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Republican governors are using Obamacare to make Medicaid more conservative

Chip Somodevilla/Getty Images

Indiana Gov. Mike Pence really hates Obamacare. He refused to set up an insurance exchange and, while serving in Congress, voted repeatedly for repeal. But Pence — alongside 13 other Republican governors — has found something Obamacare is good for: forcing the Obama administration to agree to conservative Medicaid reforms they might not otherwise consider.

Governors have the final say over whether their states expand Medicaid to millions of Americans — and haven't been shy about using that leverage with the Obama administration. Pence demanded that, if he were to sign onto the Medicaid expansion, it would only happen if he could use Indiana's controversial, Bush-era Medicaid experiment as a vehicle.

"We made it very clear what our position was: if we were able to see the Healthy Indiana Plan waiver renewed, that we would be willing to continue a dialogue about using [that] as a framework for further discussion," Pence said this summer during a presentation at the American Enterprise Institute.

Pence announced this morning that he had won approval for that proposal — and to make some big changes to the Medicaid program. The Obama administration will let Indiana lock beneficiaries just above the poverty line (those who earn between $11,670 and $15,171) out of coverage for six months if they miss premiums for two straight months.

And the lowest-income Hoosiers who earn less than the federal poverty line will lose their vision and dental coverage (but keep core health benefits) if they miss premium payments.

This isn't how Medicaid typically works. The public program doesn't usually charge premiums to the low-income Americans it serves — let alone reserve the right to terminate coverage if those payments don't come through. But, increasingly, Republican governors have demanded changes like these in return for expanding Medicaid.

"The administration is working very hard to come to agreement with Republican governors where they can," says Tevi Troy, president of the American Health Policy Institute and a former Health and Human Services official in the Bush administration. "Because they want people to sign up for the expansion, particularly a high profile governor like Pence, they're working pretty hard to make compromises."

In giving states this flexibility, there's a tension for the Obama administration: it wants to maintain Medicaid as a safety-net program, with a robust set of benefits, but also give states a chance to experiment with new approaches.

The waivers granted in Medicaid expansion negotiations are reshaping the program. They make the public-insurance program look more like private coverage and rely more on enrollees to manage their own care.

Pence and other conservatives have argued that these plans are good for Medicaid. They will help promote personal responsibility, and that a structure mimicking private insurance will help prepare beneficiaries to ultimately transition into non-public coverage.

But not everyone is thrilled with these changes, especially consumer advocates who worry about programs like Indiana's creating holes in the safety social safety net.

"I think it is fair to say that new ground has been broken here and it is not going to make for good policy," Joan Alker, director of the Georgetown Center for Children and Families, wrote in a Tuesday blog post titled "Indiana Agreement Wins the Award for Bureaucratic Complexity and Red Tape."

Republicans and Obama are working together on Obamacare. Seriously.

medicaid map

Over the past year, states have proposed a handful of new ways to run their Medicaid expansion programs.

Arkansas, Iowa, Tennessee, and Pennsylvania are pursuing Medicaid expansions that enroll patients into private health insurance, with premiums paid by public dollars. This flexibility did exist prior to Obamacare, but states had barely used the option until conservative states were looking for more palatable ways to grow an entitlement program.

"We've always had this concept of premium assistance as an option," says Alker. "But with the Medicaid expansion waivers, states are taking it in a whole new direction."

Medicaid beneficiaries in these states can shop on the health exchange just like people buying coverage. They enroll in the same plans, and receive the same ID cards in the mail — making the Medicaid experience much more like the individual market. Between the three states, there could be 648,000 people eligible for this newly-privatized version of Medicaid.

States have increasingly pushed the limits of this so-called "private option." Arkansas, which pioneered the approach, guarantees Medicaid enrollees access to some of the benefits that aren't usually part of private insurance, like paying for rides to the doctor.

Iowa's expansion plan, approved by the Obama administration in December, relieves the state of the traditional requirement to cover non-emergency transportation — meaning that Medicaid enrollees there will have a slightly less robust benefit package as a result of the state waiver.

Making Medicaid more like private insurance

(Justin Sullivan / Getty News Images)

Other states are looking at different approaches: Michigan, for example, wants to administer an annual health assessment as a condition of expanding Medicaid. Under that approach, Medicaid enrollees would have to provide information about potential medical risks.

Those assessments could potentially be used in some type of incentive program, much like employers have increasingly given financial rewards to workers who participate in healthy behaviors like going to the gym or joining a smoking cessation program.

Pence's plan expands Healthy Indiana, a program started in 2008 to expand coverage to about 40,000 low income Indiana adults. Approved by the Bush administration, Healthy Indiana pioneered some of conservatives' favorite health policy approaches in Medicaid. It created health savings accounts that all Healthy Indiana enrollees would have to contribute a monthly premium into — or, like in private coverage, have their coverage cancelled if they don't.

The penalties get steeper for those who earn more money. Those below the poverty line can pay premiums between $1 and $20 — a sliding scale, tethered to income — to gain dental and vision coverage. They'll receive core health insurance benefits, that cover doctor visits and hospital trips, regardless of that payment.

Those above the poverty line will pay premiums that are no more than 2 percent of their income (for someone earning $14,000, for example, this would be about $23 per month). If they go 60 days without paying a premium, they will be locked out of coverage for six months.

Pence's plan to expand Medicaid in Indiana will put an additional 350,000 people into the Healthy Indiana Plan, with a similar structure for premium contributions. It will, by far, be the broadest use of health-savings accounts in the Medicaid program — so broad that Pence wasn't initially sure the White House would sign off.

"My first objective was I wanted to preserve the Healthy Indiana Plan," Pence says. "Frankly, in the wake of the 2012 elections, there were some who speculated we wouldn't be able to do that...there was a lot of skepticism about whether the administration would be willing to extend a waiver."

Not everything is on the table

burwell

Republican governors haven't gotten everything they've wanted from Health and Human Services Secretary Sylvia Burwell (Chip Somodevilla / Getty News Images)

The Obama administration hasn't signed off on all the changes that Republican administrations have requested. Medicaid is meant to be a safety-net program and certain changes — like putting a cap on how many people can sign up, for example, or significantly increasing enrollees costs — are unlikely to get federal sign-off.

The Indiana program currently has even more stringent lock-out policies, keeping beneficiaries off the program for an entire year if they fall behind on their premium payments. The White House rejected that policy, and instead lowered the lockout period to six months.

The White House also rejected a proposal from Indiana to create a work requirement component to Medicaid, which would require beneficiaries to have a job or be actively searching for one in order to get lower premiums.

This isn't the first time the White House has pushed back. It rejected Iowa's proposal to charge a small premium to everyone who earned more than 50 percent of the federal poverty line (about $5,500 for an individual) out of concern those payments would be too onerous for the lowest-income beneficiaries.

And a waiver doesn't always guarantee a Medicaid expansion: Florida Gov. Rick Scott secured additional federal flexibility to introduce more private insurers into his state Medicaid program but never sold his conservative legislature on expanding the program.

"Everybody has red lines," Troy says. "Republicans and Democrats have some different priorities and they need to figure out which ones match up."