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On January 12, 2018, the Centers for Medicare and Medicaid Services (CMS) approved a Section 1115 demonstration waiver in Kentucky, entitled “Kentucky Helping to Engage and Achieve Long Term Health” or KY HEALTH.  The overall demonstration includes 2 major components:  (1) a program called Kentucky HEALTH that modifies the state’s existing Medicaid expansion and applies new policies to the current Medicaid expansion population, as well as most other adults covered by Medicaid; and (2) a Substance Use Disorder (SUD) program available to all Medicaid enrollees.  Kentucky implemented a traditional Medicaid expansion, according to the terms set out in the Affordable Care Act (ACA), in January 2014.  Subsequently, Governor Bevin, who ran on a platform to end the Medicaid expansion and dismantle the State-Based Marketplace, was elected in December, 2015.  Post-election, the Governor instead decided to seek a Section 1115 waiver to change the state’s traditional Medicaid expansion.  On the same day that CMS approved Kentucky’s waiver, Governor Bevin issued an executive order directing the state to terminate the Medicaid expansion if a court decides that one or more of the waiver provisions are illegal and cannot be implemented.  This fact sheet summarizes key provisions of Kentucky’s approved waiver.  Specific details are included in Table 1.

Kentucky’s Medicaid waiver includes provisions never before approved by CMS, including: a work requirement as a condition of eligibility; premiums of up to 4% of income; multiple coverage “lock-out periods” of up to six months, two of which are new.

Kentucky’s waiver includes a number of provisions never before approved by CMS.  For example:

  • It marks the first demonstration to be approved that includes a work requirement (referred to as “community engagement”) as a condition of eligibility (with eligibility suspended for non-compliance), following new guidance released by CMS on January 11, 2018.
  • It allows for premiums of up to 4% of income, which exceeds the levels approved in any other waiver to date and those allowed in the Marketplace, both of which are capped at 2% of income.
  • It includes multiple coverage “lock-out periods” of up to six months (two of which are new), including lock-outs for failure to timely renew eligibility or report a change in circumstances affecting eligibility (as well as a lock-out for non-payment of premiums for those with incomes between 100-138% FPL, that is already in effect in Indiana)
  • It does not require CMS approval and the opportunity for public notice and comment on operational protocols that will be required to implement new waiver provisions that are complex and have significant implications for beneficiaries (instead, operational protocols for Kentucky HEALTH are only submitted to CMS for approval at state option).
  • It specifies that the waiver terms and conditions can be revised to reflect changes that the HHS Secretary determines are “of an operational nature,” without requiring submission of a waiver amendment, public notice and comment, or federal budget neutrality calculations.

Key provisions in the Kentucky HEALTH portion of the waiver applicable to most adults, including expansion adults and low-income parents, are: 

  • Work Requirements: Conditioning Medicaid eligibility on meeting and documenting a work requirement of 80 hours per month for most expansion adults and low-income parents and suspending eligibility for those who do not comply until they again meet the work requirement or complete a state-approved health or financial literacy course.  Notably, CMS guidance prohibits states from using federal Medicaid funds for needed employment supports, such as child care, transportation, job training, etc.;
  • Premiums: Requiring monthly premiums for most expansion adults and low-income parents, up to 4% of household income but at least $1.00, in lieu of copayments; requiring payment of the first premium before coverage is effective for those from 100-138% FPL (coverage is effective after expiration of the 60 day premium payment period for those below 100% FPL who do not pay a premium); removing the 90-day period to change health plans without cause after initial enrollment once the first premium is paid or the 60-day payment period expires;
  • Coverage Lock-Outs: Disenrolling and locking out of coverage for up to six months: (1) those who are over 100% FPL and do not pay premiums within 60 days; (2) most adults who do not provide any documentation needed to timely renew eligibility; and (3) most adults who fail to timely report a change in circumstances affecting eligibility. Those subject to lockouts can re-enroll prior to 6 months if they pay all past due amounts and the current month’s premium (for premium lockouts) and complete a state-approved health or financial literacy course;
  • Exemptions: Varying the groups who are exempt from, or have good cause for not complying with, different waiver requirements.  For example, people who are determined to be medically frail and former foster care youth are exempt from premiums, unless they wish to access an incentive account (described below), while pregnant women are both exempt from premiums and can have an incentive account without paying premiums.  As another example, being evicted or homeless constitutes good cause for avoiding a 6-month lockout for failing to pay premiums, timely renew eligibility, or report a change in circumstances, but does not qualify as good cause for failing to meet the work requirement.
  • Deductible and Incentive Accounts: Adding a deductible account and an incentive account to purchase additional benefits (moves vision, dental, and over-the-counter drugs from the regular benefit package to the incentive account for expansion adults; also offers limited reimbursement for gym memberships for all enrollees); enrollees must pay premiums to access the incentive account, can accrue funds by completing certain activities and are subject to account deductions as penalties for incurring various rule violations; and
  • Benefit Restrictions: Eliminating retroactive eligibility for most adults, including expansion adults, low-income parents, and people who are medically frail; and waiving non-emergency medical transportation (NEMT) for all services for most expansion adults.
Key provisions in the SUD waiver program available to all Medicaid enrollees include:
  • IMD Payment Exclusion: Waiving the IMD (institution for mental disease) payment exclusion for short-term SUD residential treatment services (with no day limit specified); and
  • NEMT: Waiving NEMT for methadone treatment services (including for people who are medically frail).

Years of research and experience implementing Medicaid and CHIP point to coverage gains realized by simplified and streamlined processes and reductions in enrollment and retention of people who remain eligible for coverage when processes are complicated or require additional documentation or verification.  Kentucky’s waiver proposal anticipated that the demonstration would result in about 95,000 fewer Medicaid enrollees after implementation, as a result of beneficiary non-compliance with waiver policies, such as premiums and the work requirement, and, in later years, due to shifts to commercial coverage.

Separate from the provisions that apply to people who are determined “medically frail,” Kentucky’s waiver also requires the state to comply with the rights of people with disabilities under the Americans with Disabilities Act (ADA), Section 504 of the Rehabilitation Act, and Section 1557 of the ACA. For example, the state must exempt people with disabilities from losing coverage if they cannot comply due to a disability-related reason and must offer reasonable modifications to program policies to enable them to comply.

Research points to gains in coverage and reductions in the uninsured, increases in access and health care utilization, and positive fiscal impacts as a result of the Medicaid expansion in Kentucky and other expansion states. Since implementing the ACA, Kentucky’s nonelderly adult uninsured rate fell from 16.3% in 2013, to 7.2% in 2016, one of the largest reductions in the country, and nearly 462,000 adults are enrolled in Medicaid expansion coverage as of FY 2016.

The Kentucky waiver does not include any specific evaluation hypotheses or metrics related to the Kentucky HEALTH provisions, including those like the work requirement that have never before been approved and are likely to have significant implications for beneficiaries’ ability to retain coverage for which they are eligible.  While the waiver includes a multitude of exemptions for certain individuals and good cause exceptions (the details of which differ among specific waiver policies), as well as “state assurances” about implementation, these provisions are complex and will require administrative staff time and resources and sophisticated systems to implement.  Despite the substantial consequences for beneficiaries and the administrative complexities of operationalizing new policies, submission and CMS approval of detailed operational protocols are not required and amendments or changes to the waiver terms may not be subject to full public notice and comment.  Implementation of the Kentucky HEALTH provisions will begin in April, 2018, with full implementation by July, 2018.  The implementation processes, whether there are adequate resources available, and the waiver’s impact on eligible people and state administrative procedures and costs will be important areas to watch.

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