Pennsylvania s Budget Woes Can Be Solved by Electing Medicaid Expansion and Rejecting Healthy Pennsylvania

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1 Pennsylvania s Budget Woes Can Be Solved by Electing Medicaid Expansion and Rejecting Healthy Pennsylvania By: Kristen Dama. Staff Attorney Community Legal Services of Philadelphia About Community Legal Services of Philadelphia Community Legal Services, Inc. was established by the Philadelphia Bar Association in Since then, CLS has provided legal services to more than one million low-income Philadelphia residents, representing them in individual cases and class actions, and advocating on their behalf for improved regulations and laws that affect low-income Philadelphians. As the city's largest provider of free legal services, CLS assists more than 12,300 of Philadelphia s poorest residents with their legal problems each year. For more information, please visit May 2014

2 Executive Summary In February 2014, Pennsylvania sought federal approval for its Healthy Pennsylvania proposal, which would extend health insurance coverage to 500,000 low-income uninsured Pennsylvanians in exchange for twenty-four waivers of federal Medicaid law. The proposal includes unprecedented and deeply controversial requests for permission to make steep benefits cuts to Pennsylvania s existing Medicaid program, impose premiums and work search requirements on many current and new Medicaid eligibles, and gut Medicaid protections for new enrollees. In recent months, the federal government has signaled its unwillingness to approve the proposal as submitted, and approval is further complicated by overwhelming public opposition. The uncertain fate of Healthy Pennsylvania poses real problems for Pennsylvania in the Fiscal Year, because the Executive Budget assumes savings of $125.4 million from swift federal approval of the proposal. As the General Assembly begins crafting Pennsylvania s budget, it must grapple with both these now-uncertain savings and much lower than expected General Fund tax collection revenue for the Fiscal Year. Medicaid expansion provides a clear solution to a potential budget gap, with none of the uncertainty that surrounds Healthy Pennsylvania. By most estimates, immediate expansion would provide more than $600 million in savings and new revenue for the Fiscal Year enough to compensate for Healthy Pennsylvania s uncertain future and to fill most or all of the gap created by lagging tax revenue collections as well. Healthy Pennsylvania: An Overly Complicated Plan with an Uncertain Future On January 1, 2014, several key provisions of the Affordable Care Act (ACA) took effect. Individuals with incomes above the poverty line could purchase health insurance through the ACA s Federally Facilitated Marketplace. Individuals with incomes between 100% and 400% of the federal poverty income guidelines could receive tax credits and other financial help to make the insurance affordable. As a result, 477,000 Pennsylvanians became newly insured through the end of the federal open enrollment period on March 31, Also on January 1, 2014, funding for Medicaid expansion became available to cover individuals below 138% of the federal poverty income guidelines (slightly more than $16,000 per year for a single person) who do not qualify for traditional Medicaid benefits because they are not pregnant, do not have a disability, or are not a very low-income parent. Under the ACA, Medicaid expansion is the only health insurance option for individuals below the poverty line. The Pennsylvania Department of Public Welfare estimates that more than 500,000 low-income Pennsylvanians make up the Medicaid expansion population, many of whom are low-wage workers. Unlike every single one of its neighboring states, Pennsylvania did not immediately expand Medicaid in Instead, in February 2014, Pennsylvania filed its Healthy Pennsylvania Community Legal Services of Philadelphia (215)

3 1115 Demonstration Application with the federal Centers for Medicare & Medicaid Services (CMS). The proposal sought an unprecedented twenty-four waivers of federal Medicaid law. In exchange, Pennsylvania would extend coverage to people who would otherwise be covered by straightforward Medicaid expansion Pennsylvania s proposal would not actually expand Medicaid. Instead, it would make commercial coverage available to Pennsylvanians who would otherwise qualify for Medicaid expansion, through what it has dubbed a private option program. Pennsylvania has kept many details of the program vague so far. For example, it has refused to say whether coverage would be offered via the Marketplace, akin to how coverage is offered in states like Arkansas or Iowa with similar programs, or through some other mechanism. Pennsylvania s proposal would create significant barriers to health care. It would impose premiums of $25 or $35 per month on many enrollees beginning in 2016, with no consideration for financial hardship. Individuals who are unable to pay their premiums for three months would be penalized by losing coverage for up to nine months in a year. In its February filing, Pennsylvania also asked CMS for permission to impose a work search requirement for enrollees. Even some enrollees who are severely disabled would be subject to the work requirement unless they affirmatively applied for a series of exemptions. In March, Pennsylvania sent a letter to CMS, suggesting that it might make the work search requirement optional for enrollees to allow them to reduce their premium payments. Pennsylvania did not propose similar premium reductions for individuals who are too sick or disabled to work. Healthy Pennsylvania would create significant barriers to health care and harm the 1.1 million adults who currently rely on Medicaid, most of whom are pregnant or seniors or have a disability. Pennsylvania s proposal would not just affect its Medicaid expansion population; it would also harm the 1.1 million adults who currently rely on Medicaid, most of whom are pregnant or seniors or have a disability. It would collapse its existing Medicaid benefits packages into two packages and enrollees would be assigned to a package based on an online questionnaire. Even the more generous package would be much less comprehensive than current Medicaid benefits. It would include new limits on radiology, blood tests and other lab work, inpatient hospitalizations, outpatient surgeries and mental health treatment. Very sick enrollees who bumped up against those limits would have to meet a stringent exceptions process to qualify for more coverage. Private option program enrollees would not receive one of these two plans; they would instead be enrolled in commercial coverage. Pennsylvania has asked CMS to waive many Medicaid protections for these enrollees. It seeks waivers for required Medicaid services, like medical transportation to necessary doctor s appointments or enhanced family planning services. It does not intend to provide retroactive coverage for enrollees who incur medical bills shortly before they apply. And it has asked that enrollees who want to Community Legal Services of Philadelphia (215)

4 challenge benefits terminations or service denials be required to rely on commercial insurers grievance and appeals processes instead of the Medicaid appeals processes required by the U.S. Constitution. Pennsylvania s proposal is so complicated that it has said that the earliest it could be implemented is January 1, 2015 if CMS approves it quickly. And in recent weeks, CMS has sent a clear message to both the Department of Public Welfare and Medicaid advocates that approval will take considerable time because the proposal is so unprecedented and consequential for both prospective and current Medicaid enrollees. And CMS s treatment of similar proposals from Arkansas and Iowa indicates that Pennsylvania s proposal is almost certain to be rejected as is. Arkansas received swift approval for its request to establish of a private option program, but it did not include any of the other complications that Pennsylvania s proposal includes. Iowa sought six waivers of federal Medicaid law, just one-fourth the waivers sought by Pennsylvania, and many of its requests were rejected or modified. For an overview of Iowa s waiver requests and their final outcomes, compared to Pennsylvania s much broader waiver requests, please see Figure 1. If CMS rejects many or most of Pennsylvania s waiver requests, it is unclear whether Pennsylvania will move forward with its proposal at all. Figure 1: Pennsylvania s Medicaid Proposal Compared to Iowa s Proposal Pennsylvania Proposal Requested by Iowa? Approved in Iowa? Steep benefits cuts for No Not applicable existing adult Medicaid recipients Premiums of $25 or $35 for many Medicaid recipients Yes premiums ranging from $10 to $20 Yes nominal premiums of $5 or $10, with waivers for financial hardship Lockouts for nonpayment of No Not applicable premiums Work search requirement No Not applicable (mandatory or optional) Waiver of non-emergency medical transportation and enhanced family planning services Yes Mixed waiver of nonemergency transportation was granted as one-year pilot; waiver of enhanced family planning services was denied No retroactive coverage Yes No No Medicaid appeals rights No Not applicable Further complicating the future of Pennsylvania s proposal is the overwhelming public opposition that it has provoked. The proposal drew 806 comments during a recent public comment period via CMS s online comment tool, and the vast majority (659, or 82%) of the Community Legal Services of Philadelphia (215)

5 comments opposed the plan, while only a handful (34, or 4%) supported it. For more analysis of the comments submitted online, please see Figure 2. Figure 2: Public Comments Submitted to CMS re: Healthy Pennsylvania 2% 12% 4% Supports (34) Opposes (659) 82% Mixed (14) Other (99)* * Refers to comments that did not address Healthy Pennsylvania, were blank, or were continuations of longer comments. 806 total responses In addition, the Cover the Commonwealth Campaign, a coalition of more than 130 organizations advocating for Medicaid expansion, generated more than 1,000 comments and 1,000 written comments to CMS in opposition to the proposal. The magnitude of opposition to the proposal from both organizations and individuals make it difficult to imagine that CMS will approve the proposal without substantial changes. At this time, then, the most certain and straightforward way for Pennsylvania to draw down federal funding to cover its uninsured is through traditional Medicaid expansion. Medicaid expansion would garner immediate approval from CMS. It is very popular: of the 806 comments submitted online during the Healthy Pennsylvania public comment period, almost one half (380, or 47%) called for a straightforward Medicaid expansion instead of Healthy Pennsylvania. And it could be implemented quickly, because the Department of Public Welfare made many of the necessary systems changes when it implemented other ACA components in Pennsylvania s Budget Picture for the Fiscal Year Is Increasingly Grim The Corbett Administration s Executive Budget anticipates that the Healthy Pennsylvania proposal would save Pennsylvania $125.4 million for the Fiscal Year. Yet Healthy Pennsylvania s future is far from certain, and its fate is unlikely to be decided quickly. This uncertainty raises serious questions about these budget projections. Community Legal Services of Philadelphia (215)

6 The $125.4 million would come from three sources: $108.7 million in savings would come from moving state funded General Assistancerelated Medical Assistance (GA-related MA) enrollees into federally funded health insurance coverage on January 1, GA-related MA covers individuals with serious health care needs who do not fit within a federal Medicaid eligibility category. It covers individuals with serious health problems that are not permanent, women coping with family violence (for nine months in a lifetime), and individuals in active treatment for substance abuse (for nine months in a lifetime). It also covers working parents with high medical expenses who qualify through spending down their income on medical bills $7.2 million would come from eliminating the popular Medical Assistance for Workers with Disabilities (MAWD) program, which is funded through the Tobacco Settlement Act of 2001 and federal matching funds. MAWD allows people with longterm disabilities to work without fear of losing Medicaid benefits. Healthy Pennsylvania would dismantle MAWD and move lower income recipients into commercial insurance plans through the private option program. Higher income recipients would be dropped from the rolls altogether. Some higher income recipients would qualify for health insurance subsidies through the ACA s Marketplace but some recipients would not. $9.5 million would come from severe benefits cuts in the Healthy Pennsylvania proposal for the 1.1 million Pennsylvania adults who already rely on the Medicaid program, most of whom are pregnant, seniors, sick, or have disabilities. The uncertain fate of Healthy Pennsylvania calls these sources of savings into question. And ending GA-related MA and MAWD without a corollary If it cut Medicaid instead of expansion in coverage would leave tens of expanding, Pennsylvania would be thousands of Pennsylvanians with disabilities alone among states in slashing its without health insurance. Pennsylvania would be alone among states in slashing its medical safety medical safety net for its most net for its most vulnerable residents when federal vulnerable residents when federal funding is available to pay for necessary medical funding is available to pay for care. Such a move would also be penny wise, pound foolish because any budget savings from necessary medical care. eliminating coverage would be more than offset by new uncompensated care costs in hospitals and health systems. And CMS has indicated that it is scrutinizing the proposed benefits cuts closely, and that it may not approve them, especially in their current form. Meanwhile, Pennsylvania faces further fiscal uncertainty because Pennsylvania General Fund tax revenue collections have lagged from December 2013 through April 2014, with a Community Legal Services of Philadelphia (215)

7 fiscal year-to-date shortfall of $504.5 million. Pennsylvania s Independent Fiscal Office (IFO) now projects that the Fiscal Year could end with a $608 million budget shortfall. This trend of lagging collections raises further concerns about the viability of the Executive Budget, which assumes no shortfall for the Fiscal Year and reasonably ambitious tax revenue growth for Traditional Medicaid Expansion: A Clear Choice for Pennsylvania As the Pennsylvania General Assembly begins to craft its budget, it must grapple with an Executive Budget that assumes swift federal approval of Healthy Pennsylvania that is unlikely to come and makes overly optimistic tax revenue projections. These converging trends demand bold action. Fortunately, a clear solution to Pennsylvania s likely budget woes exists: traditional Medicaid expansion. Through Medicaid expansion, Pennsylvania s current Medicaid program would continue to exist. An additional category of Medicaid eligibility would be created for individuals with incomes up to 138% of the federal poverty income guidelines who do not qualify for Medicaid already. Approximately 500,000 Pennsylvanians would qualify for Medicaid expansion coverage. The federal government would pay 100% of the costs of Medicaid A clear solution to Pennsylvania s budget woes exists: expansion through The traditional Medicaid expansion. federal share would decline slightly in 2017 to 95%. The federal match would be 94% in 2018 and 93% in 2019, and then would remain steady at 90% beginning in States could leave the program at any time if the federal share declined below the 90% threshold or the state share became unaffordable in some other way. This infusion of no-strings-attached federal funding to cover the uninsured is so significant that all of Pennsylvania s neighboring states have opted to expand Medicaid. As in other states, the impact of increased federal funding in Pennsylvania is enormous. In April 2013, the nonpartisan IFO found that Medicaid expansion would have a positive budgetary impact of $620 million for the Fiscal Year (assuming that Medicaid were expanded for the entire fiscal year that begins on July 1, 2014). The projected $620 million would come from savings through giving 100% federally-funded coverage to GArelated MA enrollees (who would otherwise cost Pennsylvania $108.7 million in a sixmonth period, according to the Executive Budget). It would also come from new tax revenues generated by hundreds of millions of federal dollars flowing into Pennsylvania. Far from being an outlier, the IFO report echoed findings from two other independent analyses of the fiscal benefits of Medicaid expansion. The Hospital and Healthsystem Community Legal Services of Philadelphia (215)

8 Association of Pennsylvania commissioned a study from the RAND Corporation in March 2013 that found that any state administrative costs from Medicaid expansion would be more than offset by new revenue from taxing Medicaid managed care, to the tune of $96 million in net revenues in 2014 and $99 million in The study also found that Medicaid expansion would create 35,000 new jobs. The study did not consider savings from converting GA-related MA to a federally-funded program, and it did not add in other potential tax revenues from increased federal spending and job growth. With additional savings and revenues factored in, its findings echo the IFO report. Similarly, a third study by the Pennsylvania Economy League, commissioned by the Pennsylvania Health Funders Collaborative in April 2013, found that Medicaid expansion would have a net fiscal impact of $675.3 million in savings and new tax revenues in (It did not look at net fiscal impact for 2014 or 2015, but its findings for 2016 provide a snapshot of the fiscal impact that Pennsylvania could expect for the Fiscal Year, since federal funding levels are consistent.) Echoing the RAND report, it also found that Pennsylvania would create 35,000 to 40,000 new jobs due to expansion. In sum, Pennsylvania could achieve more than $600 million in savings and new revenue for the Fiscal Year by expanding Medicaid as close to July 1, 2014 as possible. The budgetary impact of Medicaid expansion would be enough to compensate for the unlikelihood that Healthy Pennsylvania will be approved quickly (or at all) and to offset most, if not all, of the Executive Budget s overly optimistic General Fund tax revenue collection projections for the current and next fiscal years. Conclusion In recent months, serious conversation about traditional Medicaid expansion in Pennsylvania stalled while lawmakers, advocates, and the public learned more about and debated the Healthy Pennsylvania proposal. Recently, however, the federal government has made clear that Healthy Pennsylvania will not be approved quickly, and in light of its many controversial components and its overwhelming unpopularity, it may not be approved at all. The uncertain fate of Healthy Pennsylvania poses real problems for Pennsylvania in the Fiscal Year, as the Executive Budget assumes savings of $125.4 million from swift federal approval of the proposal. These now-uncertain savings, coupled with lower-thanexpected General Fund tax collection revenue for the Fiscal Year, create a stormy backdrop as the Pennsylvania General Assembly begins to formulate a budget. Medicaid expansion emerges as a clear solution to potential budget woes. It would allow Pennsylvania to achieve more than $600 million in savings and new revenue for the Fiscal Year enough to compensate for Healthy Pennsylvania s uncertain future and much of the growing tax revenue shortfall. And it would create up to 40,000 new jobs while covering half a million uninsured residents a win for both fiscal and economic and public health in Pennsylvania. Community Legal Services of Philadelphia (215)