Last week we gave an overview of recommended changes to the private option offered by the Stephen Group (TSG), the million-dollar consultant hired by the Health Reform Legislative Task Force. TSG offered both “in the box” ideas that would likely be approved by the feds, as well as more radical “out of the box” proposals — changes that would only be remotely possible under a Republican presidential administration.

The issue here is that many of the policy adjustments recommended by TSG would demand waivers of federal Medicaid rules, which would require approval from the federal Center for Medicare and Medicaid Services (CMS).

So would the feds give the okay to TSG’s “in the box” solutions? They’re definitely in range, covering issues that CMS has either approved in other states or shown a willingness to discuss.

“All of these things are in the ballpark of the kinds of things [the feds] have been negotiating,” said Joan Alker, executive director of Georgetown University’s Center for Children and Families and an expert on Medicaid waivers. “If both sides recognize it’s not going to come out the exact way it comes in, I think on most of those issues, they will find a way to square the circle.”

But when it comes time to hammer out the details, there are some potential sticking points in TSG’s recommendations. Here are some possible trouble spots for the feds: 

Enforceable premiums below the poverty line? 

TSG suggests  a carrot-and-stick system pushing beneficiaries toward certain wellness practices and work programs for the unemployed/underemployed. The carrot: Beneficiaries would get extra benefits (dental and vision) if they complied with wellness and job training. The stick: those who didn’t comply would get hit with small cost-sharing and premiums, and lose coverage if they failed to pay. 

The feds, however, have not yet allowed a state to apply that stick to beneficiaries below the poverty line. A little background: Medicaid expansion (in Arkansas, that’s the private option) covers people who make less than 138 percent of the federal poverty level — around $16,000 for an individual or $33,000 for a family of four. Other states that have pursued Medicaid waivers in order to impose small premiums have differentiated between the 0-99 group and the 100-138 group — between those above and below the poverty line. 

TSG is vague about just which beneficiaries might be hit with their “in the box” premiums, but given that one of the main targets is unemployed people, it seems to envision applying them to all beneficiaries — or at least some beneficiaries below the poverty line. 

A few other states* (Indiana, Iowa) have gotten approval for enforceable premiums above the poverty line. Indiana has also applied premiums to people below the line — but only using the carrot for those beneficiaries: Indiana beneficiaries below the poverty line lose their extra benefits (vision and dental) if they fail to pay premiums, but only those above the line are actually kicked off of coverage for failure to pay.

The feds are unlikely to approve booting beneficiaries who make less than the poverty line from coverage because they’re unable to pay premiums. There’s an easy way out here: Arkansas could follow Indiana’s lead and apply the carrot and the stick to people above the poverty line, but only the carrot to people below the line. But that’s a distinction that’s not in the TSG report — and the Arkansas legislature may have fantasies of extracting more GOP goodies than other states have managed thus far. 

The punitive six-month lockout

The model here is Indiana. If beneficiaries above the poverty line in Indiana miss their premium payments for two straight months, they lose coverage and are subject to a six-month “lockout.” The lockout is purely punitive — while other states make premiums enforceable by kicking people off, this imposes a six-month period during which these folks are disallowed from the program (even if they are able to start paying premiums again). Indiana Gov. Mike Pence said that it would give these beneficiaries “the dignity to pay for their own health insurance” — but in practice, we’re talking about excluding poor people from health coverage for half a year if they’re unable to keep up with monthly payments. 

This runs in to the same issue explained above — Indiana is applying the lockout only to people above the poverty line. TSG envisions applying the lockout to those who make less than 100 percent of FPL as well, almost certain to be a sticking point with the feds. 

Meanwhile, there’s no guarantee that that the feds will approve a lockout for Arkansas at all. Indiana was a special case, Alker said, because they already had a lockout in place under an old Medicaid waiver for a program already in effect in Indiana years before Obamacare and Medicaid expansion. The administration might view that scenario differently from a state imposing a brand new lockout. 

“I think the lockout is not compatible with Medicaid,” she said. “But Indiana was a little bit of a different case because they were operating from an existing program. … We haven’t seen that issue come up except in Indiana. I’m not 100 percent sure CMS would approve that again.” 

The asset test 

In the past, states could impose asset tests for Medicaid eligibility, trying to determine whether potential enrollees had cash assets, owned property, etc. In practice, this amounted to an administrative disaster, creating additional bureaucratic red tape and barriers to entry for beneficiaries. So Obamacare ended asset tests for Medicaid — now, states are only allowed to determine eligibility via family income. 

TSG appears to be attempting an end-around to dodge the rule against asset tests for Medicaid. They acknowledge that asset tests are a no-go for determining eligibility, but instead they propose an “enhanced cost share for all program beneficiaries with substantial assets.” Anyone with a primary residence of more than $200,000, or cash or cash-equivalent assets of $50,000 or more, would be slapped with a fee in order to participate in the private option: $100 per month, plus an additonal $4 per month for each $1,000 in assets above the amounts listed above. Failure to pay would mean beneficiaries were kicked out of the program and subject to the lockout. 

Now, if your eyes glazed over at the words, “enhanced cost share” — that’s probably what TSG is hoping! They’re trying to pull a fast one here. What they are in fact saying is that they’re going to impose an asset test (illegal under Obamacare) and charge significant premiums to people who are income-eligible but have substantial assets. They can call it whatever they want, but they are excluding eligibility to the program. Offering the program for $100 a month (or more) is not the private option, or Medicaid, at all. 

“That sure sounds like a premium to me,” Alker said. “We know that their actual income has been determined to be below 138 percent of poverty.” Even if beneficiaries have substantial assets, that’s irrelevant to their Medicaid eligibility, and there’s no reason to believe that the feds will allow Arkansas to slap premiums — premiums dramatically higher than exist for any Medicaid program in the country — on a subset of low-income beneficiaries.  It’s hard to look at TSG’s suggestion here as anything other than precisely the asset test explicitly ended by Obamacare.

Mandatory job training

There is almost certainly something that the state can get approved in terms of incentivizing participation in work programs or job training. But the details of just what’s allowable remain murky. We know that the feds have an absolute line in the sand against work requirements: you cannot kick someone off the program because she is unemployed or underemployed. 

During negotiations with Utah earlier this year, federal officials said, “encouraging work is a legitimate state objective.” But they also said this: “However, work initiatives are not the purpose of the Medicaid program and cannot be a condition of Medicaid eligibility.”

One possibility is that, from the feds’ perspective, there is a difference between carrots and sticks. It’s one thing to give beneficiaries a benefit if they participate in a job training program (say, vision and dental). Or to provide them with resources related to work training as part of their participation in the private option. But imposing a premium if someone doesn’t do job training — and kicking them off of coverage if they fail to pay — might be a bridge too far. 

“In terms of requiring job training and then you get a premium reduction, we have not seen that before,” Alker said. “The premium reduction so far has just been linked to health activities. It hasn’t been linked to job activities. Originally the conception that Utah was talking about with CMS was a kind of mandatory linkage to job training programs. I think that is something that CMS will entertain is linking people to job training programs. But whether they would entertain a mandatory participation and then linking that to a reduction in premiums, I don’t know.”


Other suggestions from TSG — higher co-pays for non-emergency use of the ER and eliminating 90-day retroactive coverage for new beneficiaries — are more easily doable, but will still be subject to tricky negotiations on the precise terms of implementation.

The coming negotiations with the feds will come down to details. The broad ideas covered above may be achievable, but it remains to be seen whether or not they will fly precisely in the terms suggested by TSG. The tweaks, in other words, may need to be tweaked. 

The stakes here are twofold. In Arkansas, the actual policy that legislators will eventually be voting up or down on may be just a little bit different than what they ask for from the feds, or what TSG is currently selling as “in the box.” Meanwhile, nationally, other states will be watching closely. TSG called these “in the box,” but some of this stuff in fact amounts to expanding the box — to make Medicaid more palatable to red-state lawmakers.  

*CORRECTION: An earlier version of this post included Michigan as a state with enforceable premiums. Michigan’s Medicaid waiver does include premiums, but even for beneficiaries above the poverty line they only function as a carrot—no Michigan beneficiaries are kicked off of coverage for failure to pay.