Medicaid Waivers: Internal Threats to the Entitlement By Zachary King

Medicaid Waivers: Internal Threats to the Entitlement

By Zachary King 

Over fifty years ago, the new Medicaid statute created a statutory right to health insurance coverage for some of the most medically vulnerable populations of Americans, even for those without the financial ability to obtain such coverage in the private insurance market.[1] Over the past decade, Congress and the Obama administration have taken steps to increase access to health insurance even further. The Affordable Care Act (ACA) effected much of this change, revolutionizing the private health insurance market for the middle class.[2]

The ACA also included a new Medicaid eligibility category, guaranteeing medical assistance to all Americans below an income threshold.[3] In 2012, however, the Supreme Court gutted this provision, finding that the new eligibility category illegally coerced states into covering populations against their will.[4]

Since NFIB, many states have tried to leverage the Centers for Medicare and Medicaid Services (CMS) into approving illegal funding for programs that are advertised as alternatives to Medicaid expansion.[5] These programs are usually state demonstration plans, or “§ 1115 waivers” (so called because they were passed as § 1115 of the Social Security Act).[6] However, states are using  demonstration plans in ways that are clearly contrary to the program’s purpose of providing coverage to medically and financially needy individuals and families, and CMS often faces a choice between an illegal demonstration plan covering part of the population to a less than ideal extent, or no Medicaid coverage at all for that population.

State Demonstration Plans

Demonstration plans allow states to receive federal matching funds to test new mechanisms and aspects of Medicaid while ignoring some of the program’s usual requirements. Plans can only ignore certain Medicaid requirements.[7] Further, plans are only permissible if they are “likely to assist in promoting the objectives of” the Medicaid program.[8] Because federal funding is involved, CMS oversees demonstration plans, and plans require the bureau’s approval.

State demonstration plans are not ACA Medicaid expansion. Medicaid expansion is a specific program creating an eligibility category for people living below 133 percent of the federal poverty level (FPL) who are not otherwise eligible for Medicaid, as described above. The federal government pays almost all of the cost for state implementation of Medicaid expansion.[9] In contrast, federal matching for state demonstration plans are negotiated between CMS and the state government, but the state can expect to be responsible for a greater portion than if they implemented Medicaid expansion.

Dangerous Precedents and Recent Developments

Some demonstration plans proposed by states include waiver requests for some of Medicaid’s most fundamental requirements; even more disturbingly, CMS has approved some of these requests.[10] Waivers that CMS has approved negate the requirements that eligible individuals be enrolled in the program with reasonable promptness, that benefits be comparable for all enrollees, and that enrollees living in poverty not be charged premiums.[11]

Indiana, which received approval for the above waivers for its Healthy Indiana 2.0 program, previously had a state demonstration project in place with fewer waivers.[12] It is possible that the political threat of discontinuing the existing program unless CMS approved additional waivers proved too serious for the bureau to enforce the law and deny the proposal.

Two states recently submitted proposals similar to Indiana’s. The Kasich administration in Ohio proposed a plan, the terms of which were largely dictated by the state legislature, that CMS rejected this month. The Healthy Ohio Plan included requests for waivers of Medicaid’s requirements that eligible applicants be enrolled into the program with reasonable promptness and that they have the opportunity for a fair hearing, among others.[13] Combined with eligibility provisions, these requirements form the backbone of due process in the Medicaid application and enrollment processes. [14] Without the protection these requirements provide, states would have no statutory obligation to enroll people eligible for Medicaid, despite the clear intent of the statute.[15]

Fortunately, CMS rejected Ohio’s proposal, and at least some of the rights inherent in the Medicaid program remain intact.[16] Ohio is notable because it has implemented Medicaid expansion, and rejection of the Healthy Ohio Plan had no effect on the expansion.[17] So, Ohio’s proposed demonstration plan would have rolled back Medicaid coverage, rather than covering more people, and CMS’s rejection protected existing enrollees.

Kentucky also recently proposed a new demonstration plan, which included a request for approval of a work requirement for enrollees to enjoy the full benefits of the program (effectively a waiver of 42 U.S.C. § 1396a(a)(10)(A)).[18] At present, CMS has not decided to approve or disapprove Kentucky’s proposal. Like Ohio, Kentucky has expanded Medicaid.[19] However, Kentucky’s governor ran on the platform of repealing the expansion.[20] So, CMS must choose between approving dangerous waivers, or likely sitting by idly as thousands of Kentuckians lose their health insurance coverage.

Constitutional Overcorrection

If the NFIB Court feared coercion of the state government, they have created an environment that allows for coercion of the federal government. The NFIB decision was meant to allow states to decide whether their Medicaid programs would cover the new statutory population (those with household income below 133% FPL). It did not remove the new population from the statute, and programs are required to cover all members of a statutorily described eligibility group.[21] However, states are able to use demonstration plans that are clearly contrary to the objective of the Medicaid program to cut back coverage, or impose cost and work requirements on enrollees. While this goes on, CMS must either sign its approval of the corruption of a successful, decades old program or sit by helplessly as it watches Medicaid reform, which is still the law of the land, simply disappear state-by-state.

[1] See generally Social Security Amendments of 1965, Pub. L. No. 89-97, 79 Stat. 286 (codified as amended in scattered sections of 42 U.S.C.).

[2] See generally Patient Protection and Affordable Care Act of 2010, Pub. L. No. 111-148, 124 Stat. 119 (codified as amended in scattered sections of 26 and 42 U.S.C.)

[3] 42 U.S.C. § 1396(a)(10)(A)(i)(VIII) (2015).

[4] See Nat’l Fed’n of Indep. Bus. v. Sebelius, 132 S.Ct. 2566, 2607 (2012) (“[T]he Secretary cannot apply § 1396c to withdraw existing Medicaid funds for failure to comply with the requirements set out in the expansion.”).

[5] See, e.g., H.B. 64, 131st Gen. Assemb. §§ 5166.40-409 (Ohio 2015).

[6] See generally Leonardo Cuello, Medicaid Expansion Section 1115 Demonstrations Update, Health Advocate, Aug.  2016, (follow “Download Publication” hyperlink).

[7] See 42 U.S.C. § 1315(a)(1) (2014).

[8] 42 U.S.C. § 1315(a) (2014).

[9] 42 U.S.C. § 1396d(y) (2012).

[10] See Cuello, supra note 6, at 1-2.

[11] Id.

[12] Maureen Groppe, Indiana lawmakers OK bill to protect Healthy Indiana Plan, Indy Star (Mar. 11, 2016),

[13] See Ohio Dep’t of Medicaid, Healthy Ohio Program 1115 Demonstration Waiver 39 (2016), (follow the “Healthy Ohio Program 1115 Demonstration Waiver – Final Submission). See generally 42 U.S.C. § 1396a(3), (8) (2015).

[14] See 42 U.S.C. § 1396a(3), (8), (10) (2015).

[15] National Health Law Program, Comment Letter on Healthy Ohio Program Section 1115 Demonstration (Aug. 5, 2016), (follow the “Download Publication hyperlink). [then proceed with the quote

[16] See Jim Provance, U.S. rejects Ohio proposal to require Medicaid premiums, Toledo Blade (Sept. 9, 2016),

[17] Status of State Action on the Medicaid Expansion Decision, Kaiser Family Found (July 7, 2016),,%22sort%22:%22asc%22%7D.

[18] See Ky. Dep’t of Medicaid Services, Kentucky HEALTH 26, 37 (2016), (Kentucky follow the “waiver application” hyperlink).

[19] Status of State Action on the Medicaid Expansion Decision, supra note 17.

[20] Gov. Matt Bevin: Medicaid overhaul will be in place by start of 2017, Lexington Herald-Leader (Dec. 30, 2015),

[21] 42 U.S.C. § 1396a(a)(10)(A)(i) (2015).


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