• 1070 I. Introduction

The terms “managed care” or “managed competition” refer to a health delivery system designed to cut cost by eliminating “unnecessary care.” Unless carefully designed, these systems potentially may have an adverse impact on quality of care and patient rights. Although state efforts to reform Medicaid through Section 1115 waivers may give the appearance of access, such efforts may not actually remove nonfinancial barriers. Without specific safeguards, the institutional racism that is prevalent in other aspects of the health care system may actually be encouraged through the use of cost containment efforts. The overall impact of Section 1115 Medicaid waivers depends upon how the waiver assures access, maintains a high quality of care, monitors the impact of cost containment efforts, protects patient rights, and discourages discrimination. Moreover, the impact of Section 1115 Medicaid waivers depends upon how well both the application and implementation meets the purpose and goals of Medicaid. This Article addresses three aspects of Medicaid waivers: access, quality and cost containment.

A. Overview of Medicaid

In 1965, Congress enacted Title XI of the Social Security Act (Medicaid) as an effort to improve access to health care for the poor and underserved. Medicaid was intended to provide coverage for eligible low-income people in the mainstream American health care system. Medicaid is a federal-state alliance funded jointly by both entities and administered by the states. [FN]1 It is, however, more appropriate to say that Medicaid represents fifty-six separate programs, not one. [FN]2

Under broad federal guidelines, each state designs and administers its own Medicaid program. The Health Care Financing Agency (HCFA) must approve the program for compliance with *1071 federal laws and regulations. A state is required, “as far as practicable under the conditions in such state,” to provide medical services to families with dependent children, and to blind, aged, or disabled individuals “whose income and resources are insufficient to meet the costs of necessary medical services.” [FN]3

The amount of federal funding ranges from 50-83%, depending upon the average per capita income of the state. [FN]4 As long as state efforts remain consistent with federal guidelines, states are free to structure their own Medicaid programs. Federal guidelines cover the amount, duration, and scope of services, [FN]5 eligibility, [FN]6 and payment structures. [FN]7 Because of the flexibility in the federal guidelines, the populations served and benefits provided vary across states. [FN]8 State flexibility has been limited, however, by the federal requirements of “comparability” [FN]9 and “freedom of choice.” [FN]10

  • 1072 Medicaid has been an expensive program. From 1988 to 1992, Medicaid spending doubled. [FN]11 This increase is partially due to an increase in the cost of providing health care and to the extension of Medicaid eligibility. [FN]12 Medicaid is a $131 billion program covering over thirty-three million low-income Americans. [FN]13 In 1994, federal spending was estimated at about $81 billion while state spending was estimated at $61 billion. [FN]14 In 1993, states spent 18% of their budgets on Medicaid. [FN]15 Since 1985, Medicaid costs have tripled and the number of beneficiaries has increased by over 50%. [FN]16 Current projections suggest that program costs will double over the next five to seven years. It is estimated that the federal share of the 1995 program's bill will be $100 billion. [FN]17

Although a primary goal of Medicaid is to provide access to services for the poor, many of the poor are not eligible for Medicaid. This lack of eligibility is primarily due to individuals not being able to meet the Aid for Dependent Children (AFDC) eligibility criteria. [FN]18 This problem has been aggravated because states have failed to lower income eligibility criteria to keep pace with inflation. [FN]19 Furthermore, many individuals on Medicaid have been unable to use the “mainstream” health care services. [FN]20

These problems--lack of access and skyrocketing costs--have *1073 lead states to seek alternatives in structuring their Medicaid programs. One alternative has been increased reliance on Section 1115 of the Medicaid Act, which provides that:

(1) the Secretary may waive compliance with any of the requirements of section 302, 602, 654, 1202, 1352, 1382, or 1396a of this title, as the case may be, to the extent and for the period he finds necessary to enable such State or States to carry out such project, and that the costs of such project which would not otherwise be included as expenditures under section 303, 603, 655, 1203, 1353, 1383 or 1396b of this title . . . shall, to the extent and for the period prescribed by the Secretary, be regarded as expenditures under the State plan. . . . [FN]21

Although applying for Section 1115 waivers is complicated, there has nevertheless been an increased reliance on them. [FN]22 By April 1995, six states had received waivers, seven applications were pending, and other proposals were being drafted. [FN]23 In light of efforts *1074 to save cost and increase access, most Section 1115 demonstration projects seek to control cost by requiring participants to enroll in managed care organizations while at the same time expanding Medicaid eligibility. [FN]24

B. Overview of State Waivers

Section 1115(a) of the Social Security Act delegates to the Secretary of Health and Human Services the authority to engage in any experimental projects which are likely to assist in promoting the objectives of the Medicaid program. [FN]25 Congress intended to permit projects that would help improve the programs for beneficiaries. [FN]26 Even when projects appear to have the potential to adversely affect recipients, however, courts have refused to interfere as long as the Secretary's findings indicate that the research will promote the objectives of the Act. [FN]27 As a safeguard, the Secretary is restrained from attempting federal demonstration programs that are beyond his or her authority. [FN]28 More importantly, Congress has specifically maintained that the Section 1115 waivers cannot be applied in a way that harms Medicaid beneficiaries or fails to promote the legitimate Medicaid objectives. [FN]29

The current waiver applications have addressed currently popular health care reform concepts including global budgeting, a standard benefit package, pooling of purchasing power, managed care, incentive for preventive care, elimination of inappropriate welfare incentives, cost sharing, quality control, and elimination of *1075 class distinctions. [FN]30 A basic premise of the waivers is the ability of states to assure cost neutrality for the federal government, reduce health care costs for the state, and increase services without reducing quality. State waivers have often been developed as a part of a larger state insurance reform. As a part of this reform, states have implemented enrollment caps and have required enrollment in Medicaid managed care.

This Article assesses seven state waivers--Florida, [FN]31 Hawaii, [FN]32 Illinois, [FN]33 Missouri, [FN]34 New York, [FN]35 Oregon, [FN]36 and Tennessee [FN]37--to *1076 determine whether, as far as minority communities are concerned, they promote the legitimate Medicaid objectives or whether they have the potential of harming beneficiaries. [FN]38


  1. Eligibility [FN]39

With few exceptions, Medicaid is available only to persons with very low incomes. Eligible recipients must be members of families with children, pregnant women, or persons who are aged, blind, or disabled. Overall, the state waivers add low income uninsured [FN]401077 and uninsurable persons, [FN]41 use preexisting condition exclusions, [FN]42 eliminate medically needy coverage, [FN]43 revise financial eligibility, [FN]44 change rules for deeming income, [FN]45 change from gross income to net income tests, [FN]46 eliminate asset tests, [FN]47 eliminate retroactive eligibility, [FN]48 provide for presumptive eligibility, [FN]49 or guarantee 1078 eligibility. [FN]50





Benefits [FN]51

Federal Medicaid law mandates certain benefits such as family planning services and EPSDT services for individuals under age twenty-one. Services include: inpatient and outpatient hospital services, physician services, family planning services, prescription drugs, laboratory, radiology, and other diagnostic services, preventative care, home health services, and both emergency and nonemergency transportation. [FN]52 In addition, emergency medical services must also be provided. [FN]53

Section 1115 Medicaid Waivers continue to offer basic benefit packages. The waiver benefit standards differ, however, from the traditional Medicaid benefits. For example, changes from traditional Medicaid benefits under New York's Partnership Plan include: mandatory referral of noncompliant tuberculosis patients, extended family planning benefits up to twenty-four months for women who would normally lose coverage sixty days postpartum, and early intervention services provided to children from birth to the age of three after the first two years of the demonstration. [FN]54

Some applications eliminate coverage for some services. [FN]55 Even where an application does not limit the type of services to be *1079 provided, the waivers grant greater responsibility to the managed care plan to determine whether a service furnished or proposed to be furnished is medically necessary for the diagnosis or treatment of illness/injury. [FN]56 The elimination of mandatory federally qualified health centers or regional health centers represents one of the most significant changes in the waivers. [FN]57





Cost Sharing [FN]58

Cost sharing requirements represent a major difference between current Medicaid programs and the Section 1115 waivers. [FN]59 Cost sharing consists of premiums, deductibles, and copayments based on income. One significant issue is how a provider responds to a recipient who cannot pay the copayment. For instance, Missouri specifically provides that health plans cannot deny or reduce services based on a recipient's inability to pay the copayment amount. Individuals specifically exempted from cost sharing include persons under age eighteen, persons in foster care under age twenty-one, and individuals residing in nursing homes. [FN]60



  1. Treatment of Providers [FN]61

Some waivers fundamentally change the organization and financing of the health care delivery system for low-income and uninsured clients. [FN]62 Specifically, states have: (1) adopted a global budget for enrollees [FN]63 on which both enrollment and delivery of *1080 care are organized through the regional concept which underlies the Community Health Agency areas; [FN]64 (2) eliminated the cost-based federally qualified health center (FQHC) and rural health clinic (RHC) payment methodology for both traditional and demonstration eligibles; [FN]65 (3) limited the reimbursement of essential community providers as specified in the health care plan contract with the insured; [FN]66 (4) diverted funds for hospital disproportionate share programs, which reimburse hospitals for charity care; [FN]67 and (5) eliminated family planning freedom of choice. [FN]68 In addition, some programs have attempted to expand the availability of providers by including school health initiatives. [FN]69 




  • 1081 5. Managed Care [FN]70

The most significant change brought about by the state waiver applications is mandating the use of managed care. [FN]71 Some state programs, such as Florida Health Security, do not actually mandate enrollment in managed care but, rather, provide incentives that would push recipients into those plans. [FN]72 Even in those states that do not mandate managed care, many of the traditional recipients are already participating in managed care through section 1915(b)(1) waivers. [FN]73 Evaluating the waivers involves determining whether the waivers use capitation and other financial risk shifting that involves the use of full risk, permits all Medicaid HMOs, permits financial risk by providers, or exempts certain populations from participating in the populations exempted.





  • 1082 6. Treatment of Special Populations [FN]74

Special populations addressed by state plans include: permanently and totally disabled individuals eligible under Medicaid; individuals residing in a nursing home receiving cash to apply towards their care through the Medicaid program; individuals residing in a state mental institution or institutional care facility for the mentally retarded; any individual receiving Medicare part A and part B benefits; and those receiving Medicare under the Aid to the Blind and Blind Pension. [FN]75 Some states requested through their waivers to bring these special populations into mandatory managed care. [FN]76 Finally, some states have developed special projects for populations such as the noninstitutionalized disabled, the seriously mentally ill, and chronic substance abusers. [FN]77 




  • 1083 7. Key Waivers Requested

a. Amount, Duration, and Scope of Covered Services

The Medicaid Act and its implementing regulations require that the amount, scope, and duration of services be equally available to all those within an eligibility category, and also be equally available to categorically eligible recipients and medically needy recipients. A state that plans to provide different services for demonstration eligibles than traditional eligibles will need to obtain a waiver of section 1902(a)(10)(B), and sections 440.230-.250 and 441.10-.62 of title 42 of the Code of Federal Regulations (Florida, Hawaii, Oregon, and Tennessee).

b. Categorical Eligibility

A waiver of sections 1902(a)(14) and 1902(a)(10)(A)(i)&(ii) is needed in order to exempt a state from current administrative procedures for reviewing the eligibility process. (Florida, Hawaii, New York, Oregon).

c. Upper Income Eligibility Limitations

Medicaid requires the state to establish upper income eligibility limits. States that plan to extend coverage to individuals who exceed the upper income requirements regardless of whether or not they satisfy the optional or mandatory categories for Medicaid eligibility will need a waiver of section 1902(a)(10)(A), and the implementing regulations at section 435 of title 42 of the Code of Federal Regulations (Florida, Hawaii, New York, Oregon, and Tennessee [FN]78).

d. Resource Limitations

Sections 1902(a)(10)(A)(ii)(1) and (ll), 1907(a)(17), and subparts G and H of title 42 of the Code of Federal Regulations require the states to take into account income or resources of individuals who are not receiving assistance under AFDC who might otherwise become eligible for assistance under AFDC. A waiver of the standards requiring a resource as part of the eligibility determination *1084 for federally financed Medical Assistance is needed (Florida, Hawaii, Oregon, and Tennessee).

A waiver of the standards requiring an asset test as part of the eligibility determination for federally financed medical assistance is also needed. The applicable sections to be waived are 1902(a)(10)(A)(ii)(I) and (II), 1902(a)(17), and subparts G and H of title 42 of the Code of Federal Regulations (Florida, Hawaii, Oregon, and Tennessee [FN]79).

e. Deeming of Income

A waiver of section 1902(a)(17), and sections 435.100 and 435.602-.823 of title 42 of the Code of Federal Regulations, is needed to enable the state to waive income deeming rules and base eligibility on a household family unit (Florida, Hawaii, and Oregon).

f. HMO Enrollment Composition

Sections 1903(m)(1)(A), (2)(A), and (2)(C), and section 434 of title 42 of the Code of Federal Regulations, prohibit payments to states that contract for comprehensive services in a prepaid or risk basis unless such contracts are with entities that maintain an enrollment composition of no more than 75% Medicare and Medicaid enrollees. A waiver is requested to allow states to operate the managed care entity without being restricted by the 75% enrollment composition (Florida, Hawaii, New York, and Oregon).

g. Hospice Treatment Limits

Under section 1902(a)(10)(A)(ii)(VII), states may offer coverage for hospice care provided to a terminally ill individual who has voluntarily elected to have payment made for such care in lieu of payment for other care.

h. Freedom of Choice

Section 1902.23, codified as section 1396a(23) of title 42 of the United States Code, requires that most traditional Medicaid eligible may obtain medical services from any institution, agency, community, pharmacy, or person qualified to perform the services provided. A waiver is required to allow the state to restrict a recipient's freedom-of-choice of providers. A restriction to a particular *1085 plan or a particular set of plans for a defined time limit requires a waiver of section 1902(a)(23) (Florida, Hawaii, New York, and Tennessee).

i. EPSDT Treatment Services

Under section 1902(a)(43)(A), a state is required to pay for services required to treat a condition identified through a child screening. A waiver of this section is needed since a benefit package may not include these services. Whenever all EPSDT services are not included, a waiver of section 1902(a)(43)(A) is requested (Florida and Oregon).

j. IMD Eligibility

Under section 1905(a)(14), a state may choose to provide services for individuals sixty-five or older in institutions for mental disease. Covered services include the diagnosis, treatment and care of individuals with mental disease. Care of these individuals includes medical care, nursing care, and related services.

k. Eligibility Determination Procedures

Section 1902(a)(10) and implementing regulations at section 435 of the Code of Federal Regulations specify the Medicaid eligibility process to be used by the states and grant authority to the states to set eligibility determination standards. A waiver of section 1902(a)(10) is needed in order to use a different eligibility determination process than that specified for Medicaid (Florida, Hawaii, and Oregon).

l. Retroactive Eligibility

To eliminate the three-month retroactive coverage provision, a waiver of sections 1902(a)(10)(A) and (a)(34), and sections 435.401 and 435.914 of title 42 of the Code of Federal Regulations, is requested (Florida, Hawaii, and Oregon).

m. Medically Needy Eligibility

Sections 435.811, 435.831, and 435.8456 of title 42 of the Code of Federal Regulations implement the medically needy program for individuals otherwise not eligible for Medicaid. When a state plans to cover under its waiver those previously covered under the medically needy program, the medically needy program will be *1086 phased out [FN]80 (Florida, Hawaii, Oregon, and Tennessee).

n. HMO Rules for Upper Payment Limits

Section 1902(a)(30), and section 447.361 of title 42 of the Code of Federal Regulations, prohibit payment to a contractor on a capitation basis. A waiver is required where regulations could limit the use of risk-sharing payment incentives (Florida, Hawaii, New York, and Oregon).

o. HMO Rules for Disenrollment

A waiver of section 1903(m)(2)(A)(ii) is needed in order to modify disenrollment requirements (Florida, Hawaii, and Oregon).

p. HMO Rules for Prior Contract Approval

Section 1903(m)(2)(iii), along with section 434.71 of title 42 of the Code of Federal Regulations, requires prior approval by HCFA of all comprehensive risk contracts in which payments exceed $100,000. A waiver of this section is requested to eliminate the need for prior approval (Florida, Hawaii, and Oregon).

q. HMO Rules for Medical Audits

Section 434.53 of title 42 of the Code of Federal Regulations requires a state to establish a system of audits to ensure that HMOs with Medicaid contracts provide accessible, quality care to enrollees. A waiver of these specific requirements is needed (Florida and Hawaii).

r. Federal/State Qualified HMO Status for Full Risk Contracts

A waiver of sections 903(m)(1)(A) and (2)(A)(i) is needed when the demonstration provides for contracts with full capitated health plans that include organizations that may not be state or federally qualified HMOs or federally qualified community health centers [FN]81 (Hawaii, Oregon, and Tennessee).

s. FQHC/RHC Coverage and Payment

A waiver of sections 1902(a)(10) and 1902(a)(13)(E) which mandate offering federally qualified health center (FQHC) and rural health clinic (RHC) services and Medicare payment for such *1087 services is required if the state proposes any changes in the FQHC/RHC services (Florida, Hawaii, New York, Oregon, and Tennessee). Section 1902(a)(10) requires a state to provide certain mandatory services listed in sections 1905(a)(1)-(5), (17), and (21) to Medicaid recipients who are categorically eligible. Services of RHCs and FQHCs are among the mandatory services. A waiver is needed when the states propose changes in their plans in FQHC/RHC services (Florida, Hawaii, New York, Oregon, and Tennessee).

t. Uniformity and Comparability

Section 1902(a)(1), and section 431.50 of title 42 of the Code of Federal Regulations, require that the state Medicaid plan be in effect for all services and all eligible recipients in all political subdivisions of the state. Comparability, under section 1902(a)(10)(B), requires that services available to any categorically or medically needy beneficiary in the state must generally be equal in amount, duration, and scope to those available to any other categorically or medically needy beneficiary in the state (Florida, Hawaii, New York, Oregon, and Tennessee). [FN]82

u. DSH Payments

A waiver of section 1902(a)(13) is needed to allow a state to reimburse hospitals for any disproportionate share costs through a premium paid to health plans and to transfer funds to the demonstration project based on the enrollment of charity care patients in the project (Florida and Hawaii). [FN]83

v. Boren Amendment

A waiver of section 1902(a)(13)(A) is needed to exempt states from the requirements of the Boren Amendment. The amendment requires the states to determine the reasonable and adequate reimbursement level to meet costs which must be incurred by efficiently and economically operated facilities (Florida).

w. Cost-Sharing Rules

Sections 1902(a)(14) and 1916 limit the circumstances by which a state may impose cost sharing, such as copayments, deductibles, and coinsurance, and limit the charges to normal amounts. *1088 When a waiver imposes coinsurance, deductibles, and copayments that are not within the limits set out in Medicaid, the state must request a waiver of cost-sharing rules (Florida & Hawaii).

x. Third-Party Liability

Sections 433.138-.140 of title 42 of the Code of Federal Regulations require the states to identify liability and seek reimbursement from third parties before paying claims. Section 1902(a)(25) requires the agency to make all reasonable efforts to ascertain the legal liability of third parties. A waiver from the specific requirements of these sections is requested when the managed care entity will be responsible for third-party liability (Florida, Hawaii, and New York).

y. Utilization and Quality Care Review

Under sections 1903(a)(26)(30)(31), 1903(g), and 1903(i), Medicaid imposes strict utilization and quality of care review procedures. To the extent that a state's demonstration plan differs from the federal Medicaid requirements, a waiver is needed (Florida). [FN]84

z. Erroneous Payments

Section 1903(u) permits HCFA to withhold federal financial participation for a state's erroneous excess payments for medical assistance. States request a waiver of this section when the demonstration plan provides benefits to uninsured persons who would otherwise not be eligible for Medicaid (Florida).

aa. Payments for Drugs

Section 1927 mandates a detailed program for manufacturer rebates and limitations on coverage of drugs under Medicaid in order to reduce costs and limit overutilization of prescription drugs. A waiver of this section is requested so states can demonstrate that the use of managed competition will reduce costs without specifying how managed care entities must purchase drugs (Florida and Tennessee). [FN]85

  • 1089 bb. Dual Eligibility

A request is made to amend the primary care case management waiver and section 1915(b)(1) to expand the population to include those eligible under SSI, including those eligible for Medicare (Florida).