To date, Kentucky has had one of the most successful ACA implementation experiences among states. Beginning in 2014, the state expanded Medicaid to low-income adults and built its own State-Based Marketplace, kynect. Research points to gains in coverage and reductions in the uninsured, increases in access and health care utilization, and positive fiscal impact as a result of the Medicaid expansion.  Since implementing the ACA, Kentucky’s uninsured rate for the nonelderly fell from 18.8% in 2013 to 6.8% in 2015, one of the largest reductions in the country1, and over 439,000 adults have obtained coverage as of December 2015 as a result of the Medicaid expansion.  Governor Bevin, elected in December 2015, ran on a platform to dismantle kynect and end the Medicaid expansion. However, post-election, the Governor said he would seek a waiver to make changes to the Medicaid expansion. On June 22, 2016, Governor Bevin released his proposed Section 1115 demonstration waiver application called Kentucky HEALTH (Helping to Engage and Achieve Long Term Health) as an alternative to the current Medicaid expansion which is being implemented through a state plan amendment according to the terms in the ACA. Governor Bevin said in a press conference when he released the waiver proposal for state comment that if the waiver is not approved he would end the expansion.  A brief examining what has happened to coverage, access and utilization and the economic impact of the Medicaid expansion can be found here.

The proposed waiver includes many provisions similar to those in Indiana’s Medicaid expansion waiver, which built on a pre-ACA demonstration in which the state implemented a limited coverage expansion with a high-deductible health plan.  The proposed waiver also includes provisions not approved to date in other states, such as a work requirement and graduated premiums based on length of time in the program that will exceed Marketplace levels for those above 100% FPL.

The Governor’s proposal includes a number of changes that would affect Medicaid expansion enrollees as well as traditional non-disabled Medicaid enrollees (Section 1931 parents, pregnant women, and Medicaid and CHIP-eligible children). Kentucky’s Governor seeks Section 1115 waiver authority to modify the state’s existing Medicaid expansion by:

  • Adding a high deductible account (funded by the state) to existing capitated managed care coverage;
  • Offering an incentive account to purchase extra benefits (dental, vision, over the counter medications and gym memberships), which would be funded through completion of specified health-related or employment activities and/or up to half of any deductible funds remaining each year;
  • Imposing premiums on a sliding scale based on family income, ranging from $1.00 per month for individuals with incomes below 25% FPL and up to a maximum of $15.00 per month in the first two years of enrollment for those from 100-138% FPL.
  • Requiring up to 20 hours per month of employment activities as a condition of eligibility for most adults;
  • Prohibiting beneficiaries who do not timely renew Medicaid eligibility from re-enrolling in coverage for six months;
  • Waiving non-emergency medical transportation for expansion adults;
  • Requiring Medicaid premium assistance to purchase cost-effective employer sponsored insurance (after first year of Medicaid enrollment and employment for adults and their Medicaid and CHIP-eligible children); and
  • Using federal Medicaid matching funds for short-term Institution for Mental Disease (IMD) services for non-elderly adults in certain counties.
    Kentucky also plans to use existing Medicaid state plan authority to amend the benefit package for expansion adults by removing private duty nursing and allergy testing and using the state employee health plan as a benchmark.  The state also indicates that it will pursue managed care reforms by amending its MCO contracts to include a quality withhold and adjust capitation rates.

Kentucky estimates that projected Medicaid enrollment will decrease over the 5-year waiver period due to beneficiary non-compliance with program requirements, such as premium payments or employment (or in later years, due to shifts to commercial coverage).  The proposed waiver is open for public comment at the state level through July 22, 2016, and a 30-day federal-level public comment period will follow after submission to CMS.  CMS may consider Kentucky’s successful implementation of its traditional Medicaid expansion to date as well as any early evidence about the implementation of Indiana’s waiver.  CMS has indicated it may not approve additional waivers similar to Indiana’s before evaluation results for that program are available.

Table 1 describes the major elements of Kentucky’s proposed Section 1115 demonstration.

Table 1:  Kentucky’s Proposed Section 1115 Medicaid Expansion Demonstration Waiver
Kentucky Waiver Proposal
Modifies the state’s existing Medicaid expansion by:

  • adding a high-deductible account and an incentive account to existing capitated managed care coverage.  Incentive account funds could be used to purchase enhanced benefits.
  • imposing premiums on most non-disabled adults on a sliding scale from $1 to $15 per month in lieu of copayments.  Premiums for those above 100% FPL would be a condition of eligibility and increase beginning in the third year of enrollment.
  • disenrolling those above 100% FPL for failure to pay a premium after a 60 day grace period and barring re-enrollment for 6 months unless beneficiary pays premiums for grace period and reinstatement month and completes financial or health literacy course.
  • prohibiting those who do not timely renew Medicaid eligibility from re-enrolling in coverage for 6 months.
  • requiring work activity hours as a condition of eligibility for most adults.
  • waiving non-emergency medical transportation for expansion adults.
  • requiring those with access to cost-effective employer-sponsored insurance to receive premium assistance after the first year of enrollment and employment.

Request to implement 6 months following CMS approval for 5 years (plan to implement in the spring of 2017, except that work requirement would be phased in by county or region).
Coverage Groups:
Would include the adult expansion group and all other non-disabled adult Medicaid beneficiaries in most waiver provisions. Specific exemptions are noted below.
Coverage Renewals and Lock-Out: 
Would implement an annual open enrollment period for most adults that would vary for each beneficiary depending on when they enrolled in the program (spanning three months prior to Medicaid eligibility expiration and three months following).  If beneficiaries fail to renew coverage during this period, they would be required to wait six months before being permitted to re-enroll in coverage, unless the individual completes a financial or health literacy course. Would exempt pregnant women, children, and individuals determined medically frail.
Would impose sliding scale flat rate monthly premiums for most adults based on family income ranging from $1 for those with incomes under 25% FPL and up to $15 for individuals with incomes from 101-138% FPL in the first two years of enrollment. Third parties such as non-profit organizations and providers may pay premiums on a beneficiary’s behalf.  Children and pregnant women would be exempt from premiums.

Seeks to impose increasing premiums for individuals with income greater than 100% FPL beginning with a beneficiary’s third year of enrollment, which would exceed the premiums that beneficiaries at this income level would face in the Marketplace (2% of income).

Effective Coverage Date: 
Seeks to waive retroactive coverage for most adults (except for pregnant women and children) and requires individuals to pay their first month’s premium prior to the start of coverage. Individuals below 100% FPL who do not make a premium payment will have coverage start 60 days after they are determined eligible for Medicaid.  Those above 100% FPL could not access coverage without a premium payment.

The state would develop a process for individuals to make an initial pre-payment to expedite the start of coverage and expand presumptive eligibility sites to include county health departments and certain safety net providers to seek to minimize adverse effects of these waivers.

Disenrollment and Lock-Out for Non-Payment of Premiums:
Premiums are a condition of eligibility for those from 101-138% FPL. This group would be disenrolled from coverage for non-payment after a 60 day grace period, and not allowed to re-enroll for six months unless they pay their past debt (2 months of premiums for grace period); pay the premium for the reinstatement month; and participate in a financial or health literacy course.

Individuals below 100% FPL and those who are medically frail who do not pay premiums would instead be required to pay state plan copayments.  In addition, $25 would be deducted from their incentive account, and the incentive account would be suspended (described below).

Beneficiaries who pay premiums would not have any co-payments.
Deductible Accounts:
Would establish an account to which the state would contribute a $1,000 annual deductible that covers non-preventive healthcare services.  Once the deductible is exhausted, Medicaid MCOs would cover additional services.
Incentive Accounts:
All adults under the waiver (including pregnant women and those receiving ESI premium assistance) would have an incentive account, which may be used to access additional benefits not otherwise covered, such as dental, vision, over the counter medications, and limited reimbursement for the purchase of a gym membership.

Enrollees would accrue incentive account funds by transferring 50% of any remaining deductible account funds each year and/or completing specified health-related or community engagement activities, such as participating in community service or job training or a health risk-assessment.

Incentive account funds would be deducted for non-emergency use of the emergency room ($20 for the first visit, $50 for the second visit, and $75 for the third and subsequent visits).  Beneficiaries also will be eligible for a $20 incentive account contribution for each year in which they avoid unnecessary emergency room visits.

Former beneficiaries who remain employed and privately insured for 18 months could apply to receive the balance of their incentive account funds in cash, up to $500.

Work Requirement:   
Would require all “able-bodied” working age adults to participate in a work activity, such as volunteer work, employment, job search, job training or education, beginning at 5 hours per week after three months of program enrollment as a condition of eligibility.  The work activity requirement would increase up to 20 hours per week after the first year of enrollment.

Would exempt children, pregnant women, individuals determined medically frail, and individuals who are the primary caregiver of a dependent from this requirement.

Seeks to waive non-emergency medical transportation for the adult expansion group.

Seeks to implement pilot program in 10 to 20 counties to obtain federal matching funds for behavioral health services provided in IMDs through a waiver of the federal payment exclusion for non-elderly adults with short-term residential stays up to 30 days.

Would use state plan authority to elect the state employee health plan as the benchmark for the benefit package for expansion adults but maintain all current state plan behavioral health services.

Children, pregnant women, medically frail individuals, and non-expansion adults (Section 1931 parents) would continue to receive the Medicaid state plan benefit package, although the state would no longer cover private duty nursing and allergy testing.

Delivery System:
Would continue to use existing capitated Medicaid managed care organizations for all populations statewide (except those in ESI premium assistance).  Seeks waiver authority to eliminate 90 day health plan choice period upon initial MCO enrollment.
Employer-Sponsored Insurance  Premium Assistance Program:
Would expand Medicaid premium assistance to include all adults who have access to cost-effective employer-sponsored insurance (ESI). Medicaid and CHIP-eligible children also would enroll in their parent’s ESI with premium assistance.  Participation would be optional during the first year of Medicaid enrollment, and mandatory after the beneficiary’s second year of Medicaid enrollment and employment.

Enrollees would receive an advance payment to cover the employee’s share of the premium before it is deducted from their paycheck.  Enrollees would be subject to the same Medicaid premiums as other adults under the waiver, and the ESI premium reimbursement payment would be reduced by the amount of the beneficiary’s Medicaid premium.  Individuals would receive Medicaid fee-for-service wrap-around coverage for benefits not covered and all cost-sharing under the employer plan.

The state anticipates savings of approximately $2.2 billion over the five-year waiver.
Next Steps:
Waiver application is open to state public comment through July 22, 2016.  There will be a 30-day federal public comment period after submission to CMS.

Proposed Changes to Medicaid Expansion in Kentucky
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