On May 31, 2019, Utah released a draft Section 1115 waiver application, the Per Capita Cap Demonstration, for public comment. The proposal seeks to create a new Section 1115 demonstration that, if granted, would break new ground for the Medicaid program nationally. Specifically, the waiver application proposes a “partial” eligibility expansion up to 100% of the federal poverty level (FPL)—with authority to cap enrollment of the expansion population—as well as a per capita cap on Medicaid expenditures for this adult expansion population, while securing the Affordable Care Act’s (ACA) enhanced match rate. Current federal guidance stipulates that enhanced matching funds are only available for expansions that reach the 138% FPL threshold established by the ACA. Stakeholders are closely watching the Centers for Medicare & Medicaid Services’ (CMS) responses to these requests, recognizing that they could shape the future of the Medicaid program.
History of Medicaid Expansion in Utah
The Per Capita Cap Demonstration is the latest in a series of proposed changes in coverage for low-income parent/caretaker adults and childless adults in Utah. During the past 17 years, Utah has instituted multiple coverage expansions and subsequent eligibility restrictions in its Medicaid program through Section 1115 authority, a voter referendum and legislation. Utah’s latest waiver application seeks the biggest change yet, seeking new authority from federal officials to amend features of coverage for adult expansion populations to align with legislation signed by Governor Herbert (R) in February 2019.
Primary Care Network Demonstration
In 2002, CMS approved Utah’s Primary Care Network (PCN) Demonstration. The PCN Demonstration authorized Utah to reduce the benefit package it offered to parent/caretaker adults eligible for Medicaid under Sections 1925 and 1931 of the Social Security Act; the state used the savings generated by the benefits reduction to fund a coverage expansion for up to 25,000 parents/caretaker adults with incomes above the State Plan eligibility level (currently 60% FPL) and childless adults with incomes up to 150% FPL. The group eligible for coverage under the demonstration received a limited benefit package focused on primary care and preventive services.
In recent years, Utah has made multiple changes to this program. In 2014, the state lowered the maximum income limit for the demonstration to 100% FPL (95% FPL plus the 5% disregard) to reflect the availability of subsidized coverage on the Marketplace. And in 2017, the state added coverage for a population it called “targeted adults”—childless adults with incomes at or below 5% FPL who are chronically homeless; involved with the justice system and in need of mental health or substance use disorder treatment; or in need of mental health or substance use disorder treatment.
Finally, in March 2019, CMS approved significant additional changes to the PCN Demonstration based on waiver amendment applications submitted in August 2017 and June 2018 and legislation passed in March 2018. The amended waiver authorized two noteworthy features:
- Authority to cap enrollment for adults up to 100% FPL. The demonstration expanded Utah’s Medicaid eligibility limit to 100% FPL for adults beyond the 25,000 enrolled to date who were receiving the limited PCN benefits. However, Utah obtained a waiver to cap enrollment for this group if “projected costs exceed state appropriations.” The state estimates that 70,000 to 90,000 adults will obtain coverage as a result of this expansion; individuals who are barred from enrolling after the cap has been met will have to reapply for coverage (i.e., the state is not keeping a waiting list). Individuals who are currently in the PCN group will transition to the new “adult expansion population” and will receive a more generous benefit package. Utah requested the ability to claim the ACA’s enhanced match rate for this population of enrollees up to 100% FPL, but CMS did not approve this request.
- Work/community engagement (CE) requirement. The waiver amendment instituted a work/CE requirement as a condition of Medicaid eligibility for the new adult expansion population. Enrollees who are not currently working at least 30 hours per week or who do not meet another exemption must meet a series of work/CE requirements during the first three months of the coverage year; otherwise, they will be disenrolled until they become compliant, exempt or eligible for Medicaid under another eligibility category.
Ballot Referendum and Senate Bill 96
In November 2018, Utahns approved Proposition 3, which authorized a full expansion of Medicaid under the ACA, by a 53% to 47% margin. The state estimated that in the first year of the expansion alone, expanding the Medicaid eligibility limit to 138% FPL would have extended coverage to approximately 150,000 individuals.
Contrary to the referendum’s mandate, in February 2019, Utah enacted Senate Bill 96 to replace the full Medicaid expansion with a limited expansion that would only cover individuals with incomes under 100% FPL. The legislation also calls for establishing a limit on federal Medicaid funding for Utah’s expansion group in the form of a per capita spending cap, allows the state to cap enrollment and seeks to make various other changes to traditional Medicaid rules. The May 2019 draft Per Capita Cap waiver application, described in more detail below, aligns with the contours of this bill.
Utah Is Now Preparing to Request CMS Approval of Untested Policies
Taking the first step toward requesting federal approval of an unprecedented waiver that combines capped Medicaid spending on a per capita basis and capped enrollment with enhanced match for a “partial” Medicaid expansion up to only 100% FPL (rather than the ACA-established 138% FPL), Utah posted a draft of its Per Capita Cap Section 1115 Demonstration for public comment at the state level. Comments on the draft proposal are due June 30; thereafter, Utah will consider and respond to comments and submit a formal application to CMS for approval.
The new Per Capita Cap Demonstration applies to expansion adults with incomes up to 100% FPL as well as to “targeted adults”; both groups would transition from the PCN Demonstration, which would remain in effect for other populations. The draft waiver proposes to carry over many of the features of the approved PCN Demonstration, including the enrollment cap, work requirements and substance use disorder treatment authorities, while also seeking new features that have not previously been approved by CMS, as follows.
Enhanced Match for a Partial Expansion With Capped Enrollment
While Utah already has received approval to cap enrollment of its limited expansion population, the state is now requesting authority to: retain the enrollment cap; receive the enhanced expansion matching rate for its “partial expansion;” and institute a per capita cap on expenditures for the expansion population, described below. To date, CMS has not permitted states to receive enhanced match for partial expansions, noting “Congress directed that the enhanced matching rate be used to expand coverage to 133% of FPL. The law does not provide for a phased-in or partial expansion.”1 In fact, CMS has declined to approve (but has not explicitly rejected) partial expansions in other state demonstrations (i.e., Arkansas and Massachusetts). In addition to questions about legal authority, the administration reportedly has had concerns that authorizing partial expansions would increase overall federal spending either because more states will expand Medicaid or others will roll back their Medicaid coverage, resulting in increased federal spending on Marketplace premium tax credits.
The state’s request to receive the enhanced match and retain its authority to cap enrollment of the partial expansion population also is unprecedented. Even after the Supreme Court’s decision in National Federation of Independent Business v. Sebelius held that states are not required to adopt the ACA's Medicaid expansion, the law requires states that implement the expansion to treat the population like any other mandatory population. While CMS has authorized enrollment caps for populations covered through demonstration waivers, granting Utah authority to cap enrollment of the expansion population while still receiving the enhanced match for them would be a major departure from current policy.
Per Capita Spending Proposal
In its draft application, Utah is proposing to set a capped per member per month (PMPM) rate for three different groups under the waiver (childless adults; adults with dependent children; and the so-called “targeted adults” and members residing in an institution for mental diseases to obtain substance use disorder treatment). Spending under the per capita cap would be matched at the enhanced Medicaid matching rate; spending over the cap would be matched at the regular matching rate, so long as spending does not exceed budget neutrality limits to be established by CMS.2 Utah proposes a generous PMPM spending cap as well as the ability to adjust funding to reflect “unforeseen special circumstances” or new federal mandates. The actual capped funding amount will be subject to negotiation with CMS and the final figures will influence how difficult it will be for Utah to limit spending to the cap.
If CMS ultimately negotiates tighter spending caps—a likely scenario given the administration’s stated desire to limit federal Medicaid spending—the consequences could be hard for the state to manage. A per capita cap could impact a range of stakeholders:
- Beneficiaries could lose coverage or critical services and access to care if the state has to cut spending and/or reshape program rules to stay within the cap.
- Providers could experience reductions in reimbursement and/or an increase in uncompensated care if Utah caps enrollment or limits benefits and/or provider reimbursement rates to avoid exceeding the cap.
- Medicaid managed care plans could experience heightened pressure from states to manage spending within constrained capitation rates.
Other Novel Elements of Utah’s Proposal
Utah’s draft application includes a range of other proposals that would significantly reshape Medicaid coverage. The state is planning to request a waiver of hospital presumptive eligibility (which other states have requested but CMS has not yet approved) as well as authority to implement managed care policies prior to CMS approval, with a guarantee that if CMS review results in changes to rates or other payments, such changes would only need to be made prospectively. If approved, these elements could impact access to Medicaid and give the state more flexibility to oversee Medicaid managed care rates, without standard federal review and approval.
Moving Forward
Once the state compiles comments on the draft waiver application and sends the request to CMS, all eyes will be on how the agency responds to Utah’s requests. The administration is currently developing guidance that is expected to establish the parameters for capped funding demonstrations—like what Utah is proposing—but the administration’s position on partial expansions is not yet known. Therefore, Utah’s proposal to institute per capita caps in conjunction with a partial expansion and an enrollment cap sets Utah up to be a test case. If CMS approves Utah’s request, it is likely that other states will seek to either roll back current expansions or, like Utah, implement narrower expansions than envisioned by Congress, while capping overall federal Medicaid funding for the expansion.
1 133% FPL is equivalent to 138% FPL minus the 5% disregard. See Question 26, CMS Frequently Asked Questions on Exchanges, Market Reforms, and Medicaid, Dec. 10, 2012, available at: https://www.cms.gov/CCIIO/Resources/Files/Downloads/exchanges-faqs-12-10-2012.pdf.
2 The base-period per capita cap amount would be trended forward using the Consumer Price Index for Medical Care (CPI-M).