Rep. Nelson Dollar (R-Cary) broke ranks with fellow Republicans to oppose the Medicaid overhaul plan.
Rep. Nelson Dollar (R-Cary) broke ranks with fellow Republicans to oppose the Medicaid overhaul plan. Photo credit: Rose Hoban

By Rose Hoban

When lawmakers in the N. C. General Assembly passed their long-awaited Medicaid reform bill this past September, they all acknowledged that the 14-page bill would not be the final word on the future of the $13 billion program.

The quote from legislators, lobbyists and advocates heard frequently in debate and around the halls of the legislative building over the past few years of debate over Medicaid has been that the “devil will be in the details” as the state reforms the program.

“There will be plenty more battles,” said Rep. Nelson Dollar (R-Cary), after publicly opposing the bill on the floor of the House of Representatives.

A closer look at those details shows some will likely be more “devilish” than others. The bill contains compressed timelines for state regulators, some steep quality requirements for the companies that will be managing the care of at least 1.8 million North Carolinians, along with some wiggle room to take more profit than it initially appears in the bill.

And there are lots of places where the process will likely become bogged down.

By any measure, it will likely be at least 2019 before the Medicaid plan actually goes into effect. And there are lots of wrinkles to iron out before then.

Ready. Set. You’re late!

The most immediate issue is the aggressive timeline created in HB 372, which calls for staff at the state Department of Health and Human Services to write a request to the federal Centers for Medicare and Medicaid Services to waive certain parts of federal Medicaid rules.

This so-called “1115 waiver” – named for the portion of the Social Security Act that gives federal officials the authority to waive rules in exchange for improvements to a state’s Medicaid program – is the most complicated type of waiver allowed for under federal law.

Dave Richard headshot
Dave Richard heads North Carolina’s Medicaid program. Official N.C. DHHS photo.

“You’re demonstrating innovation, that what you’re doing is improving the health care for people. It’s not just ‘we’re moving into a different payment arrangement,’” explained state Medicaid head Dave Richard. “You have to show … that it’s going to result in innovation and that you’re going to measure the outcomes that are coming from it.”

Other types of waiver applications are more cookbook-like, with check boxes and fill-in-the-blanks. But an 1115 waiver requires hundreds of pages of exhaustive detail about small aspects of the program, said former DHHS Medicaid administrator Tara Larson. State planners will also have to file hundreds more pages of supporting documents.

“It’s going to be really difficult,” Larson said. “They’re going to set the foundation for what the system is going to look like.”

And according to the bill, that waiver application needs to go to the federal government on June 1, 2016. An outline for the waiver has to be submitted to the General Assembly by March 1.

As yet, the new state agency that will run the updated Medicaid program has one employee. And Richard pointed out that existing employees at DHHS have to keep the current program running as they prepare for all these documents under a compressed timeline.

“It does require a significant amount of public and stakeholder involvement prior to submission to CMS,” said Melanie Bush, who worked for the state legislature and at the state’s Medicaid agency as a health policy analyst before becoming a private consultant. “That’s also got to happen in the next six months.”

The legislative oversight committee to watch over the process was named just two weeks ago. The committee’s first meeting has yet to be scheduled.

So you want a waiver, huh?

The costs of Medicaid are jointly borne by both North Carolina and the federal government, with the feds picking up 66.88 percent, the 13th-highest match rate in the country. So even though some state lawmakers rail about having to ask “Mother, may I?” the reality is that the federal government has a larger financial stake in North Carolina’s program than it does with most states.

Bush said this approval requirement could give CMS leverage to push North Carolina to expand Medicaid.

Under the Affordable Care Act, states are allowed to expand Medicaid to cover more low-income people, with the federal government picking up more of the tab. Most adults now only qualify for Medicaid if they’re disabled or are earning less than $5,600 a year. Low-income pregnant women are eligible until three months post-delivery.

North Carolina lawmakers rejected Medicaid expansion in early 2013 and Republican leaders in the General Assembly have refused to seriously reconsider their position.

“CMS may say, ‘If you want your waiver approved, North Carolina, you need to revisit your position on Medicaid expansion,’” Bush said. She said some states agreed to expansion after having submitted 1115 waivers and “got their waivers approved in a more timely fashion.”

Florida Gov. Rick Scott has filed suit against the federal government, claiming CMS was unlawfully coercing the state to expand Medicaid in exchange for more timely waiver approval. Texas Gov. Greg Abbott has signed onto Scott’s suit over a similar situation in his state.

Even if CMS doesn’t overtly use Medicaid expansion as a bargaining chip, the agency has the ability to drag its feet until expansion occurs. With each iteration of the waiver application, federal regulators have 90 days to respond with edits, comments and questions. In the past, CMS has used that entire period to process requests, effectively gumming up state budgets.

And even if CMS moves expediently, next November’s presidential election will bring a new administration, with new leadership and changes at CMS, which observers say is likely to slow the process no matter whether a Democrat or a Republican takes the White House.

Profitable wiggle room

One aspect of the bill trumpeted by lawmakers was the inclusion of a “medical loss ratio,” or MLR, of 88 percent. The MLR is a measure of how much insurance companies spend on medical care, versus how much they keep for administration, advertising, salaries and profit.

MLRs have become a big issue in recent years, with the Affordable Care Act capping them for insurance policies offered under the law at 85 percent. But MLRs have at times been much lower.

Connecticut Medicaid attorney Sheldon Troubman described what happened in his state when managed care company WellCare had a contract to manage that state’s Medicaid program for mothers and their children. The company’s MLR was 62 percent.

“Only 62 cents of taxpayer dollars went to health care,” Troubman said.

In 2012, the company was forced to settle with the state for overcharging.

Troubman said eventually Connecticut reneged on its Medicaid managed care program, kicking out the for-profits.

“Often you’ll see MLRs in some of the Medicaid managed care plans that are significantly dipping below 80 percent,” said Cindy Ehnes, who was director of California’s Department of Managed Health Care for seven years under Gov. Arnold Schwarzenegger. In that position, she was the main regulator of managed care companies.

“That’s a big concern,” she said, “as there’s been a relatively big lack of accountability on how those public dollars are being invested into the private sector.”

To address this, federal officials issued draft regulations this past summer on Medicaid managed care companies that allow for minimum MLRs of 85 percent. Ehnes predicted those regulations would be complete sometime next spring, with the 85 percent figure intact.

The loophole in North Carolina’s Medicaid reform bill text is that the stricter 88 percent MLR will be the minimum, “Until final federal regulations are promulgated …”

So, in effect, managed care companies operating in North Carolina could push for an 85 percent MLR and remain within the law.

“You have to ask yourself, ‘What is the state buying for the additional couple cents for every dollar that you’ll be turning over to the private sector,” Ehnes said.

Tomorrow: What’s considered medical care, what’s administration and how those definitions can affect managed care profits.

Correction: The original version of this story incorrectly referred to Melanie Bush as Stephanie Bush.

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Rose Hoban is the founder and editor of NC Health News, as well as being the state government reporter. Hoban has been a registered nurse since 1992, but transitioned to journalism after earning degrees...

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