Health Insurers, Analysts React to Medicaid Block Grant Guidance

by Leslie Small

On Jan. 30, CMS released its long-awaited "Dear State Medicaid Director" letter containing detailed guidance that paves the way for states to receive capped federal Medicaid funding in exchange for more flexibilities. While such a waiver program is a long way from implementation in any state, that didn’t prevent insurers from reacting and analysts from speculating about how it would affect the managed care industry.

CMS’s 56-page letter outlines what it calls the "Healthy Adult Opportunity (HAO) initiative," which would allow states to apply for Section 1115 waivers that cap spending on their Medicaid expansion populations, in contrast to the current open-ended financing structure.

The financing provisions of CMS’s guidance troubled the Alliance of Community Health Plans (ACHP), which wrote in a statement that such an overhaul "would reduce a state’s ability to provide health services and severely hamper access to affordable coverage and care for millions of Americans."

CMS’s guidance outlines a slew of flexibilities it says would be available to states that opt for a waiver under the HAO. Those include (but aren’t limited to): imposing cost-sharing and premium requirements on Medicaid expansion beneficiaries, imposing work or "community engagement" requirements, limiting retroactive Medicaid eligibility, and setting up a closed drug formulary.

Also, in a provision that could raise eyebrows among Medicaid managed care organizations, the guidance says that states participating in an HAO demonstration would be allowed to avoid the typically required prospective CMS review that determines whether their payment rates to MCOs are actuarially sound.

In a Jan. 27 note to investors, Citi analyst Ralph Giacobbe pointed out that only conservative states are likely to apply for Medicaid waivers under CMS’s new guidance, and even then, "we would expect legal challenges that would delay any real immediate risk." But he also acknowledged that such waivers "could result in coverage losses and/or a greater squeeze on reimbursement if ever implemented." That could be problematic for MCOs that do a significant amount of Medicaid business — in particular Centene Corp., he noted.

From Health Plan Weekly