Manatt on Medicaid: Kentucky Update—Outgoing Governor Beshear Argues for Continuation of Medicaid Expansion and State-Based Marketplace

Authors: Deborah Bachrach, Partner | Patricia Boozang, Senior Managing Director | Mindy Lipson, Manager | Ariel Levin, Senior Analyst

In an impassioned speech on November 13, 2015, outgoing Kentucky Governor Steve Beshear (D) made the case for why Governor-elect Matt Bevin should continue the healthcare reforms enacted in Kentucky under the Affordable Care Act (ACA). Under Governor Beshear's leadership, Kentucky has received national recognition for dramatic reductions in its uninsured rate resulting from Medicaid expansion and implementation of Kynect, one of the most successful State-Based Marketplaces (SBM) in the country. With the November 3, 2015 election of Bevin, a Republican who campaigned, at least initially, on ending Kentucky's Medicaid expansion and dismantling Kynect in favor of the Federally Facilitated Marketplace (FFM), the nation watches to see whether Kentucky's new governor will reverse implementation of the ACA and upward trends in health insurance coverage.

On July 17, 2012, Governor Beshear established Kynect by executive order. Less than a year later, on May 9, 2013, he announced that Kentucky would expand Medicaid under the ACA. Since ACA implementation in January 2014, Kentucky has been a leader among states in reducing the number of uninsured. From 2013 through June 2015, the State achieved an 11.4 percentage point decline in uninsured residents—a drop from 20.4% to 9.0%, which was second among all states according to Gallup. In the past two years, over 500,000 of approximately 640,000 uninsured Kentuckians have gained coverage, some for the first time, in either Medicaid or a qualified health plan (QHP) through Kynect.

In his speech, Governor Beshear framed Medicaid expansion and Kynect as part of broader reform efforts aimed at improving Kentuckians' health, noting that "improved access to health coverage is helping us chisel away at health problems that have plagued us for generations." He pointed to the recently released final progress report for the State's public health initiative Kyhealthnow, which showed public health gains across the state in the past 20 months. At the core of Governor Beshear's speech were economic and operational arguments for continuing Kentucky's Medicaid expansion and the use of Kynect. Governor Beshear emphasized the moral argument for coverage, noting that individuals who had previously been unable to access affordable insurance are "Kentuckians…our friends and neighbors." He added, "At the end of the day, we have to pull important policy decisions out of the vat of corrosive acid called partisan politics….And we all have to answer for how we treat each other."

Economic Benefits of Medicaid Expansion

An independent report released by the State in February 2015 projected that by 2021, expansion would produce a $30.1 billion positive economic impact to the State. Building on and reiterating this earlier analysis, Governor Beshear pointed to the following benefits of expansion:

• Increases in net General Fund revenue: In the next two years, which is the State budget cycle, Kentucky will realize a $300.2 million net positive increase in its General Fund revenue because of Medicaid expansion, accounting for $257.3 million in State General Fund costs that are more than offset by the following gains:
   
  • $265 million in federal funds to use for services that the State would have otherwise paid for through its General Fund,
  • $246.8 million in increased State revenue through growth to the healthcare industry, and
  • $45.7 million through a user fee on Medicaid managed care plans.
   
• Creation of new jobs: In 2014, over 12,000 jobs were created in Kentucky because of Medicaid expansion.
• Increases in healthcare providers' Medicaid revenue: From 2014 through July 2015, Kentucky healthcare providers experienced a $2.9 billion gain in their net Medicaid revenue. Providers have also seen a decline in uncompensated care costs because of expansion.
• Benefits to society: Expansion produces ripple effects on society, such as improving worker productivity and school attendance.

Rationale for Continuing to Operate Kynect

Since Marketplace open enrollment began in October 2013, industry and popular press sources have consistently named Kynect as one of the most successful SBMs in the nation.¹ At its launch, Kynect was immediately functional: it enrolled almost 7,000 consumers in Medicaid or QHP coverage in its first week of operation, as compared to the FFM and many SBMs, which took weeks (in some cases months) to enroll consumers.

In support of maintaining Kynect, Governor Beshear pointed to the following:

• Costs: Switching to the FFM would cost the State approximately $23 million. And with a transition, QHPs would be subject to the FFM's 3.5% user fee, instead of the 1% charged by Kynect, likely raising costs for consumers.
• State oversight: In moving to the FFM, the State would lose oversight of its Marketplace operations.
• Consumer assistance: Kynect's consumer assistance representatives are local and have a Kentucky-specific knowledge base. In a transition to the FFM, Kentucky would lose its local network of representatives, and consumers would instead be served remotely.
• Timeliness of obtaining coverage: Currently, Kentuckians apply for both Medicaid and QHP coverage through Kynect. Separating the application portals for Medicaid and QHP coverage could delay the time from application to enrollment in coverage.
• Increased competition: Since Kynect's launch, Kentucky has seen the number of health insurance carriers offering coverage on its Marketplace increase from three in 2014 to five in 2015.
• Publicity for the State: Kynect's early and continued success as a well-functioning SBM has generated a wealth of good publicity for the State.

Reactions from Governor-Elect Bevin

In response to Governor Beshear's remarks, Governor-elect Bevin's communication director released a short statement, which indicated that Governor-elect Bevin's vision for healthcare will "encourage personal responsibility and focus on expanding access to quality, affordable healthcare coverage." The statement did not address Governor-elect Bevin's plans regarding Medicaid expansion or the future of Kynect.

Moving Forward

Bevin will be sworn in as Kentucky's governor on December 8, 2015. Although he initially declared that he would end Medicaid expansion if elected, more recently he has indicated that once in office, he plans to pursue a Section 1115 waiver to modify Kentucky's expansion. If Kentucky chooses to pursue a 1115 waiver, it would be the second state (in addition to Arizona) to propose modifying a traditional Medicaid expansion through a waiver.² To date, Governor-elect Bevin has provided only minimal detail on his vision for reforming coverage for the expansion population, but has said that his plan for Medicaid reform "will involve people having skin in the game….It will involve people having involvement in their own health outcomes—taking financial and personal responsibility for these things." He has also expressed interest in reducing the Medicaid income eligibility threshold below 138% of the FPL.

Governor-elect Bevin's more recent statements with regard to expansion suggest his administration may follow the lead of six other states—Arkansas, Indiana, Iowa, Michigan, Montana, and New Hampshire—that are using 1115 waivers to implement alternative models of Medicaid expansion.³ These states have used waivers to institute a range of features, including imposing premiums and co-payments, penalizing enrollees for failure to pay premiums, and providing incentives for enrollees to meet healthy behavior standards.

With regard to the future of Kynect, Governor-elect Bevin has said that his "intent is to have it wound down by the end of next year." This timing is consistent with the federal requirement for 12 months' notice to shut down an SBM and transition to the FFM. To date, no state has chosen to halt operations of a successful SBM; however, four states have switched to supported state-based Marketplaces, where they use the FFM's technology platform for eligibility and enrollment functions because of state technology failures.

The coming months will bring a clearer vision of the Bevin Administration's public health vision and plan for both the Medicaid expansion and Kynect. In addition, the Senate President has indicated that the Legislature is interested in providing input into both the expansion and Marketplace decisions. Governor Beshear's parting advice for Governor-elect Bevin was "to study this data, and just as importantly, to talk to the people who have been fighting the healthcare fight for the last eight years: talk to our families, talk to our healthcare providers, talk to our businesses, talk to our advocates, [and] talk to our policymakers."

_{¹Rockefeller Institute of Government, State University of New York, The Brookings Institution, and Fels Institute of Government, University of Pennsylvania, Kentucky: Round 1: State-Level Field Network Study of the Implementation of the Affordable Care Act (Albany: Rockefeller Institute of Government, State University of New York, 2014), accessed November 20, 2015, http://www.rockinst.org/aca/states/Kentucky/2014-08-Kentucky_Round_One.pdf; Dan Diamond, "Three States Wanted to Lead on Obamacare. One Is Setting the Pace," Daily Briefing Blog, The Advisory Board Company, October 11, 2013, accessed November 20, 2015, https://www.advisory.com/daily-briefing/blog/2013/10/three-states-wanted-to-lead-on-obamacare; Sarah Kliff, "Healthcare.gov Is Busted. These Four State Exchanges Aren't," Wonkblog, The Washington Post, October 25, 2013, accessed November 20, 2015, https://www.washingtonpost.com/news/wonk/wp/2013/10/25/healthcare-gov-is-busted-these-four-state-exchanges-arent/; Arian Campo-Flores, "Why Kentucky's Health Exchange Worked Better Than Many Others," Washington Wire (blog), The Wall Street Journal, October 2, 2013, accessed November 20, 2015, http://blogs.wsj.com/washwire/2013/10/02/why-kentuckys-health-exchange-worked-better-than-many-others/.}

_{²In September 2015, Arizona submitted a waiver request proposing changes to its traditional expansion. Arizona's application is currently under the review of the Centers for Medicare and Medicaid Services.}

_{³Coverage under Montana's approved 1115 waiver will begin on January 1, 2016. Pennsylvania also received approval of an 1115 waiver for its Medicaid expansion under a previous gubernatorial administration; however, the current gubernatorial administration has decided not to implement the demonstration and instead implement a traditional expansion.}