Manatt on Health Reform: Weekly Highlights - May 2015

by Manatt, Phelps & Phillips, LLP

This week Montana became the 30th state to expand Medicaid, and the battle over Medicaid expansion and uncompensated care reached a breaking point in Florida. Meanwhile, as the King v Burwell decision looms, Congress and states begin to contemplate the potential loss of subsidies.


Congress Begins Planning for King v. Burwell

In the event that the plaintiffs prevail in King v. Burwell and subsidies through the Federally-facilitated Marketplace are struck down, Congress has begun planning a response for the millions of people who stand to lose subsidies to buy insurance, as reported by The Hill. Republicans introduced multiple competing proposals mainly focused on a transition period that would temporarily delay the loss of subsidies immediately following the decision. It is unclear which, if any, proposal will garner enough support to move forward, with some Republicans continuing to push for full and immediate repeal of the ACA through the reconciliation process. Democrats are expected to introduce a one-page bill modifying the one sentence at issue in the case.

Pennsylvania: Governor Declares Intent to Implement State-Based Marketplace as King v. Burwell Contingency Plan

Pennsylvania Governor Tom Wolf (D) declared to the federal government the State’s intent to implement an individual and SHOP State-based Marketplace for plan year 2016 in advance of the Supreme Court’s decision in King v. Burwell, which could impact nearly 382,000 Pennsylvanians currently receiving subsidies to purchase health insurance through the Federally-facilitated Marketplace. The Governor detailed in his letter that Pennsylvania would operate the State-based Marketplace, but would utilize the federal eligibility and enrollment technology infrastructure. The Governor’s declaration does not require the State to formally submit an application, but ensures it has the option to do so after the King v. Burwell case is decided.


Hospitals in Medicaid Expansion States Have Lower Charity Care Rate, According to Study

Hospitals located in states that have expanded Medicaid are faring better overall than their counterparts in non-Medicaid expansion states, according to a new report by the Kaiser Family Foundation. The report studied Ascension, the nation's largest not-for-profit health system, to determine the effects of the ACA on its hospitals. Overall, hospitals in expansion states saw increased Medicaid discharges, increased Medicaid revenue, and decreased costs for the lowest-income individuals. Most notably, hospitals in expansion states saw a reduction in charity care costs of 40.1% compared to 6.2% in non-expansion states.

Arkansas: State Continues to Study Alternatives to the Private Option

With the federal waiver for the State’s Medicaid expansion (the “Private Option”) set to expire at the end of 2016, Arkansas lawmakers continue to evaluate various options, including applying for a 1332 waiver to develop an alternative coverage model for the expansion population. A report released by the Arkansas Health Insurance Board outlines two options that the authors describe as “departures from the way CMS has thus far typically described what a 1332 Waiver program might look like” and “would involve negotiating a novel program approach with CMS and the IRS.” Meanwhile, Governor Asa Hutchinson (R) attended the kick-off of his Advisory Council on Medicaid Reform, and as reported by the Arkansas Democrat-Gazette, instructed the Council to focus on "expanding the range of options," which may include giving up enhanced federal funding for Medicaid expansion. The Governor said, "It might be a good solution for Arkansas, and we don't know exactly what's going to happen totally at the federal level down the road."

California: Medicaid Expansion Correlates with Decrease in Uninsured Emergency Department Visits

The California Office of Statewide Health Planning and Development released new data highlighting the correlation between the State's Medi-Cal expansion and a decrease in Emergency Department (ED) visits by uninsured patients, from 450,000 visits in the third quarter of 2013 to 278,000 in the fourth quarter of 2014. In addition, the data show that ED visits for Medi-Cal beneficiaries increased approximately 50%, from 800,000 visits in the first quarter of 2013 to 1.16 million in the fourth quarter of 2014. The State expanded Medi-Cal in January 2014, which increased enrollment from 8.6 million beneficiaries in the fall of 2013 to approximately 11.3 million beneficiaries by the end of 2014.

Florida: Battle over Uncompensated Care Funding and Medicaid Expansion Reaches Breaking Point

The battle over the continuation of Florida’s uncompensated care funding pool and Medicaid expansion came to a head when the House adjourned its legislative session three days early, citing irrevocable policy differences with the Senate and leaving the State FY 2015-2016 budget unresolved. Governor Rick Scott (R) responded swiftly, filing a lawsuit against the Obama administration for linking the renewal of the funding pool to the State’s Medicaid expansion status and stating that his office would begin working with the House and Senate to build a budget before the June 30 deadline. The Governors of Kansas and Texas have voiced their intent to file amicus briefs supporting Florida, reports the Orlando Sentinel. Governor Scott specified that conversations about Medicaid expansion or the Low-Income Pool (LIP) funding would remain separate from budget negotiations and that his newly created Commission on Healthcare and Hospital Funding would soon launch an investigation of “the revenues of Florida hospitals, insurance and healthcare providers and how any taxpayer money contributes to the profits or losses of these institutions in Florida.” Florida Supreme Court ruled at the end of the week that the House violated State constitution by ending the session early, but that it was too late to require lawmakers to return for the end of the session.

Montana: Governor Signs Act to Expand Medicaid

Governor Steve Bullock (D) signed Senate Bill 405, the Montana Health and Economic Livelihood Partnership Act (HELP Act), into law, expanding Medicaid to cover an estimated 70,000 new adults. The legislation authorizes the State Department of Public Health and Human Services to seek a waiver from CMS to implement the expansion through a Third Party Administrator. For more information, click here to read Manatt's analysis of the expansion bill.

Pennsylvania: Medicaid Expansion Transition Begins

The Pennsylvania Department of Human Services began transitioning nearly 100,000 individuals from Healthy PA, the Medicaid expansion program created by former Governor Tom Corbett (R), into HealthChoices, a traditional Medicaid expansion enacted by current Governor Tom Wolf (D). HealthChoices is administered through the State’s system of managed care plans with a single benefit package that includes a number of benefits that were not offered in all of the three Healthy PA plans, including dental treatment, transportation to medical appointments, dialysis, and some behavioral health benefits. Individuals will be transitioned from Healthy PA plans into HealthChoices in waves, with all transitions complete by September 30.


Minnesota: Marketplace CEO Resigns

Scott Leitz, who has served as the CEO of MNsure since December 2013, resigned this week and will be replaced for the interim by Allison O’Toole, MNsure’s deputy director for external affairs. Before joining MNsure, Leitz worked in the State Department of Human Services, where he oversaw Medicaid, and held several positions in the Minnesota Department of Health. His departure comes amidst discussions in the Legislature about the future of the agency that range from dismantling it, moving the State-based Marketplace into the federal marketplace, to converting MNsure into a full state agency under the authority of Governor Mark Dayton (D).


Rhode Island: Medicaid Working Group Delivers First Report with FY16 Savings Opportunities

The Working Group to Reinvent Medicaid, established through Executive Order in February, delivered its first report to Governor Gina Raimondo (D), identifying 34 initiatives to reduce State spending on Medicaid by $91.1 million in Fiscal Year (FY) 2016. The Working Group's recommendations are categorized into three domains: 1) Payment and Delivery System Reform, 2) Targeting Fraud, Waste, and Abuse, and 3) Administrative and Operational Efficiency. The two largest initiatives, expected to generate $29.0 million in State funds savings, include the payment cuts to hospitals and nursing homes proposed by the Governor in her FY16 budget. The Working Group recommended that a portion of those savings be used to fund incentive payments to providers to reward performance and quality outcomes. The Group also recommended that the State move towards value-based payment arrangements, aiming to have 30% of all Medicaid provider payments in alternative payment models (e.g., accountable care organizations, patient centered medical homes, bundled payments) by the end of 2016; however, the Group did not anticipate savings from this initiative in FY16. The Working Group is expected to deliver a report to the Governor by July 1 outlining a multi-year transformation plan for the Medicaid program and State publicly financed healthcare in Rhode Island.


House Passes GOP Budget that Repeals ACA

The House GOP passed a compromise budget, having originated at the Senate, with a 226-197 vote that promises to balance the budget in nine years with more than $5 trillion in spending cuts, including a repeal of the Affordable Care Act, as reported by the New York Times. The budget plan may now pass through the Senate without threat of a filibuster, because only a simple majority is needed for reconciliation. President Obama is likely to veto the measure, should it advance.

Tax Season Special Enrollment Period Ends with Minimal Enrollment

The Department of Health and Human Services announced that as of April 13 only 68,000 consumers have signed up for coverage through's Special Enrollment Period (SEP) for individuals who owe a tax penalty. The proportion of consumers taking advantage of the SEP is higher in State-based Marketplaces with tax season SEPs, including California with 91,000 consumers enrolled and Washington with 16,000 consumers enrolled. The SEP ended in most states on April 30, 2015.

Average Tax Refunds Reduced by 33% for Marketplace Enrollees with Tax Credits

Almost two-thirds of enrollees receiving advance premium tax credit (APTC) in Marketplaces had to pay back an average of $729 of the tax credits they received in 2014, according to H&R Block, reducing these enrollees’ average tax refund by 33%. Approximately one in four enrollees with APTC received a refund, averaging $425, which represented an increase in their refunds of approximately 18%. A smaller percentage, almost 13%, of those with APTC had no repayment or refund due, meaning they estimated their 2014 income accurately. Finally, the average payment due for those who did not maintain coverage during all or a portion of the 2014 benefit year was approximately $178. A previous study by the Kaiser Family Foundation estimated, based on tracking income changes typical of the subsidy-eligible population, that taxpayers receiving APTC were about as likely to owe some repayment (50%) as receive a refund (45%), and found that the average repayment ($794) and refund ($773) were similar.

Supreme Court Asks Lower Courts to Reconsider Contraception Case

The Supreme Court of the United States asked a Cincinnati appeals court to reconsider a case brought by Catholic ministries challenging the Affordable Care Act provision that requires employers to cover birth control, according to The Hill. The Justices asked the lower court to reconsider the case in light of the Supreme Court's decision last June to allow Hobby Lobby to opt out of the contraception mandate for religious reasons. This ruling marks the sixth time the court has sent a case back to the lower courts for reconsideration after previously upholding Obama administration policies, including last month when the Supreme Court sent back to the lower court a decision to require the University of Notre Dame to follow the contraception mandate.

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