Healthcare / Medicaid

Healthy Adult Opportunity: A Conservative Alternative to Medicaid Expansion?

The Trump administration recently released the Healthy Adult Opportunity, or HAO, initiative. This initiative offers states the option to revamp the way Medicaid is funded in their state. Medicaid funding has long been a topic of contention in healthcare. This needs-based public-assistance program that helps to cover the medical costs of specifically vulnerable or low-income Americans covers roughly 1 in 5 Americans,[i] making it the largest source of health coverage in the U.S.[ii] Medicaid is funded through both the federal government and state governments. States are responsible for reporting Medicaid costs each quarter to the federal government, who then matches the states’ costs at a unique matching rate, predetermined for each state, always at or above half of the total cost.[iii] Currently, Medicaid is an open-ended entitlement, meaning that there is no cap on funding – as the number of qualifying recipients increases, so does federal funding.[iv] Since its conception, republicans have favored imposing some sort of cap on this spending. One common, yet controversial idea has been Medicaid block grants, which would limit Medicaid funding to a predetermined, fixed amount of money. Proponents of block grants say they would help reduce Medicaid’s toll on the federal budget, as it is currently the third largest federal spending program. Opponents, however, insist that Medicaid block grants would widely cut necessary benefits from those who need them the most. Medicaid block grants have been a topic of discussion for decades, but they have become increasingly talked about in the last couple weeks, in response to the Trump Administration’s new initiative. Masked behind a vague name, what does the HAO specifically mean for the future of Medicaid?

The Healthy Adult Opportunity became available on January 30th, 2020. At large, HAO is marketed as an optional demonstration that states can apply for, enabling more state flexibility regarding the administration of Medicaid. Although never explicitly labeled as a block grant, an HAO demonstration would act as one, capping the Medicaid budget according to the state’s historic costs, national cost trends and inflationary expectations.[v] The demonstration would last for five years, and could be extended to ten years upon success. States are incentivized to apply for an HAO demonstration because of their potential access to shared savings, which they would have ample flexibility in administering. If states spend less than their annual allotment cap, they may have access to a percentage of shared savings. This access largely depends on their performance maintenance and performance improvement during their demonstration. The specific percentage of shared savings may vary from zero to fifty percent according to the specific criterion met by the state. The criterion include measures of improvement in the Core Adult Set, which includes 25 specific benchmarks such as maternal health, preventive care and chronic condition care, as well as a public performance maintenance survey.  The savings can be used in a variety of health-related areas, including for reinvestment in their various Medicaid programs that are usually not funded by the federal government. The federal government will match the funding for these programs at a given percentage. Possible areas of reinvestment could be existing state-funded health programs that have not previously qualified for federal funding or new health-related initiatives such as SDOH benefits, pre-vocational services or tobacco cessation programs.[vi]

The question has been asked: how can Medicaid move forward in states that are reluctant to participate in Medicaid expansion? The answer, or at least the Trump administration hopes, is the HAO.  Since an HAO demonstration does involve a limited budget, the question arises as to who may potentially suffer limited coverage and benefits. The initiative is designed to only affect the budget covering a group known as “able-bodied adults,” excluding disabled individuals, elderly, children, or pregnant women. This group of people is the underlying reason for this initiative. This is the same group of people, usually not covered under traditional Medicaid, who become covered under Medicaid expansion, so long as they fall at or below 138 percent of FPL. Hence, because the HAO is targeting to cover the same group of people as Medicaid expansion is, but capped at a limit instead of being open-ended, it can be viewed as a conservative approach to Medicaid expansion. It is an alternative way for states that have not yet expanded Medicaid to cover Americans in the coverage gap.

Currently, there are only fourteen states who have yet to expand Medicaid. The HAO is available to all states, including states who have already expanded Medicaid that can propose to transition into an HAO demonstration. However, it is unlikely for states that are already covering “able-bodied adults” to make any changes to their Medicaid coverage. That narrows the possible scope of HAO to the fourteen remaining states, but even then, it is unclear how many states would actually partake. For example, take Oklahoma and Missouri, two states that have yet to expand Medicaid. While Oklahoma governor Kevin Sitt does say he will pursue an HAO waiver[vii], governor Mike Parson of Missouri says he will not.[viii] Sitt is motivated by the added flexibility an HAO waiver would give his health budget, while Parson is awaiting a possible referendum to expand the safety-net program. Therefore, HAO may appear to be a promising alternative to Medicaid expansion for conservative states, but the reality is that it may not actually accrue that large of a following. Additionally, the flexibility marketed through the HAO that is intended to entice states, is entirely contingent on many standards the state must meet. Overall, the HAO may not be as desirable as it seems.