Will CMS use waiver leverage to get Florida, Texas to expand Medicaid?

The future of Medicaid waivers in Florida and Texas is murky as the Obama administration tries to persuade those states' Republican leaders that expanding Medicaid would be more effective than just extending their waivers.

Both states have soon-to-expire Section 1115 waivers that provide billions each year to help their hospitals with uncompensated-care costs for low-income and uninsured patients.

Health policy experts say it's possible that as a condition of renewal, the Obama administration may push the two states to expand Medicaid to low-income adults under the Patient Protection and Affordable Care Act because that would reduce the need for the costly waivers. But the CMS won't comment, and state officials say the CMS is not trying to put pressure on them.

“These waiver arrangements ostensibly help with the cost of uncompensated care,” said Joan Alker, executive director of the Georgetown Center for Children and Families. But now the ACA offers states a federal funding option to cover uninsured adults with incomes up to 138% of the federal poverty level. “So a serious question is, why continue to provide funds for uncompensated care?”

Since 2005, Florida has had a Section 1115 Medicaid waiver, set to expire at the end of June, establishing a low-income funding pool to aid the state's hospitals with uncompensated-care costs. The state has received between $1 billion and $2 billion annually to support safety net providers.

Alker said it's likely the Obama administration is thinking hard about whether to continue the Florida waiver. Last May, the CMS renewed it for only one year rather than the usual three. In its extension letter, the agency asked Florida officials to commission an independent report to recommend Medicaid reforms that would ensure healthcare access for beneficiaries without the low-income pool. It also asked the state to analyze how Medicaid expansion would affect residents now helped by the pool.

A spokeswoman for Florida's Agency for Health Care Administration said the CMS has not attempted to tie renewal of the waiver to Medicaid expansion.

Despite heavy pressure from Florida hospital leaders, the chances of expansion in the state remain uncertain to doubtful. Both newly re-elected Republican Gov. Rick Scott and the GOP-controlled Senate have expressed support for expansion in the past, but the GOP-controlled House has rejected it. Now there are rumblings that both chambers are preparing a conservative-friendly expansion model, said Bruce Lamb, who leads the healthcare practice at the Florida-based Gunster law firm.

Expanding Medicaid could help about 669,000 Floridians, with the state getting as much as $51 billion in federal Medicaid dollars over 10 years, according to the Kaiser Family Foundation.

Texas' five-year demonstration waiver runs out in 2016. It created a complex funding mechanism that draws $6 billion a year that's split into two pools—one for uncompensated care and another to encourage providers to increase the quality and cost effectiveness of care. As of last February, the state had paid out more than $2 billion for such improvement projects and $5 billion in uncompensated-care funds. When that waiver was approved, it was assumed all states would expand Medicaid.

“CMS could take the approach that the conditions that prevailed for the initial waiver no longer exist and reduce or eliminate the uncompensated-care pool,” said Billy Millwee, the former Texas Medicaid director who was overseeing the program when the 1115 waiver was approved. But he expressed confidence that the CMS would renew the waiver in some form.

A spokeswoman for the Texas Health and Human Services Commission said the CMS has not tried to tie the two issues together.

Letting the Texas waiver end without a Medicaid expansion would be financially devastating, hospital leaders say. David Pearson, president of the Texas Organization of Rural and Community Hospitals, said hospitals can't afford to lose any significant amount of funding “lest we further undermine the delicate balance that has helped to protect the hospitals and clinics in remote rural areas.” Ten Texas hospitals closed between 2012 and 2014.

Medicaid expansion in Texas remains unlikely. But incoming Republican Gov. Greg Abbott surprised many observers recently when he reportedly indicated interest in learning how other GOP-led states were proposing to expand the program. Nearly 1 million Texans could be eligible for Medicaid if the program expanded, and the state could draw as much as $100 billion in federal funding over 10 years, according to the Kaiser Family Foundation.

The looming expiration of the waivers in Florida and Texas likely is prompting state officials' discussions of Medicaid expansion, some observers say. “I am sure this is one of the impetuses for state interest,” said Sara Rosenbaum, chair of the health policy department at George Washington University.

Even with Medicaid expansion, both states would continue to need some type of uncompensated-care fund, given the large number of undocumented immigrants living in those states who are not eligible for Medicaid, said Judith Solomon, vice president for health policy at the liberal Center on Budget and Policy Priorities.

Follow Virgil Dickson on Twitter: @MHVDickson