Medicaid Changes Require Tens of Millions in Upfront Costs

But Kentucky governor says move will eventually yield savings for state

Kentucky Gov. Matt Bevin projects that the state’s Medicaid program — which could cost nearly $187 million in the first six months with the addition of work requirements and other sweeping changes — will eventually yield savings. (Bill Clark/CQ Roll Call file photo)

The addition of work requirements and other sweeping changes to Kentucky’s Medicaid program could cost nearly $187 million in the first six months alone to get up and running. 

Republican Gov. Matt Bevin projects that the program will eventually yield savings but the changes require an upfront investment in administrative expenses. Much of that money is aimed at creating complex electronic systems and other changes needed to track work hours, monthly premium payments and other elements of Kentucky’s recently approved plan to revamp the government insurance program for low-income Americans.

The vast majority of those dollars — more than $167 million — would be covered by the federal government, according to Bevin’s revised budget for fiscal 2018.

The budget increase offers a glimpse into the initial costs to launch the Medicaid changes numerous states are seeking.

In Tennessee, a Medicaid work requirement proposal in the legislature would cost the state an estimated $18.7 million each year and the federal government more than $15 million annually, according to a state fiscal analysis. And in Virginia, a recent government analysis showed adding a work mandate could cost the state tens of millions of dollars over the next couple of years.

Work requirements in particular are unprecedented for Medicaid agencies and will likely make up the bulk of the cost to build necessary infrastructure to track whether people are complying, said Patricia Boozang, senior managing director with Manatt, a legal and consulting firm with health care expertise.

“It is a real cost that the state’s incurring,” Boozang said.

In Kentucky, the governor’s office and state Medicaid agency would not comment on the increased administrative costs outlined in the budget. The Centers for Medicare and Medicaid Services would also not comment on the anticipated increase for administrative costs in federal spending.

However, officials in the Bluegrass State say the program overhaul will create an estimated $2.4 billion in savings to the state and the federal government over five years. Most of that would come from people dropping off the Medicaid rolls or not qualifying in the first place because of the new rules.

Going to work

Kentucky is one of at least 10 states that sought federal approval for work requirements and other Medicaid changes using what are known as 1115 waivers. More than half a dozen other states are exploring the work concept.

Most work requirement plans are aimed at working-age, so-called able-bodied adults who would have to work, go to school, volunteer or participate in other activities for at least 20 hours a week to keep their health coverage. Many would exempt people with disabilities, pregnant women and other vulnerable groups.

[More States Jump on Medicaid Work Requirements Bandwagon]

The 1115 waivers allow states to experiment with new ways of operating Medicaid not usually allowed by law.

Such proposals must show that any changes a state wants to make won’t cost the federal government more than the existing program. But states aren’t required to include administrative costs in those calculations.

“This is a huge concern that money is being used in this way, and that it’s not part of the overall assessment that the federal government makes,” said Judy Solomon, vice president of health policy at the liberal-leaning Center on Budget and Policy Priorities.

Meanwhile, the federal government won’t be paying for any of the support services, such as training and transportation, that people need to help them join the workforce, Solomon said.

Watch: What Policy Measures Could Get Added to the Spending Bill?

The Trump administration stated in a Jan. 11 letter to Medicaid directors that states can’t use federal money for such support services.

Boozang said she expects to see increased administrative costs in other states if federal officials approve their Medicaid waivers. The administration approved Indiana’s waiver on Feb. 2.

States are seeking to add not just work requirements but also premiums and co-payments, coverage lock-outs for people who don’t renew on time and other changes. There are 22 waivers from 21 states currently pending at the federal level, according to the nonprofit Kaiser Family Foundation.

The push for the conservative-friendly elements is being spurred by mostly Republican-led states with the aim of treating Medicaid more like a welfare program than an insurance program.

Consumer advocates have blasted the efforts, saying such changes will cause poor parents, people with disabilities, individuals in drug abuse treatment and other groups to unfairly lose their health coverage.

Major changes ahead

In Kentucky, the state estimates that work requirements alone will decrease the Medicaid rolls by upward of 95,000 people within five years.

“We are spending an awful lot of money to cover fewer people,” said Dustin Pugel, a policy analyst at the Kentucky Center for Economic Policy.

There are a variety of ways that people can fall off or get back on Medicaid under the new waiver that the state will have to track, Pugel said.

“I fully expect us to see a huge amount of churn,” he said, referring to people cycling in and out of the program.

Critics of the Kentucky plan have also raised concerns about the state’s ability to create the necessary electronic systems to monitor all of the changes in such a short time frame.

Kentucky plans to begin phasing in work requirements by region starting in July.

It took the government years to set up the state’s Benefind system, which tracks cash assistance, food stamps and other benefits electronically, and that had major problems, Democratic state Rep. Joni Jenkins said.

When the state did away with its Kynect insurance exchange website and transitioned people to Benefind in 2016, tens of thousands of people were erroneously kicked off Medicaid, Jenkins said.

“People who had been on Medicaid forever, disabled children, were thrown off,” she said. “It was the biggest mess you ever saw.”

Now, officials are trying to get another electronic system up and running in a much shorter period, she said.

“It’s very, very concerning,” Jenkins said. “Keeping track of these folks is just going to be mind-bogglingly complex.” 

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