The Affordable Care Act (ACA) requires significant cuts to Disproportionate Share Hospital (DSH) payments beginning in federal fiscal year 2014.  These payments compensate hospitals for the cost of providing uncompensated care to uninsured and underinsured individuals.  Congress imposed the cuts on the theory that ACA reforms, such as expansion of Medicaid to additional low-income populations, would decrease the number of individuals without health insurance, thus decreasing the amount of uncompensated care provided by hospitals.

The Supreme Court decision on the constitutionality of the Medicaid expansion made it optional for states.  The Court did not, however, address the DSH cuts.  A number of states have announced that they will not expand Medicaid, and policymakers in other states, including Ohio, continue to vigorously debate the issue.  States that choose not to expand Medicaid may not see the reduction in the number of uninsured that expansion states will.  Since the ACA links the cuts in part to states’ relative levels of uninsured, one consequence is that states that choose to expand Medicaid could see a larger reduction in DSH funds than those that do not.

The ACA specified the aggregate amount of annual DSH cuts ($18.1 billion through 2020), but outlined only general principles for how the cuts would be implemented and required the Secretary of Health and Human Services to design a methodology for the cuts based on those principles. Currently, each states receives an annual allotment of DSH funds and has a great deal of discretion on how to allocate those funds to hospitals within the state.  The ACA specified that the methodology designed by CMS must impose smaller reductions on low DSH states (as defined in statute) and larger reductions on states with the lowest percentages of uninsured individuals and those that do not target DSH payments to hospitals with high volumes of Medicaid inpatients or high levels of uncompensated care.  Finally, CMS must take into account any DSH allotment amounts that a state included in a budget neutrality calculation for a coverage expansion approved under a Section 1115 waiver.

CMS has proposed a methodology that would allocate cuts to state DSH allotments in FY 2014 and 2015.  The total required cuts ($500 million for 2014 and $600 million for 2015) would be allocated proportionately between high DSH and low DSH states.  Then CMS would calculate a reduction for each state by applying a formula that gives equal weight to factors that represent the state’s insured numbers relative to other states and the extent to which it targets DSH funds to high Medicaid volume and high uncompensated care hospitals.  Applying the proposed methodology, CMS estimates that Ohio’s DSH allotment would be reduced by $23.4 million in FY 2014, a reduction of 5.41 percent from what it otherwise would receive for that year.

In the preamble to the proposed rule, CMS addresses the dilemma regarding states that do not adopt the Medicaid expansion, noting that it needs additional information on the impact of state decisions to implement the expansion.  Further, CMS asserts that the data necessary to address the issue may not be available until 2016.  Therefore, CMS proposes to apply its methodology for FY 2014 and 2015 and to address FY 2016 and beyond in future rulemaking.

In recent months, the partners in the Ohio Medicaid Expansion Study, which include HPIO, the Ohio State University, the Urban Institute, and Regional Economic Models, Inc., have released several publications highlighting the Study’s independent analysis of the likely impact of Medicaid expansion on Ohio.  As reported by HPIO, the analysis indicates that:

• Expansion would create savings and new revenue that would exceed the cost to the state, resulting in an additional estimated $1.8 billion to $1.9 billion in net fiscal gain in the nine-year period between 2014 and 2022.
• An additional 450,000 Ohioans would gain health coverage because of the expansion.
• All 88 counties would realize a drop in the uninsured rate, an increase in tax revenue, and an increase in employment due to expansion.

HPIO’s website includes a variety of other helpful resources on Medicaid expansion and Medicaid more generally.

Under the ACA, health plans sold inside a state’s Health Insurance Exchange, as well as all individual and small group plans, must cover a set of services defined as Essential Health Benefits (EHB).  These benefits must include items and services within at least the following 10 categories:

• Ambulatory patient services
• Emergency services
• Hospitalization
• Maternity and newborn care
• Mental and/or substance use disorder services, including treatment of behavioral disorders
• Prescription drugs
• Rehabilitative and habilitative services and devices
• Laboratory services
• Preventive and wellness services and chronic disease management
• Pediatric services, including oral and vision care

Defining the types of services that must be covered under the definition of habilitative services has proved vexing, as there is no generally accepted definition of habilitative services among health plans, and private health plans have not typically covered habilitation prior to the ACA.  Under the ACA, states have the option to define habilitative benefits in state EHBs, require parity between habilitative and rehabilitative, or allow issuers to decide coverage and report to the U. S. Department of Health and Human Services.

At a meeting earlier this month, Arkansas’ Plan Management Advisory Committee reviewed and approved the following coverage definition of habilitative services:

“Subject to permissible terms, conditions, exclusions and limitations, health benefit plans, when required to provide essential health benefits, shall provide coverage for physical, occupational and speech therapies, developmental services and durable medical equipment for developmental delay, developmental disability, developmental speech or language disorder, developmental coordination disorder and mixed developmental disorder. “

If you are an employer, read the alert to determine whether/how you will be impacted.

Under the ACA, states are required to expand their Medicaid programs to cover many individuals earning incomes up to 138% of the Federal Poverty Level (FPL), or about $31,809 for a family of four.  States that expand their Medicaid programs to include individuals earning up to 138% of the FPL will receive enhanced federal reimbursement for this population – 100% initially, eventually moving down to 90%.  The regular federal match rate for Medicaid varies by state from 50% to 78%. 

This summer’s decision by the United States Supreme Court, however, made the Medicaid expansion optional.  Following the decision, states began to explore the idea of expanding their Medicaid programs to cover uninsured individuals earning incomes less than 138% of the FPL; for example, up to 100% of the FPL.

Under the ACA, individuals earning between 100% of the FPL ($20,050 for a family of four) and 400% of the FPL ($80,200 for a family of four) will be eligible for federal subsidies to purchase health insurance in the Health Insurance Exchange.  So some states advocated for expanding Medicaid eligibility up to 100% of the FPL (instead of 138%) in order to cover many currently uninsured individuals, and allowing individuals earning between 100% and 400% of the FPL to purchase health insurance in the Exchange, receiving federal financial assistance to do so.

On Monday, however, Secretary Sebelius made clear that states are not eligible for the enhanced federal funding unless they expand Medicaid eligibility up to 138% of the FPL.  Now that states have this guidance from the federal government, they can continue to understand the financial viability of the decision to expand Medicaid.

Policy experts have expressed differing views as to whether the ACA allows states to expand Medicaid to a threshold less than 138% of the FPL.  One interpretation is that the expansion population constitutes a coverage group that must be treated as a whole.  Another interpretation is that, in light of the Supreme Court’s determination that the expansion is optional, states can choose to cover all or part of the expansion population.  Questions regarding whether a state can seek a waiver to cover part of the expansion group remain. 

On Monday, the Centers for Medicare and Medicaid Services also released a series of Frequently Asked Questions (FAQs) that seeks to assist states in the implementation of the Affordable Care Act.  The FAQs address:

• Exchanges, market reforms and Medicaid
• Dual eligibles and Medicare cost sharing
• Eligibility and enrollment systems
• Eligibility policy
• Coordination across insurance affordability programs
• Section 1115 waiver transitions
• Children’s Health Insurance Program
• Benefits/delivery system
• Federal Medical Assistance Percentages

Secretary Sebelius’ letter announcing the extension was in response to a request by the Republican Governors Association for additional time.  In her letter, Secretary Sebelius indicates that states have until December 14 to submit both a letter of intent and an application for the state to run its own state-based exchange.  States have until February 15, 2013, to apply to run its exchange in partnership with the federal government.

Read the letter or Kaiser Health News’ breaking news bulletin for full details.

Essential health benefit requirements apply to individual and small group plans sold inside and outside of Health Insurance Exchanges.  Health Insurance Exchanges are mechanisms provided for in the ACA that will allow individuals to purchase affordable health insurance.  They are scheduled to launch in January 2014.  The requirements also apply to benefits provided to individuals who will be newly eligible for Medicaid coverage provided as part of the ACA’s Medicaid expansion.  Essential health benefit requirements do not apply to self-insured health plans, the method by which most large companies cover their employees.

According to Kaiser Health News, “The health law lists 10 broad categories of essential benefits, including preventive care, emergency services, maternity care, hospital and doctors’ services, and prescription drugs.  States have latitude within those categories, and so far nearly all have selected as a benchmark for minimum coverage one of the three most popular small group health plans available to residents now.  Because these plans vary and states can tinker with specific benefits to comply with federal requirements, the minimum benefits available to consumers in California will be different from those for people in New York, for example.”

State Refor(u)m provides additional information regarding the benchmark plans states have chosen.  For example, Arizona has selected as its benchmark plan the state employee plan, while New York has decided on a small group plan.  Some states, like North Carolina, have not yet chosen a plan.  Ohio and several other states—including Alabama, Florida, Iowa, Indiana, Louisiana, New  Jersey, Oklahoma, Pennsylvania, Tennessee, Wisconsin, and West Virginia—have indicated that they are awaiting additional federal guidance before making a selection.

On December 16, 2011, the Department of Health and Human Services (HHS) issued a bulletin providing information and soliciting comments on the regulatory approach that HHS proposed to define essential health benefits under the ACA.  HHS has not yet issued final guidance regarding essential health benefits, and is not expected to do so until after the November election

You can also review VHCA’s PowerPoint presentation on which the Medicaid portion of the teleseminar was based.