Legal clash over Medicaid premiums could derail GOP rollback of expansion

But a proposed class-action lawsuit challenges whether the CMS has the authority to let states impose any charges on low-income Medicaid enrollees.

The federal Medicaid statute prohibits charging premiums and copays for people with incomes under 150% of the federal poverty level. The Medicaid expansion in Kentucky and other states covers people up to 138% of poverty.

The suit against HHS, the CMS and their top officials over Kentucky's approved waiver claims the CMS used a narrow waiver authority to "comprehensively transform Medicaid" and effectively rewrite the statute without congressional action.

"The Kentucky demonstration goes beyond any ever attempted in Medicaid," said Sara Rosenbaum, a Medicaid law expert at George Washington University. "This is the most significant legal challenge I've seen to a demonstration."

If the plaintiffs prevail, that could limit any state's ability to charge Medicaid enrollees premiums and hamper conservative efforts to scale back the Affordable Care Act's Medicaid expansion through administrative action.

A spokesman for Kentucky GOP Gov. Matt Bevin, who pushed hard for the waiver after first promising to end his state's Medicaid expansion, expressed "absolute confidence that the waiver will prevail against this baseless challenge."

Under amendments Congress passed in 1982, "the Medicaid statute essentially removed premium and cost-sharing experiments from Section 1115, unless you meet very, very high standards," Rosenbaum said. The model must be previously untested, be limited to two years, provide benefits that are equal to the risks for enrollees, feature a sound experimental design and be voluntary.

Under Kentucky's five-year demonstration, premiums will range from $1 a month for people with little or no income and up to $37.50 a month for people at 138% of poverty. Those above the poverty line who fail to pay will be locked out of coverage for six months and must pay past-due premiums to regain coverage. Those below the poverty line will have their rewards accounts docked.

Waiver supporters argue that the CMS can allow states to charge premiums and cost-sharing, and that doing so will push beneficiaries to take more responsibility for their health.

"The government has tremendous discretion in designing and funding waivers," said James Blumstein, a health law professor at Vanderbilt University.

Providers and patient advocates fear those charges will cause low-income people to lose Medicaid coverage, harming their health and driving up uncompensated care.

The Obama administration let three Medicaid expansion states-Indiana, Iowa and Montana-charge premiums. Rosenbaum said it may not have been lawful, but that was a price the administration was willing to pay to encourage conservative states to expand Medicaid.

Nicholas Bagley, a health law expert at the University of Michigan who supports the ACA, predicted the lawsuit's outcome will hinge on whether Kentucky's experiment promotes Medicaid's objective. But, in a JAMA Viewpoint article, he said the language of Section 1115 is so broad that courts usually defer to the CMS' waiver decision.

Still, a 2011 federal appellate decision suggests the Trump administration may have trouble winning the waiver argument on cost sharing.

In that case, the 9th U.S. Circuit Court of Appeals held that letting Arizona increase copays under a Medicaid waiver exceeded the HHS Secretary's authority because it had no research or demonstration value. The effects of cost sharing on the poor, the court said, had been heavily studied for decades and it was "questionable" there was much more to learn. In addition, the court said HHS cannot approve a demonstration mainly intended to cut state spending.

Many studies have shown that premiums and copays imposed on low-income people have caused significant coverage losses in the past, as well as reduced treatment of chronic conditions like hypertension and asthma. In Oregon, about 29% of adults disenrolled from Medicaid in the early 2000s after a premium increase of up to $20 a month, with many becoming uninsured and experiencing unmet health needs.

A 2017 study of the Healthy Indiana 2.0 waiver plan, which requires premiums of up to $27 a month, found that about 29% of Hoosiers above the poverty line who were eligible for coverage missed a payment and either lost coverage or never fully enrolled because of it. Less than 20% of the people who lost coverage found insurance through another source.

Kentucky projected that 95,000 people will leave its Medicaid program over five years as a result of the premiums and other waiver changes.

"This isn't anything that needs to be tested," said Joan Alker, a Medicaid policy expert at Georgetown University. "We already know it's going to reduce access to coverage and needed care. It's a settled question."