The Future of Medicaid in Kentucky

On November 3, 2015, only 30.7% of registered voters turned out in the election that made Matt Bevin the next governor of Kentucky. It is probably safe to assume that the half million state residents who depend on Medicaid were underrepresented among these voters. Whether those who gained Medicaid under the Affordable Care Act (ACA) will be able to keep it likely depends on an intricate, closely watched dance between Kentucky and the Obama administration that will begin in 2016.

In a geographic region whose residents experience the nation’s highest poverty rates and the greatest health risks, Kentucky has been a leader in the expansion of the ACA. Once the US Supreme Court made the expansion of Medicaid optional in NFIB v Sebelius (567 US —, 132 S Ct 2566 [2012]), the southern states moved almost as one to deny coverage to their neediest residents, rejecting potentially hundreds of billions of dollars in federal funding. Today 3.1 million people, including 1 in 4 uninsured African American citizens, find themselves caught in what is technically termed a “coverage gap,” but which can be understood only as a rending of the nation’s moral fabric.

Along with Arkansas and West Virginia, Kentucky defied this trend when its Democratic governor, Steve Beshear, exercised his executive powers to expand Medicaid and established one of the nation’s most successful state Exchanges (Kynect). The importance of Governor Beshear’s actions can hardly be overstated. In the fall of 2013, on the eve of the full implementation of health reform, 14.3% of Kentucky residents (1 in 7) were uninsured. By 2014, the state’s uninsured rate had dropped by 5.8 percentage points, a rate of decline that led the nation.

This dramatic shift in the health care fortunes of the state’s population was almost entirely the result of the Medicaid expansion. In 2013, the state’s Medicaid program covered only about 600,000 people and excluded nearly poor nonelderly adults unless they were deeply impoverished parents, pregnant, or people with severe disabilities. By August 2015 Medicaid insured more than 1.1 million residents, a growth of some 500,000 people. Medicaid now reaches about one-quarter of the state’s population. This huge growth of Medicaid is not based on its generous eligibility levels; indeed, income eligibility for the expansion cannot exceed 138% of the federal poverty level. Instead, the program’s extraordinary reach in Kentucky stands as a testament to the state’s entrenched and widespread poverty. The number of Medicaid enrollees in Kentucky dwarfs the number of people receiving subsidized private insurance through Kynect (about 70% of 89,000 policyholders), meaning that more than 4 in 5 Kentucky residents who qualify for some form of insurance subsidy are poor enough to be eligible for Medicaid.

Medicaid’s extraordinary feat in transforming coverage in Kentucky may not last. Under the ironic headline “Improving Kentucky Health Care,” candidate Bevin’s “Blueprint for a Better Kentucky” promised to repeal the Medicaid expansion as unaffordable. The candidate offered no explanation regarding the billions of dollars in revenue the state would lose, nor did he hint at the human cost, measurable in both life and health, that repeal inevitably will inflict on the population.¹

In the immediate run-up to the election, Bevin began to backpedal some, hinting that he might support retention of Medicaid for current beneficiaries while capping or eliminating coverage for those who might qualify for coverage in the future. Medicaid is a legal entitlement, however. This means that people who are eligible for coverage must be allowed to enroll when they successfully apply. And because Medicaid is a safety net program, people who believe that they may qualify for assistance must be allowed to apply for it when the need arises, unconstrained by formal open enrollment periods or special enrollment rules. As a result, despite the states’ broad discretion to shape their Medicaid programs to meet their residents’ needs, Governor Bevin, acting on his own, cannot simply cap enrollment. In its 2012 decision, the Supreme Court emphasized that the secretary of health and human services (HHS) retains full power to enforce the terms of the Medicaid expansion even if it is, effectively, optional. Moreover, HHS has made clear that the expansion under the ACA retains Medicaid’s full entitlement criteria, thereby barring states from imposing artificial limits on coverage.

This brings us to the dance that will begin once Governor Bevin assumes office. Federal law gives the HHS secretary the power, under section 1115 of the Social Security Act, to alter traditional Medicaid rules in order to enable states to pursue demonstration programs that, in the secretary’s view, further Medicaid’s core objectives. To date, HHS has used this special authority to enable 7 states (Arkansas, Montana, Iowa, Michigan, New Hampshire, Indiana, and Pennsylvania) to expand Medicaid using alternative rules. Nonetheless, although the specific rules differ, not a single state uses enrollment caps. Simply put, capping enrollment is a nonstarter.

The Medicaid demonstration states have made notable changes in traditional program rules, however. For example, the demonstration states have been permitted to offer coverage through qualified health plans sold in the Exchanges rather than traditional Medicaid plans; to impose premiums on beneficiaries with near-poverty income levels and disenroll those who fail to pay; to eliminate traditional benefits, such as nonemergency transportation and vision and dental care for older adolescents; to create voluntary work incentives; and to promote participation in wellness programs. Some of these adjustments may be relatively modest; others, such as the use of Exchange plans rather than traditional Medicaid managed care plans, actually may help beneficiaries avoid interruptions in coverage and care as a result of fluctuating incomes that require them to go back and forth across the Medicaid/premium subsidy divide. Other adjustments, such as the loss of important Medicaid benefits or locking out beneficiaries for not paying their premiums, could cause considerable harm. Years of program evaluation will be needed to understand the impact of these modifications on Medicaid policy.

Whether Governor Bevin will actually try to make his proposed changes or demand more fundamental restructuring as his price for not taking away benefits from a half million people is, at this point, an open question. Also unclear is what concessions HHS is prepared to make in order to maintain coverage for hundreds of thousands of people. This negotiation will play out on a national stage next year, in the run-up to the presidential election, in which the ACA already is proving to be a defining force. But no other Republican governor elected in an expansion state with expanded Medicaid coverage has chosen to eliminate benefits; indeed, nearly a dozen Republican governors have embraced the expansion. One reason may be that as the Kaiser Family Foundation reports, more than half of Republican voters in nonexpansion states favor expansion.

No one should bet on life and health. But if one were to do so, the odds are that HHS will stand firm, Governor Bevin will blink, and Medicaid coverage in Kentucky will prevail. To bet otherwise would be politically inadvisable and, more important, morally unacceptable.

References

1. Sommers B, Baicker K, Epstein A. Mortality and access to care among adults after state Medicaid expansions. N Engl J Med. 2012;367:1025-1034.

Professor Rosenbaum’s Medicaid research is supported by a grant from the Commonwealth Fund.

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