State policy experimentation likely to create uncertainty for providers in 2019

The coming year will be one of state health policy experimentation that could lead to even wider healthcare disparities across the country.

State initiatives could drive larger differences in insurance coverage rates, access to care and consumer protections.

States already vary widely in their uninsured rates, ranging from 2.8% in Massachusetts to 17.3% in Texas in 2017, according to the U.S. Census Bureau.

With Congress likely deadlocked for the next two years between the Democratic-controlled House and the Republican-controlled Senate, states will be where any major health policy action takes place. Providers, health plans and consumers could face sharply different fates in different states.

In Republican-led states, the likely initiatives will feature Medicaid work mandates through Section 1115 waivers; alternative coverage systems to the Affordable Care Act through Section 1332 innovation waivers; and leaner, cheaper health plans allowed by new CMS rules that don't require consumer protections mandated by the ACA.

In blue states, the efforts will focus on strengthening the ACA, including insurance purchasing mandates, public health plan options and reinsurance mechanisms.

Also, it's likely that some red states will expand Medicaid to tens of thousands of low-income adults as a result of voter referendums, increasing pressure on other conservative states to follow.

But looming over state policymakers is the potential for the federal courts to invalidate the entire Affordable Care Act, including its Medicaid expansion. If U.S. District Judge Reed O'Connor's December ruling out of Texas is ultimately upheld, states could see hundreds of thousands or even millions of their residents losing coverage. And all of the ACA's policy tools, such as state innovation waivers, would be erased.

Action in the states may depend as much on conflict or collaboration within each political party as on consensus between the parties.

For instance, it remains to be seen if moderate Republicans and conservatives in Kansas and other red states can agree on expanding Medicaid. Centrist and progressive Democrats in Colorado and other blue states may clash over whether to shore up the ACA or push for a public plan option like a Medicaid buy-in program.

But the courts may have a big say over what the states are able to do. The legality of the Trump administration's approval of Medicaid work requirements is currently being decided by a federal district judge in Washington, D.C. That issue is expected to reach the U.S. Supreme Court.

And it's not clear that even if the state experiments are allowed to go forward, federal health policymaking will benefit.

“The end result of this waiver period will be states all over the map pulling in very different directions,” said David Jones, an assistant professor of health policy at Boston University. “The upside is a real opportunity for learning. But the more states go in different directions, it makes future national reforms more complicated.”

Besides the legal challenge to the ACA, there is another potential coverage crisis for state policymakers in 2019. A controversial Trump administration rule penalizing legal immigrants for using Medicaid could cause as many as 
5 million people in Medicaid and the Children's Health Insurance Program to disenroll. If the so-called public charge rule is finalized, it would force states to find a solution to a major increase in the number of people unable to pay for healthcare, producing a big jump in uncompensated care.

Bigger states like California and New York might have the political will and wallet to finance coverage for these people, while many Southern and Great Plains states might not.

That's similar to what's happened with Medicaid expansion up to now. “It really brings into sharp relief the bloc of Southern states with a concentration of African-Americans left in the coverage gap,” said Sara Rosenbaum, a health law professor at George Washington University. “What are the implications of that for a population that's about the poorest and most vulnerable to health disparities in the U.S.?”

In a number of states, implementation or maintenance of Medicaid expansion may depend on governors and lawmakers reaching agreement on whether to impose work and other personal-responsibility requirements on beneficiaries as a condition of coverage. Expansion advocates, including providers and insurers, warn that such requirements will lead to tens of thousands of low-income adults not receiving coverage.

Republican elected leaders in Idaho, Nebraska and Utah, where voters approved binding Medicaid expansion ballot initiatives in November, may insist on imposing work rules and premium payments; offering health savings accounts; and ending retrospective Medicaid eligibility. That also may occur in Kansas and Wisconsin, where new pro-expansion Democratic governors will have to work with GOP-controlled legislatures.

In Michigan and New Hampshire—two expansion states where GOP leaders proposed work requirement waivers—incoming Democratic leaders will have to decide whether to accept the waivers or risk having their Medicaid expansion programs rolled back by Republicans.

The same dynamic may play out in Alaska, where the newly elected Republican governor has pledged to review the state's expansion, and in Montana, where the GOP-controlled Legislature will decide expansion's fate following the failure of a hospital association-sponsored ballot initiative to renew the program.

Some observers hope state leaders around the country will compromise, which is how Virginia's Democratic governor and GOP-led Legislature finally passed expansion last June.

“You can stand on the sidelines and say a work requirement isn't how you would do it,” said Matt Salo, executive director of the National Association of Medicaid Directors. “But without the work requirement, expansion doesn't happen at all. It's the politics of the real.”

Given the legislative uncertainties of expansion, observers predict advocates will launch petition drives to put the issue on the ballot in 2020 in states such as Florida, Mississippi, Missouri, South Dakota and Wyoming. That's assuming the court decision erasing the ACA is reversed.

“If I were an activist in Florida, I would be looking closely at Idaho and Utah and thinking maybe it's time to get signatures to get expansion on the ballot,” Boston University's Jones said.

Meanwhile, some states may seek to radically revamp their individual insurance markets by proposing Section 1332 state innovation waivers under the Trump administration's new, more relaxed policy guidance. That's only if the ACA survives in the courts.

Republican-led states likely will push for subsidized enrollment in cheaper plans that don't meet the ACA benefit or consumer protection rules, or to let individuals receive federal subsidies for personal accounts to pay for premiums and out-of-pocket costs. They may target assistance to families above the current income threshold for ACA premium subsidies and reduce aid to lower-income families, as Iowa proposed in 2017.

They also may ease certificate-of-need laws to boost competition by encouraging more providers to enter the market, which hospital groups oppose.

In contrast, Democratic-led states may seek 1332 or 1115 waivers to establish a public health plan option, along the lines of a voluntary Medicaid buy-in program, as an alternative to private ACA plans. Colorado, Illinois, Minnesota, Nevada and New Mexico are among the states where newly elected Democratic governors have expressed interest in this approach.

More states also may pursue 1332 waivers to establish reinsurance programs to shore up their individual markets, as six states already have done.

The CMS is far likelier to approve the private-market approach, which it spelled out in November in a series of waiver concepts, than the public plan model. “I don't see the Trump administration going along with the federal government financing a Medicaid buy-in,” said Joseph Antos, a conservative health policy analyst at the American Enterprise Institute.

But developing and winning approval for any of these complex waiver models could prove challenging for states, and may not happen in 2019. For one thing, many state insurance regulators, even in red states, are leery about creating a market parallel to the ACA market that could siphon off healthier people, drive up premiums and weaken protections for people who are older and have pre-existing medical conditions. In addition, it will be hard to show that these proposals would be budget-neutral for the federal government and would provide coverage comparable to the ACA, which the law requires for 1332 waivers.

The results of state initiatives over the next two years could shape the next president's healthcare agenda. State-level reforms often influence national reforms, as Romneycare in Massachusetts provided a blueprint for Obamacare.

Alternatively, failures or lack of progress at the state level could freeze any new national reform push for another decade.

“Whether big national healthcare reform is an attractive option two years from now depends on what happens at the state level,” Jones said. “If I were President Beto O'Rourke in 2021, I might conclude it's an unwinnable subject.”

Healthcare in 2019: Divided