Re-approval of Kentucky Medicaid Demonstration Waiver

What did CMS do with regard to Kentucky’s Demonstration Waiver?  On November 20, 2018, the Centers for Medicare and Medicaid Services (CMS) re-approved a Section 1115 demonstration waiver program called Kentucky HEALTH, as a component of the state’s overall KY HEALTH (“Kentucky Helping to Engage and Achieve Long Term Health”) demonstration.1 The overall demonstration was originally approved on January 12, 2018, and includes 2 major components:  (1) the Kentucky HEALTH program 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.2  On June 29, 2018, a DC federal district court ruling set the Kentucky HEALTH program aside before implementation, which was scheduled for July 1, 2018, and sent it back to CMS for further consideration in response to a lawsuit brought by a group of Medicaid enrollees challenging the approval.  CMS subsequently opened a new federal public comment period on the Kentucky HEALTH provisions and received approximately 8,585 “unique, substantive” comments.3

The key elements of Kentucky’s re-approved Medicaid waiver, which still faces a legal challenge, have not changed. They include work requirements, premiums up to 4% of income, multiple “lock-out” periods and the elimination of retroactive eligibility.

Were there changes in the re-approved waiver?  The recent re-approval of the Kentucky HEALTH program is largely the same as the original approval with a few technical or minor changes.  The re-approval also includes requirements for the state to submit implementation and monitoring protocols to CMS for approval as well as some evaluation hypotheses for the work requirement and other provisions that are likely to have significant implications for beneficiaries’ ability to retain coverage for which they are eligible.  The original waiver approval only required protocols for the SUD program and made submission of any Kentucky HEALTH protocols optional for the state.

What is next?  The new implementation date for Kentucky HEALTH is set for April 1, 2019; however, the plaintiffs in the lawsuit could return to the DC federal district court to challenge CMS’s re-approval.  A final decision from the DC district court could be appealed to the DC Court of Appeals and eventually could ultimately go to the Supreme Court.  At this time, it is not clear if whether or when the waiver re-approval will be challenged in court or if implementation would be postponed while litigation is pending.  The DC federal court ruling did not affect the SUD provisions of the waiver, which are being implemented according to an October, 2018 implementation plan.

What is the history of Medicaid expansion in Kentucky?  Kentucky originally 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.  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 20% in 2013 to 9% in 2016.  Nearly 462,000 adults were enrolled in Medicaid expansion coverage as of FY 2016.

What are the provisions in the waiver?  This fact sheet summarizes key provisions of Kentucky’s approved waiver.  Specific details are included in Table 1.

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.   Kentucky was the first state to receive waiver approval to condition Medicaid eligibility on meeting a work requirement following guidance released by CMS on January 11, 2018; however, implementation did not move forward as a result of the lawsuit challenging the approval.4
  • Premiums: Requiring monthly premiums for most expansion adults and low-income parents, up to 4% of household income and 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.  Premiums of 4% exceed the levels approved in any other waiver to date and those allowed in the Marketplace, both of which are capped at 2% of income.
  • 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, those eligible for TMA, survivors of domestic violence 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).

What to watch for?  As noted earlier, we will be watching to see if there is additional legal action in Kentucky (i.e. will the plaintiffs in the lawsuit return to the DC federal district court to challenge CMS’s re-approval and then would CMS appeal that decision).  Other milestones moving toward implementation include the submission of the implementation and monitoring protocols that are now required.  If the waiver is implemented in April 2019, understanding the processes and procedures including beneficiary and provider outreach and education, new systems and reporting requirements will be important.  We know from watching implementation of the new work requirements in Arkansas that these are large tasks and can be very difficult to reach enrollees to inform them of program changes.

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.  While the total number likely to lose coverage may be under dispute, Kentucky’s waiver proposal anticipated that the demonstration would result in 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.  In Arkansas, the only state to implement a work requirement to date, over 12,000 people have lost coverage due to failure to comply with work or reporting requirements as of November 2018.  Litigation is pending in Arkansas.  A November 8th letter to Secretary Azar from the Medicaid and CHIP Payment and Access Commission (MACPAC) raised concerns about disenrollment and the lack of an approved evaluation plan and asked for a pause in additional disenrollment.  Understanding how many individuals lose coverage, the reasons for the coverage loss and if individuals gain employment with coverage or become uninsured are key questions for waiver evaluations in Arkansas and Kentucky.


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