Utah's limited Medicaid expansion bill could spark new waiver battles

If Utah's Legislature passes a bill to replace the voter-approved Medicaid expansion with a more limited version that includes a work requirement and a per-capita cap on federal payments, experts say it will likely be challenged in the courts.

In the first week of the legislative session, state senate Republicans are racing to pass a bill, SB96, offering expansion of coverage to low-income adults only up to 100% of the federal poverty level. The Senate approved the bill preliminarily on a party-line vote Wednesday, and it's widely expected to pass both Republican-dominated chambers by next week.

In contrast, Proposition 3, which passed with 53% of the vote in November, requires the state Medicaid program to cover people up to 138% of poverty starting April 1. It would cover an estimated 150,000 Utahns, compared with 90,000 to 100,000 under the Senate bill.

If SB96 passes, Utah would have to ask the CMS for speedy approval of a Medicaid Section 1115 waiver to implement its provisions. The Trump administration previously rejected proposals by Utah and other states to provide enhanced federal matching funds to expand only up to 100% of poverty.

The administration has not received any waiver requests to establish per-capita federal payment caps, although the CMS reportedly is drafting guidelines for states interested in pursuing this approach.

The Utah waiver request may spark a fresh legal battle over state Medicaid modifications because it goes well beyond the work requirements and other changes the CMS has approved so far in eight states. The CMS waiver approvals for Arkansas and Kentucky already are facing lawsuits. Last year a federal judge blocked the Kentucky program from going forward on the grounds that the CMS didn't adequately consider how it would affect coverage.

"Litigation is almost certain, if for no other reason than the waiver includes work requirements, and those are already being litigated," said Nicholas Bagley, a health law professor at University of Michigan.

The sponsors of Proposition 3 told Fox 13 News in Salt Lake City that litigation is on the table. They are also driving a truck with an electronic billboard blasting legislative alternatives to the voter-backed initiative around the capitol grounds.

It's also not clear the CMS has statutory authority to allow a coverage expansion only up to 100% of poverty. The Affordable Care Act authorizes enhanced funding for expansions up to 138% of poverty, said Jane Perkins, legal director of the National Health Law Program, which helped bring the Arkansas and Kentucky suits.

Doing so could boost federal spending because subsidizing private exchange coverage for the population between 100% and 138% of poverty would cost more.

Coverage expansion advocates also fear that letting one state offer a more limited, federally funded expansion would encourage other expansion states to shrink their Medicaid coverage threshold to 100% of poverty.

The cap on per-capita federal payments, which congressional Republicans tried to push through as part of ACA repeal in 2017, could be even more controversial. Perkins said only Congress has the power to revise the federal matching formula for Medicaid.

Provider groups across the country have warned that Medicaid per-capita caps or block grants would sharply reduce Medicaid payments over time and force rate, benefit, and eligibility cutbacks. SB96 envisions that if the state runs out of money for the expansion, it would limit enrollment.

The Utah Hospital Association expressed wariness about SB96's per-capita cap provision. "We've shared our concerns, and (the legislative sponsors) understand they need to be very careful when they negotiate with the federal government so it benefits the citizens of Utah," said Dave Gessel, the association's executive vice president.

Per capita cap or block grant arrangements "come with very significant financial risks for the states, depending on the conditions of the waiver," said Patricia Boozang, senior managing director at Manatt Health. "The devil's in the details, and legislators, in making these proposals, have not thought about what those conditions might be."

The bill's GOP sponsors say they are confident they will receive the CMS approval for the limited expansion, the per-capita cap and the work requirement. But other observers aren't so sure.

"No one has any proof that any kind of preliminary CMS approval has been granted," said Matt Slonaker, executive director of pro-expansion Utah Health Policy Project. "Everyone is gambling with people's lives here."

A CMS spokesman said the agency cannot forecast a decision on Utah's possible waiver application.

Republican Gov. Gary Herbert's deputy chief of staff, Paul Edwards, said the governor won't decide whether to sign the bill until he reads the final version. But Herbert supports the legislature's efforts to "put fiscal guardrails around the expansion so it's sustainable and doesn't crowd out other important state obligations in social services," Edwards added. The governor also supports a Medicaid block grant approach with a fair formula.

The bill's sponsor, Sen. Allen Christensen, argued before Tuesday's committee vote that his bill offers an improved version of the voter-approved Medicaid expansion. "We are doing as Prop 3 voters wanted in a fiscally, financially responsible way," he said.

As of midafternoon Friday, the Legislature's fiscal analysis office still hadn't issued an estimate of how much the bill would cost, which is required before legislation can be approved.

The ballot initiative paid for the state's share of the expansion cost through a 0.15% sales tax increase.

To launch the partial expansion by April 1, SB96 proposes that the federal government assume 70% of the cost, rather than the 90% cost share under a standard Affordable Care Act expansion. To pay for the state's added cost under that model, the bill would impose a new tax on hospitals, capped at $15 million a year.

"The state will pay more than it should because of the lower federal matching rate," Slonaker said. "It's a waste of taxpayer money. Why not go with Proposition 3, which is a lot cheaper."

Utah hospitals, which long have favored Medicaid expansion, are split on the limited expansion bill and are ambivalent about being the only providers to pay a tax to finance it.

"Generally, we think going up to 100% would be satisfactory, with some hospitals supporting that and others not," Gessel said.

Still, hospital leaders, he said, broadly agree people up to 100% of poverty need to be covered by Medicaid, while most think people with somewhat higher incomes should be covered by private insurers on the ACA exchange.

Boozang disagreed. "I always think more coverage is better than less coverage," she said. "Compared with Proposition 3, it's hard to think there isn't a falling back from where the voters said the state should be on coverage."