It is a time honored tradition in politics, especially when the party in control of the government changes, to assign all matters of malfeasance and incompetence to the prior administration. Standing on the edge of ACA repeal and possible Medicaid reform, Congress has taken steps to examine the oversight of the Medicaid program particularly as it relates to newly eligible enrollees since passage of the ACA. In a bicameral letter dated Dec. 19, 2016, Members questioned the oversight and management of the Medicaid expansion and the per enrollee costs, raising questions about a lax eligibility determination procedure and overly generous capitated payments to Medicaid Managed Care Organizations.
While predicting the growth of a new federal program is inherently difficult, we think there is something a tad fishy about Medicaid enrollment since passage of the Affordable Care Act - even in non-expansion states. If Congress takes up the issue in earnest or the incoming HHS Secretary wishes to exploit the lack of oversight to shake things up, it could be trouble for Medicaid Managed Care Organization like MOH, CNC and providers, especially inpatient hospitals like HCA, THC, LPNT and CYH which are generally the biggest beneficiaries in the Medicaid program.
Medicaid Enrollment Explosion. Medicaid enrollment has grown from 57 or 59 million to at least 74 million depending on which pre-ACA enrollment figure you use and which enrollment report on which you rely. See note below for more information on data discrepancies. Medicaid enrollment growth exceeds all estimates from 2013 when the assumption was that ACA mandated national expansion.
Chart 1: Monthly Medicaid Enrollment 2014 to 2016
Source: CMS Performance Indicator Project enrollment data, 2014-2016
Note: Includes all states that have expanded Medicaid under the ACA through Oct. 2016
In fact, in late 2013, the Kaiser Family Foundation estimated that about 16 million Medicaid enrollees would be added; 8.7 million in what later became known as the expansion states and 7 million that ultimately were not added in the non-expansion states. As of October 2016, Medicaid has added 12 to 14 million people to the rolls in the 31 expansion states.
It isn’t just Kaiser that got it wrong. Before the Supreme Court decision on NFIB v Sebelius, the CBO had estimated Medicaid enrollment in all 50 states at 72 million for 2016. After the Supreme Court determined that the federal government could not force states to expand Medicaid, the CBO revised its 2016 estimates downward to 64 million.
Through October 2016 average monthly enrollment in the 31 states that had expanded Medicaid (30 for the full 2016 year) was 73.6 million people. As of March 2016, the CBO estimates average monthly Medicaid enrollment will be almost 100 million in 2016, 2017 and 2018 –surpassed only by employer sponsored plans as the source for health insurance coverage in America.
Chart 2: ACA Medicaid Enrollment Estimates
Source: Congressional Budget Office, CMS Performance Indicator Project
Per enrollee costs for the newly eligible population have also been higher than originally estimated and higher than the non-newly eligible populations. For example, in its 2014 report the Office of the Actuary at Health and Human Services estimated that newly eligible adults would cost the state and federal government $3,606 per enrollee in 2016. In the recently released 2016 report, the Office of the Actuary revised that estimated up by 64 percent to $5,926.
Table 1: Office of the Actuary Estimates of Medicaid Per Enrollee Expenditures
Source: CMS Office of the Actuary Annual Report on Medicaid, 2013 - 2016
The surprise growth in enrollment and per enrollee expenditures naturally leads to questions about oversight as those found in the Dec. 19th bicameral letter. There are a number of oddities that, at a minimum, are probably worthy of closer examination.
One reason the enrollment growth is such a surprise is that the number of people living at or below 138 percent of the poverty level and thus eligible for coverage under the ACA Medicaid expansion is a pretty predictable. The U.S. Census Bureau includes data on health insurance coverage by income levels in its annual American Community Survey.
Kaiser’s 2013 individual state enrollment estimates were on average about 111 percent of the population living below 138 percent of the FPL. This ratio would account for the especially rich Medicaid programs in Vermont and DC, for example, and for the income eligibility levels for children and pregnant women which are typically 200 to 300 percent of the FPL. '
Chart 3: Kaiser Family Foundation Enrollment Estimates as a Percentage of Population Below 138 Percent of Federal Poverty Threshold - Expansion States
Source: Kaiser Family Foundation, U.S. Census Bureau
When the Medicaid expansion was first implemented in 2014, the ratio of Medicaid enrollees to population below 138 percent of FPL was more or less in line with Kaiser’s estimate. However, since then it continues to climb. Overall Medicaid enrollment in the expansion states was about 125 percent of people living below 138 percent of the FPL in 2015.
Chart 4: Expansion State Enrollment as a Percentage of Population Below 138 Percent of Federal Poverty Threshold
Source: CMS Performance Indicator Project Medicaid Enrollment Data, U.S. Census Bureau
Given the factors contributing to both the enrollment growth and the income characteristics of Medicaid beneficiaries discussed below, it is likely that 2016 will see an even wider gap between people living at or below 138 percent of the FPL and Medicaid enrollment.
Incentives to Enroll in Medicaid. There are a lot. First and foremost, Medicaid provides much cheaper access to health insurance than the ACA exchange plans. As the Members of Congress dryly put it in their Dec. 19, 2016 letter:
“Since Medicaid coverage is often provided at little to no cost to the individual, there is a financial incentive for individuals to obtain Medicaid coverage for expensive health services for which they may not otherwise chose to obtain should they be responsible for paying for a portion of the expense (such as through deductibles, copays or coinsurance). Ineligible individuals enrolling and receiving services in Medicaid would also been (sic) an inappropriate use of Medicaid funds.”
When faced with a choice between free and health insurance with a deductible, co-payments and/or co-insurance, most people will choose free. California, a Medicaid expansion state, has roughly twice the population of Florida which did not expand Medicaid. Yet, in every year except 2014, Florida has seen more people making ACA plan selection on the ACA exchanges than California. Texas, which like Florida, did not expand Medicaid has also seen a good deal more ACA plan selections than expansion states.
Chart 5: ACA Exchange Plan Selections 2014-2017, Select States
Source: CMS
In other words when the Medicaid option was not available, people in Florida enroll in an ACA exchange plan. In California, where Medicaid enrollment accounts for 1/3 of all enrollment growth in the 31 expansion states, people choose the free option.
Not surprisingly, people enrolling in ACA exchange plans in non-expansion states tend to be poorer than those in expansion states where the option of Medicaid coverage is available.
Chart 6: ACA Exchange Plan Selection by Income Level, 2016
Source: HHS
While supporters of the ACA have vigorously argued that Medicaid expansion improves the risk pools for exchange plans, the data seems to suggest that Medicaid expansion also depresses exchange plan purchases.
While individuals have every incentive to seek out Medicaid coverage when available, states have little to no incentive to heavily scrutinize enrollment of newly eligible adults. In years 2014 through 2016, the federal taxpayer paid 100 percent of the costs of covering the newly eligible adult populations. In 2017, the federal share drops to 95 percent. By 2020, the states will pay 10 percent of the costs of the newly eligible adult population while the federal government covers the other 90 percent.
All 50 states except Alaska levy provider taxes to help finance their Medicaid systems. In what former Vice President Joe Biden called a “scam” these provider taxes, typically assessed on net patient revenues, reduce the budgetary impact of the state share of the FMAP. This arrangement tends to mute the impact of state’s FMAP match and reduces what little incentive there is to monitor enrollment of newly eligible adults.
CMS through several administrations has discouraged the use of provider taxes to fund state medicaid programs. When faced with resistance to expansion after the SCOTUS decision, they dropped their objections. In 2017, a number of states will be using provider taxes to fund the 10 percent match required for expansion populations.
Incentives to Classify Enrollees into Newly Eligible Population. In their Dec. 19 letter to CMS, Members of Congress asked how states are treating adults that are eligible for Medicaid under both traditional eligibility pathways (pregnant, disabled) and under Medicaid expansion (childless adult). The implications for the inquiry are that states have a significant financial incentive to classify enrollees whenever possible as part of the newly eligible adult population. The federal match in a large affluent state like California would be 50 percent for a pregnant woman classified under traditional eligibility. The federal match for the same woman if classified in the expansion population would be 100 percent in 2016.
Medicaid MBES data on the newly eligible enrollees suggests that there is at least some enrollee classification that responds to the considerable financial incentives. MBES data released for March 2016 discloses total adult enrollees in the Medicaid expansion states of 14.6 million of which 11 million are newly eligible under the ACA Medicaid expansion or 83 to 87 percent of enrollment growth.
Several states are reporting newly eligible enrollees in excess of 100 percent of enrollment growth, regardless of which enrollment growth figure used - Performance Indicator Project or MBES. These states include Illinois, Iowa, Michigan, New Jersey, Oregon and Pennsylvania.
Chart 7: Total Medicaid Enrollment Growth Versus Newly Eligible Adult Enrollees, March 2016
Source: CMS
Eligibility Determination Process Lacks Rigor. The Dec. 19th letter points that the Healthcare.gov website handles Medicaid eligibility determinations for those states that rely on the Healthcare.gov portal. According to the GAO, lax oversight and CMS’s “passive” approach to program integrity has allowed ineligible individuals to enroll in Medicaid and subsidized exchange plans.
The effects of poor oversight of eligibility determinations is not a problem isolated in ACA expansion states. Enrollment in some of the non-expansion states has increased dramatically as well. While frequently credited to the “woodwork” effect – when Medicaid enrollees become aware of their eligibility due to heightened awareness of the ACA’s coverage – the GAO’s findings suggest that non-expansion states may have enrolled ineligible individuals.
Chart 8: Growth in Medicaid Enrollment Non-Expansion States
Source: CMS Performance Indicator Project, Kaiser Family Foundation
Chart 9: Growth in Medicaid Enrollment, Non-Expansion States 2014-2016 versus Pre-ACA 10 year Enrollment Growth Average
Source: CMS Performance Indicator Project, Kaiser Family Foundaton
Management of the enrollment process has caused at least one state to end outsourcing of eligibility determinations to the federal government. In a recent budget presentation to Governor Bill Haslam, the Tennessee Health Care Financing Administration noted that most Tennessee Medicaid enrollees were determined eligible by the federal government and HCFA was making plans to bring that function back to state government. (See especially, slides 7 and 8)
Political Objectives to Reduce the Uninsured Rate. While the temptation is great, in government it is wise not to ascribe malfeasance to things like enormous increases in Medicaid enrollment when indifference or incompetence will suffice. It is also wise not to underestimate the extensive resources the federal bureaucracy has to support the political objectives of the President.
Reducing the uninsured rate was a primary objective of the Affordable Care Act. Originally, that goal was to be met through enrollment in the ACA exchanges, supported by subsidies and cost-sharing mechanisms. The combined effects of a poor rollout of healthcare.gov in late 2013, rising premiums and deductibles and the general satisfaction many people had with employer based insurance resulted in anemic ACA exchange enrollment.
With the ACA exchange system unlikely to achieve significant reduction in the uninsured rate by the end of the Obama administration, Medicaid became the only viable pathway. The incentives for people to enroll in Medicaid, coupled with CMS’s indifference toward oversight ensured at least a tacit agreement that the federal government would let things follow their natural course toward the largest expansion of Medicaid since the program was implemented in the 1960s.
Per Enrollee Costs. The Dec. 19th letter also takes aim at per enrollee costs. Echoing a theory raised by the Office of the Actuary, the members take raise the issue of high capitated payments:
“One potential cause for the higher than expected expenditures is that, because of the 100% FMAP for the expansion populations, states set higher capitation rates for the expansion population – much higher than the amounts for previously eligible Medicaid adult enrollees.”
With little data to analyze, it is difficult for us to say if the suspicions of the Members and the Office of the Actuary are valid. It is worth a close examination of Managed Care Organizations like MOH and CNC operating in the expansion states especially California to see if the inquiry has any merit.
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We can say pretty definitively that Medicaid enrollment growth in non-expansion states, even after giving consideration to the "woodwork effect," is at the very least suspect. For these states nothing much changed as far as their Medicaid program is concerned, yet some states experienced 20-30 percent growth in enrollment. We would anticipate that, with a new Presidential administration and one less focused on uninsured rates that was the legacy of the ACA, enrollment in non-expansion states will revert back to something more in line with 10-year growth averages.
It is a bit harder to judge the extent of over-enrollment in expansion states but certainly states like Illinois and Michigan which appear to be shifting Medicaid enrollees from classifications that require a traditional state-federal match to the enhanced match available under the ACA, are probably on the short list for enforcement.
Also, California, whose Medicad expansion accounts for about a third of all expansion enrollment gowth, also deserves a closer look. One in three Californians are on Medicaid which means that state either has a serious poverty problem or they have ineligible enrollees.
The question of exactly how many people should be enrolled in Medicaid will be particularly relevant as Congress undertakes repeal and replace of the ACA. Governors of all political stripes have urged Congress to maintain current levels of funding coupled with more flexibility to manage their program. Current funding levels with inflated enrollment is a different thing from current funding levels for eligible enrollees. If the latter, Governors will find themselves in the unpleasant position of tossing people off the Medicaid rolls in the middle of Congress's reform efforts - an event that will no doubt get exploited by the minority party. Of course, the incoming Secretary and CMS Director could demand better oversight and begin quietly shedding ineligible enrollees.
Note: The Kaiser Family Foundation estimated enrollment before enactment of the ACA at 57.2 million. In its quarterly disclosure on enrollment, CMS estimates pre-ACA enrollment at 59 million. The difference is primarily accomplished by CMS’s higher estimated Pre-ACA enrollment in California. CMS discloses a pre-ACA enrollment figure of 9.2 million in California. The Kaiser Family Foundation estimated pre-ACA enrollment at 7.8 million. The Kaiser data more accurately align with contemporaneous publications by Medi-Cal, the California Medicaid agency.
Enrollment data reported monthly by CMS as part of the Performance Indicator Project are slightly different from enrollment data reported by states on Form CMS-64 through the Medicaid Budget and Expenditure System. For example the March 2016 MBES report shows total enrollment of 74 million. Monthly enrollment data reported on the CMS website shows an enrollment figure of 72 million.
The differences in the data are a result of the data definitions. The Performance Indicator Data includes Medicaid and ChiP enrollees and represents a snap shot of enrollment at the end of the month. The MBES data includes anyone enrolled throughout the month. It also does not include Chip enrollees.
As always, call with questions. We are always here reading the Federal Register so you don't have to.
Emily Evans
Managing Director
Health Policy
@HedgeyeEEvans
