,  provides a narrower set of benefits than full postpartum eligibility would permit). 
• Expanded use of IMDs by giving states new flexibility to pay for inpatient care for “qualified residential treatment programs” in the case of children ages 18-21 in foster care. 
• Extend the community mental health demonstration through FY 2021 (this demonstration was initially established in 2016 and applies only to 8 states.  CMS does not propose to expand the number of sites). 
• Improve transparency and accountability in supplemental payments to providers.  This, of course, is the subject of existing proposed rules, that would not only require disclosure of such payments but would fundamentally alter the rules on such payments while also restricting the sources of funds states could use in paying the state share of Medicaid.  Particularly affected would be local public hospitals and community public health programs whose expenditures are proportionately attributed to the state share of Medicaid spending. The administration offers no financial impact estimate of barring local health systems from contributing to the state share through local revenue streams.  The absence of an impact estimate is evident in both the NPRM and in the budget documents. This, of course, could be enormous depending on the role of community public and safety net hospitals and health systems in their state’s Medicaid program. 
• Make non-emergency transportation a state option, which would be accomplished through regulations. 

[1] A Budget for America’s Future, p. 51

[2] A Budget for America’s Future, Analytical Perspectives, p. 64

[3] Aviva Aron-Dine, President’s “Health Reform Vision”: $1 Trillion in Cuts, No Plan to Protect People With Pre-Existing Conditions (Center on Budget and Policy Priorities, https://www.cbpp.org/blog/presidents-health-reform-vision-1-trillion-in-cuts-no-plan-to-protect-people-with-pre-existing)

[4] HHS budget documents, p. 100

[5] https://wayback.archive-it.org/2651/20191021212129/https:/www.medicaid.gov/state-overviews/scorecard/index.html, focusing on program integrity as well as quality performance. 

[6] Budget for America’s Future, Analytical Perspectives, P. 64

[7] Budget Analytical perspectives p. 205

[8] Crucially this guidance does not bar a state from getting credit toward the neutrality measurement for expenditures it could have made as a state option but has not (e.g., adopting the ACA eligibility expansion).  However, the CMS 2018 memo lays the basis for using 1115 budget neutrality principles as the mechanism for moving from a per member per month test of neutrality (that changes as enrollment changes) to an aggregate cap system: “On occasion, CMS has approved a demonstration under which the state deployed an alternative approach to budget neutrality calculation, depending on the type of waivers and expenditure authorities approved under the demonstration proposal, and the likely financial impacts of the initiative relative to Medicaid spending under the state plan. One such alternative is the aggregate limit model, which places a fixed total dollar cap on state expenditures for the demonstration for which FFP can be obtained—often referred to as an “aggregate cap.” With this model, the state is at risk for all increases in expenditures—including those due to increased enrollment or caseload partially outside of a state’s control. Unlike the PMPM model, the dollar limits are fixed with aggregate caps and do not vary by caseload. Aggregate expenditure limits can also be used for demonstrations to include categories of Medicaid expenditures that are not easily associated with particular beneficiaries, such as supplemental provider payments.”