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"Reaching the Outer Limits of Medicaid Demonstration Waivers" by Anya Rader Wallack

Much good has come from the 2006 Massachusetts health reform law, and there have been a number of calls of late to use the Massachusetts plan as a model for national reform. The praise is well-deserved. That said, if Massachusetts is used as a model for national reform, there is one element we want very clearly to change – the requirement that coverage expansions be budget neutral under the terms of a Medicaid waiver.

Massachusetts has operated its Medicaid program under a federal research and demonstration waiver since 1998. These waivers, authorized under section 1115 of the Social Security Act, allow states to deviate from the normal federal rules governing Medicaid. For example, states have used waivers to cover categories of adults and children not normally covered by the program and to increase beneficiary cost-sharing beyond the nominal amounts allowed under federal law. In exchange for increased flexibility, states must adhere to budget neutrality requirements – the program changes can not cost the federal government more than it would be spending without the waiver.

To live within budget neutrality limits while expanding insurance coverage, states like Massachusetts have pursued several strategies to produce cost savings that can be applied to coverage expansions:

• Moving Medicaid populations into managed care to reduce costs;
• Redirecting payments that compensate providers for caring for uninsured patients and instead purchasing insurance for the uninsured;
• Requiring that higher-income Medicaid enrollees contribute toward the cost of their premiums.

Massachusetts also has moved health care programs that were previously funded entirely with state dollars to Medicaid, enabling the state to get federal matching funds for a bigger base under the waiver.

These strategies worked, but unfortunately we are near the end of the line in terms of our ability to increase our baseline or create new savings to finance expansions. The state has made an effort to fill the funding gap with their recent revenue-raising proposals, but it is unlikely that it has the fiscal capacity to sustain further coverage expansions without more federal help. Medicaid is our only option for bringing more federal dollars into the state. But budget neutrality places severe limitations on our ability reach our goal – affordable coverage for all.

While the Massachusetts Medicaid waiver has allowed the Commonwealth to manage the Medicaid program more effectively and to expand coverage dramatically, it’s time to admit that coverage expansions of this magnitude cost money. Individual states lack the capacity to raise the broad-based revenues necessary to cover significant new coverage costs. In addressing health care reform at the national level, a new President and Congress must recognize that states like Massachusetts can do amazing things, but we can’t work fiscal magic.

Anya Rader Wallack
Executive Director, Massachusetts Medicaid Policy Institute

This program aired on September 16, 2008. The audio for this program is not available.

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