Why Hospitals Support Kentucky’s Medicaid Waiver

With community engagement requirements being implemented, hospitals expect to help Medicaid enrollees maintain their coverage through premium assistance.

Jan. 15—Kentucky’s recently approved Medicaid waiver has drawn criticism for implementing “work requirements,” but hospitals say the details make it more palatable.

The Centers for Medicare & Medicaid Services (CMS) on Jan. 12 approved a Section 1115 Medicaid demonstration waiver for Kentucky that will require some adult beneficiaries to work or participate in other “community engagement” activities, such as job training or community service, to remain eligible for coverage. The waiver also institutes premium requirements for many enrollees.

The first-of-its-kind waiver could have national implications because nine other states—so far—have requested permission to add community engagement requirements for their enrollees.

The five-year waiver drew support from Kentucky hospitals as a way to protect the state’s finances and promote some of the financial goals of hospitals.

Much of the media coverage has focused on the so-called work requirements in the waiver while glossing over details that could mitigate the impact on enrollees.

“It’s not a work requirement; work can count as meeting that, but people who are unemployed have other options to be compliant with the community engagement” requirements, said Nancy Galvagni, senior vice president of the Kentucky Hospital Association (KHA). “I know people are calling it a work requirement, but that’s not really what it is.”

About half of the commonwealth’s 350,000 able-bodied, working-age Medicaid enrollees already fulfill the new employment and community engagement requirements, Kentucky officials told media outlets.

The new policy requires those who fall under the new rules to complete 80 hours per month of community engagement activities—which include employment, education, job skills training, and community service—to remain covered. Those failing to meet the requirement can regain coverage the month after they complete 80 hours of community engagement in a 30-day period or by taking a state-approved health literacy or financial literacy course.

Exemptions from the requirements apply to former foster care youth, pregnant women, primary caregivers of a dependent, beneficiaries who are considered medically frail, beneficiaries diagnosed with an acute medical condition that would prevent them from complying, and full-time students.

“People have concerns about making sure there is ample opportunity—if people are required to volunteer, there has to be opportunity for them to do so,” Galvagni said in an interview.

The state government is still working on such details, including phasing in the requirement in counties where fewer such options exist, she said.

“Kentucky will provide good cause exemptions in certain circumstances for beneficiaries who cannot meet requirements,” the waiver approval letter stated.

“We believe the state will act in a reasonable manner in those situations,” Galvagni said about the promised exemptions.

Hospital Financial Impacts

That said, provisions in the waiver are expected to cut the state’s Medicaid rolls and impact hospital finances. For instance, the waiver ends three-month retroactive coverage—except for pregnant women and foster youth—and allows disenrollment for nonpayment of premiums, which start at $1 per month.

“There are going to be things people will be required to do, and they may lose coverage because of that,” Galvagni said.

The waiver’s estimated financial impacts on hospitals include a 20 percent increase in charity care costs. In 2015, Kentucky hospitals had $333 million in uncompensated care costs, which include charity care and bad debt.

Those impacts may be offset by provisions that allow disenrolled beneficiaries to regain coverage and that may allow hospitals to help cover the newly required premiums.

“Many of the hospitals are interested in understanding how they could help recipients who might have fallen behind in their premiums,” Galvagni said. “If they do come to the hospital and it is an issue of they haven’t paid their premium, we do think the hospitals will step up and help the patients make that payment so that they can be covered.”

Such an approach was allowed in Indiana when that state implemented Medicaid premiums.

Other provisions that could benefit hospital finances include an employer premium-assistance program to promote private coverage of Medicaid enrollees and a benchmarking of expansion-population benefits to the state employee health plan, noted a KHA letter supporting the waiver.

“This will greatly benefit those Medicaid eligibles by giving them broader provider access and coverage under Kentucky’s patient protection laws that Medicaid managed care organizations have not been required to follow,” the letter stated.

The Affordable Care Act’s (ACA’s) Medicaid eligibility expansion added 460,000 Kentucky Medicaid beneficiaries, which brought total enrollment to 1.3 million, or one-third of the state’s population. Hospitals have traced large financial benefits to the expansion, principally a reduction in charity care costs.

However, Medicaid underpayments for services only have increased with the expansion. Medicaid payments cover only about 82 percent of hospitals’ actual costs of providing those services, according to KHA. Although charity care declined following the expansion, bad debt has continued to increase.

“There is still a loss under Medicaid, and there has been an ongoing hundreds of millions of dollars in losses under Medicaid—and that has only grown,” Galvagni said.

Hospitals in the state also have been hit by cuts that the ACA required to Medicare disproportionate share hospital (DSH) payments, which under recent rules became an especially big burden on Medicaid expansion states, she said. 

“While the expansion has been helpful on one side, it’s resulted in higher cuts on the other side,” Galvagni said.

National Implications

Kentucky’s new beneficiary requirements may presage a surge of such state rules. Nine other states have submitted proposals that include community engagement initiatives: Arizona, Arkansas, Indiana, Kansas, Maine, New Hampshire, North Carolina, Utah, and Wisconsin. 

The Trump administration has repeatedly supported such efforts and has even encouraged states to request waivers that allow for different approaches to their Medicaid programs.

“I want to make sure in working with the states, who have the on-the-ground responsibility, that we are being a responsible and responsive partner of theirs in looking at flexibility, trying new things,” Alex Azar II, nominee for secretary of the U.S. Department of Health and Human Services, said at his recent Senate confirmation hearing.

CMS recently issued policy guidance for states seeking to propose demonstration projects that require or encourage working-age Medicaid beneficiaries who are not pregnant or disabled to participate in work or other community engagement activities.

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Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare