South Dakota adds a safety net to its Medicaid work requirement waiver

South Dakota is joining the line of non-expansion states seeking to impose work requirements on its Medicaid beneficiaries. However, unlike the others, it developed a strategy to avoid the so-called subsidy cliff, which has been a challenge for other waiver proposals.

Under the state's draft proposal posted on its website for comment, it would launch a pilot work requirement program for Medicaid recipients living in Minnehaha and Pennington Counties, two of the state's most populous areas.

Program participants would have to meet monthly milestones for job searching and skills training or work 80 hours or more a month. Enrollees that don't meet their set goals would be subject to a corrective action plan, and they could lose their Medicaid coverage if they continue to fail to improve or meet those goals.

The waiver request targets adults between the ages 19 and 59 who are enrolled in Medicaid as parents or caregivers. South Dakota currently covers these individuals if they earn up to 58% of the federal poverty level. The new program excludes pregnant women and parents of dependent children under one year old.

Once South Dakota submits it application to the CMS, it will join several other non-expansion states that want to require Medicaid enrollees to work or look for a job. Those states include Kansas, Maine, Mississippi, Tennessee, Utah and Wisconsin.

Earlier, this month, CMS Administrator Seema Verma said she is worried about a subsidy cliff that could occur if she approves these applications.

The cliff occurs when a person earns enough to lose Medicaid eligibility, but not enough to qualify for financial assistance on the individual insurance exchanges, leaving them without coverage.

South Dakota has set itself apart by outlining a plan to mitigate coverage losses as enrollees make more money. The state would place these individuals in a transitional coverage program and then move then into a premium assistance program that helps them purchase employer-sponsored health insurance or coverage through a Qualified Health Plan (QHP) on the marketplace.

The initiative, known as the Career Connector program, will provide coverage assistance until they reach 150% of the federal poverty level for a year. At that point, they will be eligible for cost sharing assistance on the exchange.

Robert Doar, a fellow at the conservative American Enterprise Institute, said the proposal showed promise.

"South Dakota's approach is an innovative way to both encourage greater employment and help individuals retain healthcare coverage as their income rises with increasing earnings," Doar said.

Others questioned whether one year of coverage assistance would be enough for an individual to reach and maintain the income necessary to apply for subsidies on the marketplace.

"It would be interesting to see if this is a bridge to get people across the cliff or just halfway before the bridge goes away," said Robert Graboyes, a senior research fellow at the conservative-leaning Mercatus Center of George Mason University.

Some experts said the 1115 application is dead on arrival. Part-time and even full-time low-wage workers often don't have access to employer-sponsored coverage. In addition, 1115 waivers are supposed to be budget neutral, and the state makes no reference how it will pay for premium assistance program, according to Judy Solomon, a senior fellow at the left-leaning Center on Budget and Policy Priorities.

"While this may be intended to address the 'subsidy cliff' Seema Verma spoke about, it misses the mark in that regard," Solomon said.

The premium assistance proposal is also a non-starter as it does not cover cost sharing, which would likely be very high for individuals with low incomes, according to David Machledt, senior policy analyst with the National Health Law Program.

Machledt also was concerned about the one-year assistance limit, saying it was unclear if a person could work their way up to a maintain a job that will pay them enough to no longer require help from the state.

"That's not realistic for low-income parents who regularly face unsteady employment, shifting hours, high child care expenses, and other barriers," Machledt said.