CMS Announces that States Will Be Able to Reshape their Medicaid Programs through New “Healthy Adult Opportunity” Program

Jan. 30, 2020
In an aggressive break with existing policy, CMS Administrator Seema Verma announced on Thursday that states would be given the flexibility to reshape their Medicaid programs for healthy adults, under a program called Healthy Adult Opportunity

In an aggressive break with existing federal healthcare policy, on Thursday, January 30, Seema Verma, Administrator of the federal Centers for Medicare & Medicaid Services (CMS) announced, via a press release on the CMS website and in a telephonic press briefing, that states would be allowed to receive the flexibility to reshape their Medicaid programs for healthy adults, under a program christened the Healthy Adult Opportunity (HAO). Even before the announcement was made, numerous healthcare professional and advocacy organizations had protested the move, declaring that it was nothing more than a block grant program under another name. The terminology is important, as the rollout of the program could be blocked by federal lawsuits; however, CMS and Verma were very careful never to use the term “block grants.”

The agency’s press release began thus:

“Today, the Centers for Medicare & Medicaid Services (CMS) announced the Healthy Adult Opportunity (HAO), which is an optional demonstration initiative.  It is designed to give states unprecedented tools to design innovative health coverage programs tailored to the unique needs of adult beneficiaries, while holding states accountable for results and maintaining strong protections for our most at risk populations.

These innovations deliver on the Trump Administration’s promise to improve health outcomes and care for our most vulnerable. The Healthy Adult Opportunity puts patients first through state flexibility, accountability, and patient protections. It is designed to provide states with an opportunity to meet the needs of their adult beneficiaries under age 65 who aren’t eligible on the basis of a disability or their need for long-term care and for whom Medicaid coverage is optional for states.  Other low-income adults, children, pregnant women, elderly adults, and people with disabilities will not be directly affected – except from the improvements that result from states reinvesting savings to improve and sustain Medicaid for everyone.”

And it quoted Administrator Verma as stating that “Vulnerable populations deserve better care. Data shows that barely half of adults on the Medicaid program report getting the care they need. This opportunity is designed to promote the program’s objectives while furthering its sustainability for current and future beneficiaries, and achieving better health outcomes by increasing the accountability for delivering results. We’ve built in strong protections for our most vulnerable beneficiaries, and included opportunities for states to earn savings that have to be reinvested in strengthening the program so that it can remain a lifeline for our most vulnerable,” she said in the statement in the press release.

As the press release noted, “For the first time, participating states will have more negotiating power to manage drug costs by adopting a formulary similar to those provided in the commercial market, with special protections for individuals with HIV and behavioral health conditions. In exchange for increased flexibility offered through the Healthy Adult Opportunity, states must accept increased accountability for the program’s results. The Healthy Adult Opportunity also provides the opportunity for a full array of flexibilities that CMS has historically provided through section 1115 demonstrations – in addition to some that are entirely new – and outlines them in a streamlined application template. These include flexibilities to waive requirements like retroactive coverage periods and the ability to engage beneficiaries through nominal premiums and cost-sharing. Subject to comprehensive expectations for minimum standards for approval of a Healthy Adult Opportunity demonstration, states will also have the opportunity to customize the benefit package for those covered and make needed program adjustments.  This will be in real-time without lengthy federal bureaucratic negotiations or interference.”

As Abby Goodnough wrote in a report in The New York Times Thursday morning, “Although the option will technically be available to all states, it appears to be targeted to the 14 states that have not yet expanded Medicaid, as a more conservative way to move forward in covering poor adults.”

In introducing Verma at the outset of the press conference, Joe Grogan, White House Director, National Policy Council, said that this new program “is the next step that aligns with all the President’s healthcare priorities. The President is committed to protecting the vulnerable. He is committed to making healthcare more affordable. At a time when everyone seems to be gravitating towards a ‘Washington knows best’ approach,” he said, it is extremely important to provide for “flexibility in state programs so that they can tailor their programs to the needs” of their populations.”

Importantly, according to Thursday morning’s press release, “Key federal benefit and eligibility protections as well as due process and civil rights remain in place and beneficiaries will still have important protections through minimum benefit requirements, eligibility protections, and limits on out-of-pocket expenses.” Industry observers and critics will be parsing the details of the program to determine precisely what that means, but Verma said she understood that critics had already been preparing to challenge the program in the federal courts.

Indeed, during the press briefing on Thursday morning, Verma moved aggressively to position this new program as one that will advance federal healthcare policy, not set it back. “There are 75 million Americans on the program; we must raise the performance bar when it comes to quality in Medicaid,” she said. And “While those who want to maintain the status quo are willing to weaponize the legal system” to prevent change, “our administration is committed” to carrying out what she and her fellow policy officials in the Trump administration see as positive change. Speaking of HAO, she said that, “For the first time, it aligns financial incentives to quality of care by giving states unprecedented flexibility” to make their programs work for healthy adults. “In exchange, states accept greater accountability. Every state has already accepted capped federal funding through CHIP or other programs,” she said, meaning that the idea of capping funding is not new, despite the fact that “there are a lot of claims swirling” about what this program will do and not do.

“Here’s what HAO is not,” Verma continued. “It is not a mandatory change in Medicaid structure or financing. It is an optional demonstration, and no state is under obligation to participate. What’s more, it doesn’t affect federal funding. It’s not permission for states to strip benefits or eligibility. It is not a change in overage for Medicaid’s traditional population. And it is limited to able-bodied adults for whom coverage is optional.” Disabled adults, and children, “will not be directly affected,” she insisted. “All beneficiaries will maintain all of the key federal due process they have today, but will have the added benefit of greater accountability” in their programs. “The Healthy Adult Opportunity establishes financial metrics to ensure states are driving affordability and quality, with savings shared between the federal government and state governments to protect taxpayers. States participating in the Healthy Adult Opportunity will be required to report on a set of key quality measures. In a new initiative specific to Healthy Adult Opportunity, states will report real-time performance indicators to CMS for detection of any potential beneficiary quality or access issues that need to be quickly addressed.”

Questions abound

As the Times’s Goodnough wrote this morning, “Democrats, health care providers and consumer groups warned that capping federal funding for adult beneficiaries and giving states more freedom to decide who and what Medicaid covers would jeopardize medical access and care for some of the poorest Americans. A legal challenge is almost certain.” And Goodnough quoted Howard A. Burris III, president of the American Society for Clinical Oncology,” who said in a statement that “A transition to block grants could transform Medicaid from a safety net program, designed to meet basic health needs for low-income Americans, to a program with funding limits that drive care rationing for the most vulnerable.”

As Goodnough wrote in the Times, “Medicaid has always provided unlimited federal matching payments to states based on whatever they want to spend. Some of what the program covers is mandatory — emergency and hospital care, for example — but states can also choose to provide optional benefits, such as dental care or prescription drugs. No matter how much a state’s enrollment or spending rises, the federal share of funding rises with it. But under the waiver program Ms. Verma is proposing, a state could decide upfront how much it wants to spend on its adult Medicaid population, then get the federal share in either a predetermined lump sum or a fixed amount for each beneficiary. Critics said this could backfire if more people became eligible for Medicaid because of a recession or natural disaster, for example, or if costs went up because a lot of enrollees needed an expensive new medicine.”

Goodnough also noted that the plan came out of internal discussions in the Trump administration “after Ms. Verma and other Trump administration officials spent months trying to figure out how they could legally approve an alternative to the open-ended federal funding that the Medicaid statute requires. The population affected by the new approach includes adult beneficiaries younger than 65 who aren’t eligible on the basis of a disability or their need for long-term care, and for whom Medicaid coverage is optional for states. Pregnant women are not included in the group. The plan would allow states to cover fewer drugs for enrollees in the demonstration program, while still requiring a minimum set of benefits.”

Per that point, in responding to a question from the press in Thursday morning’s press briefing, Verma stated that “This is an opportunity for states to have greater negotiating power. It’s an opportunity to introduce a formulary with flexibility; cannot restrict drugs for HIV or mental health services.” Then, in response to a follow-up question on why CMS had made special arrangements for people with HIV and mental health issues, but not cancer, multiple sclerosis, or heart disease, Verma said, “I think we drew from our experience with Medicare Part D; it’s consistent with a lot of the protections we have in place for our Medicare recipients.”

Meanwhile, CNN’s Tami Lubhy wrote that “The plan is the latest move by the Trump administration to inject conservative ideals into the 55-year-old health program for low-income people, coming two years after it allowed states to require certain beneficiaries to work, an effort that's largely been halted by the courts. Republicans have long wanted to implement block grants as a way to curtail Medicaid spending, but its inclusion in the GOP bills to repeal and replace Obamacare helped doom the legislation in 2017. The description of the guidance given to journalists doesn't mention the words ‘block grant.’”

Nevertheless, Lubhy wrote, “Consumer advocates and Democrats swiftly condemned the effort, even before it was formally announced. It will likely be challenged in court. A group of House Democrats, led by Massachusetts Rep. Joe Kennedy III, sent a letter Wednesday to Health & Human Services Secretary Alex Azar and Centers for Medicare and Medicaid Services Administrator Seema Verma opposing the plan, saying it defies Congress and the federal Medicaid statute.”

"Medicaid block grants necessitate cost-cutting measures like restricting enrollment, decreasing provider reimbursement and limiting eligibility and benefits through managed care," the letter said. "The actions endanger the lives of the most vulnerable patients, the population Medicaid was created to protect."

And, Lubhy quoted Aviva Aron-Dine, vice president for health policy at the left-leaning Center on Budget and Policy Priorities, who asserted that the guidance would likely encourage states to undermine coverage. "’Medicaid's coverage guarantee means that coverage is there when you need it,’ she wrote in an online post. ‘Weakening that guarantee -- or eliminating the federal standards and oversight that ensure that states, health plans, and providers comply with it -- would worsen access to care, health, and financial security for beneficiaries and likely increase providers' uncompensated care costs,’ she added.”

As Lubhy noted, “Among the main concerns about block grant funding is that the lump sum model cannot adjust to economic downturns, when enrollment typically increases, and that both the fixed annual amount and the per person cap versions would have difficulty handling spikes in health care treatment costs.”

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