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This article appears in the Fall 2017 issue of The American Prospect magazine. Subscribe here.
From its modest beginning in 1965, when it was passed as a little-noticed companion to Medicare, Medicaid has evolved into an indispensable public health program with broad bipartisan support. Today, as the centerpiece of the health-care safety net, the program serves nearly 75 million people, all either poor or medically impoverished. Medicaid pays for half of all births, enrolls 40 percent of all U.S. children, covers two-thirds of all nursing home residents, and insures one in three Americans with disabilities.
This year's Republican bills to “repeal and replace” the Affordable Care Act sought to impose severe long-term cuts in federal Medicaid funding; those threats to Medicaid are not over yet. Yet even without any congressional action, the Trump administration has considerable power under existing law to modify Medicaid as long as its actions are consistent with Medicaid's statutory objectives. From all indications, however, the administration intends to bypass the basic requirement that it use its power to promote Medicaid's purposes, not destroy them, by withdrawing Medicaid coverage from many who depend on it.
The source of the administration's power is its authority to waive elements of the federal Medicaid statute to demonstrate alternative ways of delivering services. About one-third of federal Medicaid expenditures flow to the states through payment arrangements that allow waiver of normal federal program requirements as part of demonstrations undertaken at the discretion of the secretary of health and human services. The amount of money at stake is enormous; in fiscal year 2015, about $100 billion out of a total of $330 billion in federal Medicaid funds went to states through demonstration spending. Although Medicaid waivers are subject to time limits, some approved demonstrations have lasted for decades. But no law compels the Trump administration to continue those waivers. Consequently, the administration's decisions have tremendous consequences for the fiscal future of state governments.
Moreover, Trump's Department of Health and Human Services—led until September 29 by Tom Price—has made it unequivocally clear that it intends to use its discretionary authority over demonstrations to cull eligible people from the Medicaid rolls, even though that goal has no support in federal law. In a jaw-dropping letter to the nation's governors in March 2017, former secretary Price and Seema Verma, administrator of the Centers for Medicare and Medicaid Services, stated that the Medicaid expansion under the Affordable Care Act in 2010 represented “a clear departure from the core, historical mission of the program” and constituted an “incentive to deprioritize the most vulnerable populations.” In other words, they declared an act of Congress to be contrary to federal policy.
Price and Verma proceeded to encourage Medicaid demonstrations that would “empower” adults and promote “human dignity” by imposing work as a condition of eligibility. Their letter offered no explanation as to how introducing roadblocks to coverage would further Medicaid's objectives and ignored the administrative complexity that work requirements would add to the determination of eligibility and the unreasonableness of such requirements in areas where jobs are scarce, especially for people with the disabilities and other health problems confronting so many of Medicaid's beneficiaries.
Price and Verma also invited proposals that would end Medicaid as a health-care safety net program by subjecting it to the principles and restrictions of commercial health insurance. These include the use of defined open enrollment periods and the disqualification of beneficiaries who fail to renew in a timely fashion. Medicaid was set up as a health-care safety net open to people who qualify for coverage when they need care. Unlike commercial insurance, which must avoid risk to survive, Medicaid has been built to embrace risk. Medicaid's irreplaceable value as a safety net that is accessible when help is needed most becomes clear when catastrophic events strike or when health threats such as the Zika virus suddenly wash over entire populations. In their letter, Price and Verma made no effort to explain how abandoning Medicaid's basic principles would further its objectives.
Since the establishment of Medicaid, the nation has relied on the program as a way to deal with health challenges that lie beyond the limits of commercial insurance markets: long-term care services and supports; coverage of uninsured women diagnosed with breast or cervical cancer; developmental health services for the poorest children; and flexible health-care funding that can respond to population health needs in the wake of large-scale disasters—both natural and man-made. Price and Verma seem neither to understand nor to value these critical functions.
Experimentation and Medicaid Policy
As a program of unusually large size, complexity, and scope, Medicaid presents substantial management challenges. As a result, the authority to conduct demonstrations—carried out under a provision of the Social Security Act, known as Section 1115—has played an invaluable part in improving and extending the program. But it is just this authority that the Trump administration may now be poised to use for entirely different purposes.
Over the years, Republican and Democratic administrations alike have used the authority for experiments to lay the groundwork for Medicaid's transformation. Both Bill Clinton and George W. Bush pursued pilot programs to cover impoverished working-age adults excluded from Medicaid under traditional program rules, laying the groundwork for the watershed Medicaid expansion of 2010. Section 1115 paved the way for Medicaid's development of integrated coverage and managed care, and it enabled Medicaid to transform itself from a payer of nursing homes and become the nation's central source of funding for community-based long-term services and supports.
Despite their many disparate variations, 1115 demonstrations are bound together by the common purpose of testing and evaluating new approaches to achieving Medicaid's objectives. The law itself states those objectives as furnishing “medical assistance on behalf of [people] whose income and resources are insufficient to meet the costs of necessary medical services” and promoting “rehabilitation and other services to help … [people] attain or retain capability for independence or self-care.” Fundamental principles of constitutional law prevent Congress from simply delegating to the executive branch the power to unilaterally alter the terms of federal law. But Congress can grant research authority, and 1115 is part of this tradition of searching for better ways to design and operate major federal programs.
That 1115 now accounts for such a substantial portion of federal Medicaid spending reflects a desire on the part of government to develop more effective ways to accomplish Medicaid's multiple missions. Historically, 1115 demonstrations have been built on a common value of improving care for the most vulnerable and the goal of making the program stronger and more effective. These values and goals shaped Medicaid eligibility expansion demonstrations, as well as demonstrations to strengthen health care. Following the U.S. Supreme Court's 2012 decision that effectively made the Affordable Care Act's adult Medicaid expansion a state option, these values and goals led the Obama administration to partner with recalcitrant states to expand coverage, even if under terms that may be substantially less generous than those that are part of the law.
How Waivers Work
Section 1115 permits the HHS secretary to do two basic things. First, in order to carry out demonstrations that further Medicaid's objectives, 1115 gives the secretary the power to alter many provisions of the law itself. Eligibility standards can be altered. Benefits can be modified. Demonstrations can test approaches to health-care organization, delivery, and payment other than those formally sanctioned under law, such as tying coverage to enrollment in organized systems of care.
Second, 1115 allows the secretary to spend federal funds on program activities that, owing to their departure from normal legal requirements, would not otherwise qualify for federal money. This special federal spending power means that tens of billions of dollars can flow to state Medicaid programs operating in an alternative fashion to normal legal requirements. Rules established under the Carter administration require that 1115 Medicaid demonstrations must be budget neutral, that is, that they not cost the federal government more than would normally be spent under law. But budget neutrality nonetheless offers broad flexibility to experiment.
Demonstrations established and renewed under 1115 usually involve lengthy and complex negotiations between the federal and state governments regarding what the experiment will test, the conditions under which it will be allowed to proceed, and the extent of modifications to federal rules. Furthermore, because 1115 confers sweeping administrative powers, federal law also requires the secretary to act in accordance with basic principles of administrative law, including an evidentiary record supporting the experiment, opportunity for public comment, evaluation of results, and publication of findings. Like other government experiments, 1115 demonstration evaluations must be built on established research principles—testable hypotheses, research questions designed to shed light on the impact of the demonstration, and a research approach that will enable evaluators to fairly and impartially measure implementation of the demonstration and its effects.
The 1115 authorization and evaluation process can be contentious, as one party seeks to test ideas to which the other party objects. For this reason, the Obama administration consistently rejected proposals to add work requirements to Medicaid, concluding that withholding access to health care serves no legitimate program objectives, especially since the overwhelming majority of Medicaid beneficiaries are working, looking for work, in school, too sick to work, or are caring for family.
Whether and how the Trump administration intends to test work requirements and other proposals remains to be seen. Seven states (Arizona, Arkansas, Indiana, Iowa, Michigan, Montana, and New Hampshire) currently operate their adult Medicaid expansions under the Affordable Care Act as 1115 demonstrations and presumably will continue to do so. Kentucky, which originally adopted the expansion as written by Congress, now proposes to convert to demonstration status. Several of these states, including Kentucky, Indiana, and Arkansas, have proposed work requirements. Furthermore, several states that have not expanded Medicaid—Wisconsin, Utah, and Maine—have proposed to test work requirements on groups who were eligible for Medicaid before the ACA. Kentucky's demonstration proposal also indicates a desire to recast Medicaid as commercial insurance through the use of annual open enrollment periods.
The administration is expected to permit states wishing to do so to move forward. How federal officials will justify their approval in light of administrative records replete with evidence regarding the damaging nature of such program modifications is unclear. Furthermore, it is unknown whether the evaluations—a basic element of any 1115 demonstration—will fully examine the human effects of work requirements or restricted enrollment rules, whether the results will be made public, or whether other states will be permitted to move forward while the jury is out on the first wave of Medicaid restriction demonstrations.
Equally as worrisome is the problem of leverage. With states so massively reliant on 1115 as a basic element of ongoing Medicaid operations, the federal government effectively gains additional powers of persuasion regarding the conditions under which a large-scale demonstration should be allowed to continue. For example, certain states that embraced the ACA adult Medicaid expansion also have in place ambitious efforts to test comprehensive delivery system reforms aimed at improving health-care quality and efficiency. Because delivery reform is such an intensive, lengthy, and complex undertaking, these states depend on being able to continue their demonstrations with access to ongoing federal financial demonstration support. Will these states be told that their continued demonstration authority depends on the extent to which they agree to test “dignity” models or introduce commercial insurance restrictions into Medicaid enrollment? The Trump administration already has shown its willingness to use its federal grantmaking powers to pressure senators to vote to eliminate coverage for millions of people; why not use a similar strategy to force states to eliminate coverage on a piecemeal basis?
To be sure, federal law gives states the option of limiting the scope of their Medicaid programs, and Congress can give the states even more “flexibility” to make cutbacks. But the administration cannot legitimately use a grant of congressional power intended to test ways of improving the services of a program to roll that program back. The courts have the power to review 1115 project approvals, and if the administration tries to use its waiver authority to cull people from eligibility, the courts are sure to be faced with claims that the administration is abusing its power.
One other point merits consideration: There was a time when, as a matter of law, 1115 demonstrations were recognized for what they were—research involving human subjects that had to undergo review by institutional review boards (IRBs). In 1983, the Reagan administration exempted 1115 demonstrations from federal IRB protections, even though in 1982, Congress embedded human subject research protections directly in federal Medicaid law as a condition of approving Medicaid cost-sharing demonstrations. Yet even as it moved to exclude 1115 demonstrations from human subject safeguards, the Reagan administration acknowledged its obligation “to ensure that research activity not present a danger to the physical, mental, or emotional well-being of participants.”
Given the Trump administration's stated intention—to eliminate congressionally authorized Medicaid coverage for millions of poor adults on the grounds that such coverage is contrary to federal policy—it is highly improbable that it will give even the slightest consideration to the risks that its research design presents. Were it to do so, such inherently damaging research obviously could not go forward.
Research aimed at making an enormously complex program work better is essential to its proper operation. Opinions can differ about how far states should be able to go in combining program improvements with operational constraints; this type of balancing is an inherent element of many social-welfare demonstrations. But when high-government officials state from the outset that their goal is to overturn an act of Congress, the question is not whether they are making the right trade-offs but whether they can be held accountable for violating the law.
This article has been updated from the print edition of the Prospect to reflect HHS Secretary Tom Price's resignation.
