Money For Nothing: The Biden Administration Seeks To Overturn Section 1115 Demonstration Safeguards
For many years, some states have sought Medicaid section 1115 demonstrations that would make benefits harder to access, impose personal responsibility requirements on beneficiaries, or allow states to make questionable use of federal funds. If recent experience is any indication, those seeking to use section 1115 of the Social Security Act in these ways are only becoming bolder. What can be done to curtail these demonstrations?
There are few reliable legal safeguards against such maneuvers. Yet, the Biden administration is currently requesting that the US Supreme Court either vacate or overturn several such bulwarks in Becerra v. Gresham. If the US Supreme Court grants the Biden administration’s request, then future administrations would possess substantial and more secure latitude to restrict Medicaid in the guise of promoting medical assistance.
The Legal Background
Section 1115 of the Social Security Act allows the secretary of Health and Human Services (HHS), at a state’s request, to waive certain federal requirements that a state must meet to participate in Medicaid or to provide federal Medicaid matching funds for services or populations that normally wouldn’t qualify for them, or both. Section 1115 doesn’t just apply to Medicaid but also to other federal/state programs such as Temporary Assistance for Needy Families. States have used section 1115 for a wide variety of demonstration projects, but one increasing trend has been to restrict benefits or impose conditions on beneficiaries, often ostensibly to “teach” them something about how the state government thinks they should live their lives. A prime example are projects that require most adult Medicaid beneficiaries to work or do other activities as a condition of continued eligibility.
Some of these waivers involving work requirements were successfully challenged in the US District Court for the District of Columbia and at the DC Circuit. The defendants appealed to the US Supreme Court and, less than two months before the end of the Trump administration, the Supreme Court granted certiorari in what was then Azar v. Gresham. The question presented in Gresham concerns “[w]hether the court of appeals erred in concluding that the Secretary may not authorize demonstration projects to test requirements that are designed to promote the provision of health-care coverage by means of facilitating the transition of Medicaid beneficiaries to commercial coverage and improving their health.”
Given the proceedings below, the decision to grant certiorari, especially on that particular question, was disturbing. There was no circuit split below. The District Court for the District of Columbia issued strong opinions holding that the secretary’s grant of both Arkansas’ and New Hampshire’s section 1115 Medicaid demonstration proposals was arbitrary and capricious. Under section 1115, the secretary may grant a state’s waiver request if he determines it will likely assist in promoting Medicaid’s objectives. A key purpose of Medicaid is to provide medical assistance to those who qualify for it, yet, as the court noted, the secretary inadequately considered the demonstrations’ likely effects on coverage. What’s more, the promotion of other objectives, however worthy (or not), cannot save the secretary’s decision in the absence of considering the waiver’s coverage effects.
The DC Circuit, on appeal, affirmed the District Court’s decisions in each case. The Court observed in Gresham that “[w]hile furnishing health care coverage and better health outcomes may be connected goals, the text specifically addresses only coverage.” Failure to consider the waiver’s effect on coverage was fatal to the project’s approval. Together, the cases establish clear guardrails for future demonstrations, requiring them to have a direct, salutary effect on the provision of medical assistance to low-income populations.
The Biden Administration’s Troubling Tack
When the Biden administration inherited the case, one might reasonably have expected it to rescind Arkansas’s and New Hampshire’s waivers and to do what it could to persuade the US Supreme Court that the matters are moot, notwithstanding the state of Arkansas’s own appeal. And it did do these things, but it has additionally requested the Court to vacate the rulings below and remand the matter to HHS. And in the alternative, it has requested the Court to decide the case and to clarify that the secretary has broad discretion in granting section 1115 demonstrations and may validly consider merely indirect effects that the project may have on providing medical assistance. As the Biden administration stated in its reply brief on the matter, “The Court should clarify that [section 1115] does authorize the Secretary to [approve a demonstration project], unless the project would directly undermine that statutory objective by causing substantial coverage loss.”
Why would the Biden administration seek such a ruling from the Court? It fears that a rigidly inflexible interpretation of these guardrails may scuttle projects, for example, that test a new care coordination model that might result in better care delivered more cheaply and effectively to beneficiaries, but which wouldn’t have much impact on the promotion or expantion of coverage per se.
But there is arguably little reason for such concern. In Gresham, it wasn’t merely that the demonstration would not likely lead to Medicaid coverage gains. Rather, it was that the secretary failed to consider the loss of coverage that the demonstration would, and in fact did, cause. It is not at all obvious from the opinion that demonstrations that, for example, seek to streamline access to home-based long-term services and supports, or to better integrate care for Medicaid beneficiaries with substance use disorders, would be vacated if challenged on the ground that they do not further Medicaid’s goal of coverage, as long as they also were not likely to lead to coverage loss.
Opening The Door For Other Administrations
We might not be too worried about what the Biden administration would do with a ruling allowing approval of section 1115 demonstration proposals that the secretary thinks will both at least indirectly advance Medicaid’s objectives and not cause “substantial coverage loss.” The problem, of course, is that subsequent administrations could also use it.
The TennCare Example
Such a ruling would likely prevent some of the worst abuses of these waivers that we’ve seen, such as the very projects under consideration in Becerra v. Gresham. But other, problematic demonstrations may very well pass muster. Take, for example, TennCare III, approved in the last days of the Trump administration. Some have described TennCare III as a “block grant” program, although it is not. It does not provide a fixed federal sum to Tennessee, with which the state then has broad discretion to use for Medicaid-like purposes with limited federal oversight. It also does not permit the state to cut beneficiaries or services below pre-TennCare III levels without first obtaining federal approval. Rather, it allows the state to make novel use of a portion of the so-called “savings” the state may achieve under the demonstration.
To understand what that means, consider the following. Longstanding Centers for Medicare and Medicaid Services (CMS) policy provides that section 1115 demonstrations are supposed to be budget-neutral to the federal government. As a part of the demonstration application and approval process, a state must provide projections of what its program would cost if its demonstration were approved, and if it were not approved (that is, “with and without waiver” cost projections). If the demonstration is approved, then, to the extent that the state underspends its “without waiver” projections over the demonstration, that amount is counted as “savings.”
Normally, a state may roll over the state portion of these savings into subsequent iterations of demonstrations. The savings can later be used to draw down additional federal funding for new or expanded programs under the demonstration. In essence, this functions as a work-around for budget neutrality over time.
To restrict this sort of Medicaid-gaming, CMS announced in 2018, after a process actually started under the Obama administration, that it would start limiting the amount of savings that can be rolled over under section 1115 demonstrations, starting in January of this year: “For the first five years post-implementation of the savings-producing policy, 100 percent of budget neutrality savings will accumulate and carry forward, but starting with the sixth year post-implementation of the savings-producing policy, savings will be phased down by 10 percent per demonstration year, until savings are reduced to no less than 25 percent of the amount of savings realized based on the original baseline.”
Under TennCare III’s aggregate cap, however, Tennessee will get to keep up to 55 percent of the savings. The state will not be limited to merely the unexpended state funds, either. Rather, Tennessee will also get up to 55 percent of the federal matching funds that would have been expended had Tennessee used those funds on matchable Medicaid expenses. In the sharpest departure from current policy, the state will be permitted to spend this money rather than being limited to applying the funds toward future demonstrations. It will be permitted to use the funds to pay for certain otherwise non-matchable health programs for lower-income Tennesseans, such as community or faith-based clinics, or health services for low-income students in state schools currently funded with state-only money.
This may sound reasonable. But the state need not use the funds to increase capacity. It can instead use the federal funds to replace existing state funding. And any state funds that get replaced by the demonstration savings can be used for anything, from construction or road work to tax rebates.
Vermont’s Global Commitment to Health demonstration from the mid-2000s under the Bush administration may have provided a partial template for this maneuver. Among many other features, the demonstration allowed Vermont to use project savings, including the federal share of the match, to fund otherwise non-matchable health services or to expand Medicaid to populations that were otherwise ineligible. Unlike Tennessee, however, these funds had to be used to expand capacity.
Would TennCare III meet the standard that the Biden administration proposed in the alternative for section 1115 demonstrations in Becerra v. Gresham? Arguably, it would. One could argue that TennCare III merely incentivizes Tennessee to keep its spending under the demonstration in check. The state’s share of federal savings may then be used to fund certain otherwise non-matchable health-related expenses, thereby ostensibly contributing to medical assistance for impoverished populations. The demonstration does not allow the state to contract eligibility or benefits below pre-TennCare III levels without first seeking federal approval. It can only expand them or contract them without prior approval to the extent that they rise above those levels. Apart from a few other changes—the prescription drug formulary, for example—the demonstration largely otherwise resembles TennCare II.
This is highly problematic. Medicaid should be about providing medical assistance to low-income populations. Any demonstration that would make this, on balance, more difficult or less likely should not be approved. Given the number and progression of problematic demonstrations granted in the past two decades, it becomes quite tempting to simply say that we ought not be experimenting at all with our most vulnerable populations.
The Need To Limit The Secretary’s Section 1115 Demonstration Approval Power
But, barring the elimination of Medicaid from the ambit of section 1115 demonstrations, we really do need a finding such as that from Gresham v. Azar: “‘the intent of Congress is clear’ that Medicaid’s objective is to provide health care coverage, and, as a result, the Secretary ‘must give effect to [that] unambiguously expressed intent of Congress.’” That Congress’s failure to amend the Medicaid statute to include a purpose to transition beneficiaries off public support or to encourage them to work, when it was doing so in the 1990s to other programs, “demonstrates,” as the Court found, “that Congress did not intend to incorporate work requirements into Medicaid.”
Without findings such as these, it is only a matter of time before we see the assaults on Medicaid renewed. The Biden administration should seek to shore up Medicaid against future predations via section 1115 authority, rather than requesting outcomes that will make the program more vulnerable.