Earlier today CMS released its new Healthy Adult Opportunity (HAO) demonstration initiative that allows States to pursue additional flexibilities to provide Medicaid coverage for the ACA expansion population (i.e. not otherwise Medicaid-eligible adults below 133% of FPL). While the primary element of this demonstration opportunity is the requirement that States to enter into either a per-capita cap or aggregate block-grant funding arrangement with the Federal Government, the demonstration also includes several other proposed flexibilities that States and Managed Care Organizations (MCOs) should concurrently consider.
A History of States Wanting Medicaid Expansion on Their own Terms
Medicaid coverage expansion to all adults below 133% of FPL was originally mandatory under the ACA; however, after being challenged by some States, the Supreme Court ruled that such an expansion, which requires States to contribute 10% of the costs to cover this population, was unduly coercive, and thus optional.
To date, 37 states (including DC) have adopted the optional Medicaid expansion. While some states have implemented expansion without strings attached, many others, though 1115 or 1332 waivers have sought contingencies such as work requirements (likely to be invalidated by the courts), partial expansion up to 100% of FPL (rejected multiple times by CMS), or allowing the expansion population the opportunity to purchase an individual market plan (proposed by Idaho but determined incomplete by CMS). While the HAO does not directly provide flexibility on these items—particularly partial expansion—other proposed options are worth noting.
Closed Formularies
One of the most interesting, and potentially most desirable HAO elements, is the ability to create a closed Medicaid formulary without having to abandon the federally negotiated Medicaid rebates. CMS notes:
“While the open formulary requirements in section 1927 thus would not apply, and drugs could be made available under a limited formulary, such as in accordance with EHB rules applicable in the individual market, the obligation under section 1927(b) of the Act for a drug manufacturer with a drug rebate agreement to pay rebates would apply… States would also be free to negotiate supplemental rebates with manufacturers in exchange for the inclusion of their drugs on the state’s formulary. States wishing to continue to meet the coverage requirements of section 1927 of the Act would be free to do so.”
To date, while States may “softly” manage their formulary (e.g. using administrative processes to encouraging the use of generics or biosimilars over brand name drugs), they cannot, because of restrictions in the Medicaid drug rebate program, go so far as to not cover an expensive brand name drug where a similar generic is available, or cover one “me-too” drug but not another. While this flexibility would, on its face, only be available for the expansion population, it may be possible that States could leverage this flexibility to indirectly affect (1) the Medicaid best price rule; (2) supplemental rebates for other state drug purchases, or (3) the ability to implement value-based drug reimbursements.
Actuarially Sound Rates
Concerning to MCOs may be the proposed flexibility to remove the CMS review of actuarilly sound rates. Under existing Medicaid regulations, CMS has imposed standards on how States must calculate fair capitation rates for managed care contractors which ultimately must be approved by CMS. With loosened requirements in this area, it could be attractive for states, faced with exceeding an aggregate or per capita cap, to simply cut reimbursement to the MCOs rather than pay the entire excess amount from state coffers.
Benefit Flexibility
Finally, under this demonstration, States may provide covered services that align with EHBs in the Exchanges (with a few modifications), rather than the traditional set of Medicaid required benefits. While generally, EHBs provide a comprehensive set of services, there is a potential interaction with the newly approved flexibilities in EHB design that could result in a set of benefits dissimilar to traditional Medicaid coverage.
Conversely, if a state opts for the aggregate block grant, it can earn shared-savings (up to 50%) that can be used to provide additional services not normally eligible for enhanced (or any) federal matching. “Examples of initiatives that could be funded with matching funds through shared savings include providing Medicaid services for populations not currently covered by the state’s state plan or another demonstration, such as supported work or service coordination; paying for services not included in the state plan or another demonstration for Medicaid beneficiaries, such as pre-vocational services; initiatives designed to improve the quality of and access to care provided to Medicaid beneficiaries; and allowable benefits and services designed to address certain social determinants of health.” (emphasis added).
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