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Uncompensated Care Pool Waivers Undermine Health Coverage for the Uninsured

Medics transfer a patient on a stretcher from an ambulance outside of Emergency at Coral Gables Hospital where Coronavirus patients are treated near Miami, Florida.
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  • Three nonexpansion states — Florida, Tennessee, and Texas — received Medicaid waivers in the Trump administration’s last days, allowing uncompensated care pool funding to substitute for health care coverage

  • Uncompensated care pools can help hospitals caring for the uninsured, but are no substitute for coverage; if Florida, Tennessee, and Texas expanded Medicaid, an estimated 1.3 million people could get health insurance

In its final weeks, the Trump administration approved 10-year Section 1115 Medicaid waivers for Florida, Tennessee, and Texas — three states that have not expanded Medicaid under the Affordable Care Act (ACA). These waivers, which allow states to use Medicaid funds in ways not otherwise permitted, could shape the Medicaid programs in these three states for the next decade. Many of the uninsured in these states — some 1.3 million people — could be insured if these states expanded Medicaid.

Uncompensated Care Pools in Florida, Tennessee, and Texas

When people seek care from hospitals, it is not unreasonable for those hospitals to expect payment for services. But paying for an emergency room visit or inpatient care is no substitute for coverage that provides access to primary and preventive care, diagnostic tests, services to treat and manage acute and chronic illnesses, as well as access to other services including prescription drugs. Indeed, coverage can help avoid costly emergency room visits and inpatient admissions. For this reason, hospitals themselves have continued to press for Medicaid expansion.

Section 1115 waivers have been used in the past to allow states to draw down Medicaid funds to pay hospitals for care provided to the uninsured. These “uncompensated care pools” can play an important role in defraying costs associated with treating people who lack access to affordable coverage, even in states that have expanded Medicaid. The new approvals, however, lock in significantly more federal funding for uncompensated care than has been approved in the past and thus alleviates pressure to expand coverage.

After enactment of the ACA, the Centers for Medicare and Medicaid Services (CMS) approved uncompensated care pools, but sought to phase out Medicaid’s subsidization of the costs attributable to the expansion population to encourage coverage. The Trump administration, which did not support Medicaid expansion, reversed course and allowed uncompensated care pool funding to substitute for coverage, resulting in substantially larger pools.

The new waivers were approved for an unprecedented 10 years, as opposed to five, which is more typical. Although the Trump administration issued policy that permitted 10-year waivers for “routine, successful, non-complex” demonstrations, these approvals do not conform to this guidance and appear designed to “lock in” funding that the Biden administration might not approve. Indeed, the Trump administration even skipped public notice requirements to approve the Texas waiver extension on January 15, 2021.

Texas’s Expedited Waiver Submission Process Skipped Public Comment Requirements

Texas’s previously approved waiver was not scheduled to expire until September 2022. Yet, on November 30, 2020, Texas submitted a renewal request to CMS, bypassing the requirement that the state first provide a public comment period and public hearings. CMS nonetheless certified the request as “complete” and later approved the renewal without the benefit of public comment at the federal level. The public health emergency was cited as the justification, even though the waiver was not expiring and the state was not requesting time-sensitive or pandemic-sensitive changes in the waiver.

These actions have resulted in uncompensated care pools that allow a total of $56 billion in Medicaid spending, including $38 billion in federal funds. By granting approval of the waivers for 10 years and allowing the uncompensated care pools to substitute for coverage in nonexpansion states with larger uninsured populations, total spending is projected to be $17 billion higher, including $12 billion more in federal spending.1

A Different Direction

The Trump administration did not support Medicaid expansion, but the Biden administration and majority of Congress do, as evidenced by the recent inclusion of a new, generous financial incentive for the remaining states to take up the expansion.2 With these waivers in place, however, expansion may be more difficult to achieve in Florida, Tennessee, and Texas. Missing this opportunity would amount to a significant setback for coverage; the uninsured adults in these three states account for 60 percent of all individuals in the coverage gap. Low-income parents and other adults caught in the coverage gap in these states are disproportionately people of color.

Tennessee: Aggregate Cap and Shared Savings

Tennessee’s waiver is also notable for establishing a cap on Medicaid expenditures for nearly all of the Medicaid coverage provided in the state. A cap on federal Medicaid funding was a centerpiece of the unsuccessful efforts in 2017 to repeal and replace the ACA. The approved financing in Tennessee goes a step further by allowing Tennessee to capture and redirect to other purposes a substantial amount of the federal funding it “saves” if the state spends less for coverage than permitted by the cap, providing a strong financial incentive for the state to spend less in its program.

It is possible for the Biden administration to revoke or modify waivers if CMS “find[s] that [a] demonstration is not likely to achieve the statutory purposes.”3 Under this standard, the negative impact on coverage, the equity considerations, the 10-year approvals, and, in Texas, the approval process are all factors that could prompt further federal review. Without such action, low-income adults in these states could remain uninsured for years to come.

NOTES

1According to Manatt Health’s analysis comparing five- and 10-year funding for the pools as approved under the recently approved waivers and the previous administration’s waiver policy regarding uncompensated care.

2The legislation, referred to as the American Rescue Plan Act, offers states that expand Medicaid an additional 5-percentage-point increase in the federal matching rate applied to most spending in their Medicaid program (other than the expansion) for eight calendar quarters.

3See March 17, 2021, letter from CMS to the Arkansas Department of Human Services citing federal regulations and statute. Each approved Section 1115 waiver has similar language. Texas’s waiver, for example, states that “CMS reserves the right to withdraw waivers or expenditure authority at any time it determines that continuing the waiver or expenditure authority would no longer be in the public interest or promote the objectives of [Medicaid and CHIP].”

Publication Details

Date

Contact

Cindy Mann, Partner, Manatt Health

[email protected]

Citation

Cindy Mann, “Uncompensated Care Pool Waivers Undermine Health Coverage for the Uninsured,” To the Point (blog), Commonwealth Fund, Apr. 16, 2021. https://doi.org/10.26099/9cjy-4e84

Area of Focus

Topics

Medicaid,
Medicaid Waivers,
Uninsured,
Income Based Disparities

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