Indiana's Medicaid expansion waiver raises lockout concerns

The Obama administration's decision to approve Indiana's conservative Medicaid expansion proposal opens the door for other Republican-led states to offer similar plans that lock low-income residents out of coverage or reduce their benefits if they don't pay their premiums. Still, provider groups see the agreement as a victory because it may create renewed momentum for expanding coverage.

The three-year deal last week between Republican Gov. Mike Pence and HHS made Indiana the 28th state to expand Medicaid to adults with incomes up to 138% of the federal poverty level. As many as 350,000 Hoosiers could gain coverage, and they can enroll starting Feb. 1.

Indiana provider groups lauded the deal because it will reduce their uncompensated-care costs. But they expressed reservations about some of the plan's provisions. Hospitals will pick up a share of the state's administrative costs for the expansion through a hospital assessment fee.

Pence's proposal, known as the Healthy Indiana Plan, or HIP 2.0, provides different levels of coverage for residents living above and below the poverty line. Those below the federal poverty level can get basic coverage, with the option of paying $3 to $15 a month, depending on their income, for enhanced coverage. If they don't pay the premium, they will not receive dental or vision benefits, and will face copayments for care.

Those above the poverty level will be required to make a monthly contribution of 2% of their income, up to $25 a month, into a health-savings account. They will be locked out of coverage for six months if they miss their payments for two straight months, unless they qualify for narrow hardship exemptions. Pence said the plan will give people “the dignity to pay for their own health insurance.”

Arkansas and Iowa are the only other states that have received federal approval to allow cost sharing for Medicaid beneficiaries below the poverty level.

Indiana's lockout provision is the most stringent in the nation, said Deborah Bachrach, a partner in the law firm of Manatt, Phelps & Phillips and a former New York Medicaid director. The only exceptions under Indiana's HIP model are for those who obtain and subsequently lose private insurance coverage, are victims of domestic violence, reside in a county subject to a disaster declaration, or have been deemed medically frail.

Phil Morphew, CEO of the Indiana Primary Health Care Association, praised the Medicaid expansion. “HIP 2.0 means providing healthcare coverage for hundreds of thousands of Hoosiers who do not, today, have access to care,” he said.

Douglas Leonard, president of the Indiana Hospital Association, agreed but said he isn't sure how the lockout will be implemented. “What's yet to be worked out are the details on notifying hospitals that there's been a change in coverage,” he said.

Pence originally proposed no hardship exceptions to the six-month lock-out and wanted work requirements. But HHS rejected the work requirements and required that the state provide some hardship exceptions.

HHS' new willingness to allow cost-sharing worries patient advocates. Indiana's waiver approval comes as other states with Republican governors or legislatures, including Alaska, Idaho, Montana, Tennessee, Utah and Wyoming, are drafting waiver proposals or currently negotiating with HHS. Studies have shown that requiring premium payments or other cost-sharing reduces Medicaid enrollment.

“Lockout periods serve no good policy purpose and are a punitive measure which will increase the number of people who are uninsured,” said Joan Alker, executive director of the Center for Children and Families at Georgetown University. “They defeat the purpose of extending coverage to low-wage workers who have very tight cash margins.” She also criticized the HIP program for being “an enormously complicated program which will likely prevent some low-income adults from getting the healthcare services they need.”

Genevieve Kenney, a senior fellow at the Urban Institute, said the complexity of Indiana's program likely will mean higher administrative costs for the state.

HHS recognized the potential for those problems in its approval of the Indiana waiver. It required the state to track its administrative costs, as well as the impact of the lockout policy on enrollment and reenrollment for HIP beneficiaries. Indiana will have to report how many people were disenrolled by income level, the reasons they did not make contributions, their healthcare needs during the lockout period, and how those needs were addressed.

Follow Virgil Dickson on Twitter: @MHVDickson