States adopt varied programs by using HIFA waivers

Understanding state initiatives developed under the Bush administration's Health Insurance Flexibility and Accountability (HIFA) waiver policy can be important, according to Urban Institute researchers, because many of the proposals being advanced for Medicaid overhaul include features of the HIFA initiative, and several states are implementing waivers that build on the HIFA model with broader programmatic changes to Medicaid.

Urban Institute principal research associate Teresa Coughlin and colleagues looked at HIFA demonstrations in 10 states (Arizona, California, Colorado, Idaho, Illinois, Maine, Michigan, New Jersey, New Mexico, and Oregon) to learn how and why states designed their demonstration projects as they did. The results of their study were reported in an April 25 Health Affairs web exclusive.

Under the HIFA initiatives, the Centers for Medicare & Medicaid Services (CMS) is giving states broad authority to restructure their Medicaid and SCHIP programs, including limiting enrollment, modifying benefit structures, and increasing beneficiaries' cost-sharing. States also are encouraged to maximize use of premium assistance programs. In exchange for this increased flexibility, states are expected to expand health insurance coverage.

Ms. Coughlin tells State Health Watch the bulk of the study findings come from case studies carried out between January 2003 and April 2005. Researchers used a structured, open-ended protocol in interviewing Medicaid and SCHIP officials, policy-makers, health plan representatives, providers, and the business community, market observers, and consumer advocates in each of the 10 study states.

She says she was somewhat surprised to find that states often took advantage more of the benefit and cost-sharing flexibility offered to help finance the state share of Medicaid rather than cutting enrollee benefits.

"To a large extent," she says, "they kept existing benefits intact."

And even with precarious state fiscal situations, some study states still find money to expand their programs.

Expanding coverage main goal

Among the study states, according to Ms. Coughlin, the principal motivation for pursuing a HIFA waiver was to expand coverage and not, as some had feared, to control costs. In particular, she says, for many states the impetus for pursuing a HIFA demonstration originated in a state mandate developed before the HIFA waiver authority became available.

Under HIFA, states are expected to reduce uninsurance by expanding coverage to low-income people — those with income below 200% of the federal poverty level. HIFA allows states to expand coverage to groups not traditionally eligible under Medicaid or SCHIP, including higher-income parents and childless adults.

The study states obtained approval from CMS to expand coverage to a variety of populations, so that five of the 10 states, driven by a desire to provide equitable access to all low-income groups, expanded coverage to childless adults. The size of planned coverage expansions varied considerably across the states. Thus, Illinois expanded coverage to parents with incomes up to 185% of poverty and low-income people enrolled in several state-funded insurance programs, reaching an estimated 300,000 additional people, while New Jersey undertook a one-time expansion to a maximum of 12,000 parents.

Under HIFA policy, states are permitted to offer varied benefit packages and cost-sharing provisions to different groups of Medicaid and SCHIP enrollees. In particular, they can decrease benefits and increase cost-sharing for some current Medicaid and SCHIP enrollees. And states are granted even broader flexibility in designing the benefit package and setting cost-sharing levels for HIFA expansion enrollees. At a minimum, however, they must offer primary care, including physician services. Coverage of hospital inpatient care is not required and HIFA sets no limits on the level of cost-sharing required of expansion enrollees.

Ms. Coughlin says a central theme of the HIFA initiative is to encourage states to include a premium assistance component in their demonstrations, with the goal of leveraging private dollars to help finance health insurance for the low-income population. Premium assistance programs also are seen as a way to develop ties between public and private insurance sectors. States differ way in the extent to which they have made premium assistance part of their HIFA demonstrations.

At one end, she says, Arizona was reluctant to implement a program, saying that it was not practical because small firms, which tend not to offer health insurance benefits to their employees, dominate the state's economy. Also, state officials feared a premium assistance program would tax the state Medicaid program's administrative capacity.

In contrast, Idaho, Illinois, New Mexico, and Oregon made premium assistance a focus of their demonstrations, with strong political backing and direction to develop initiatives using private sector dollars as the foundation for expanding coverage to the uninsured.

New Mexico developed a new premium assistance program called the State Coverage Insurance program in which the state, partnering with health plans, created a commercial insurance product that businesses can buy and offer to their low-income employees and that individuals can buy on their own.

Ms. Coughlin and her colleagues estimate that nationally some 300,000 people were covered under the 10 HIFA demonstrations by the end of 2005. Reflecting their interest in expanding coverage, most states committed new funds to finance the coverage expansions, which she says is particularly noteworthy given state's difficult fiscal climates. Moreover, the majority of states did not reduce benefits or increase cost-sharing for current Medicaid or SCHIP enrollees to have pay for the coverage expansions. And all but two states provided their standard Medicaid or SCHIP benefit package to expansion enrollees who received direct coverage.

An important exception to that national picture was Oregon, which had wanted to cut state costs as well as broaden coverage. Because of budget problems, most of the effort in Oregon has been on the reducing cost side of the equation, so that almost all of the benefit flexibility has been used, while coverage expansion has been limited. As documented earlier in SHW, the net result has been that tens of thousands of Oregonians have disenrolled from Medicaid, benefits have been cut for many others, and the state has closed enrollment to most nonmandatory participants.

Finding state funds huge obstacle

To date, according to the report, the biggest obstacle to states in implementing coverage expansions has been finding state funds. At the same time, Ms. Coughlin says, in several of the states the political will to expand and maintain coverage was sufficiently strong that substantial new state dollars were committed to HIFA initiatives, despite the very difficult fiscal situation.

"With federal reform efforts moving slowly, states have taken center stage and are fundamentally reshaping Medicaid along all key program dimensions from eligibility to benefits to financing," Ms. Coughlin says. "With so many changes taking place in Medicaid at the state level, it is particularly important for health care policy-makers to carefully track the consequences of the changes for program beneficiaries as well as the broader health care system."

She tells SHW the diverse reform efforts being undertaken by states could be seen as a problem by those who want a uniform or nationalized health care program for low-income people. "But if the feds are not moving, it is incumbent upon the states to do what is necessary."

Ms. Coughlin says officials in states that want to expand coverage should be looking to those already further down that road for lessons learned, even as they recognize that programs have to be shaped to fit each state's particular situation, depending on politics, the balance of power, and where the Medicaid program currently is.

Download the report at Contact Ms. Coughlin at (202) 261-5639.