HIFA: Will It Solve the Problem of the Uninsured?

Executive Summary

HIFA: Will It Solve the Problem of the Uninsured?

  • As of January 2002, approximately 40 million individuals lack health insurance in the United States.  The Medicaid program provides health insurance to over 44 million individuals. 
  • Existing Flexibility under Medicaid:  States have considerable flexibility in determining who to cover and what services to provide under Medicaid.  Currently, 30% of Medicaid beneficiaries are covered at the option of the state and 70% of all spending in Medicaid is optional ? either on both optional beneficiaries and/or optional services.
  • HIFA:  In August, 2001, the Centers for Medicare and Medicaid Services (CMS) announced the Health Insurance Flexibility and Accountability (HIFA) Demonstration Initiative.  
  • Despite the inherent flexibility of the Medicaid program, HIFA encourages waivers of various provisions of the Medicaid Act and the State Children?s Health Insurance Program (SCHIP) to expand coverage but also to reduce benefits, increase cost sharing, and set limits on the number of low-income people served. 
  • Some states, prompted by budget pressures, are looking to HIFA principally to reduce costs.  
  • Congress? Role:  By seeking to expand the areas in which the Secretary assumes authority to alter the Medicaid Act, HIFA threatens to erode Congress? role in defining and refining the Medicaid program.
  • HIFA arrogates to the Secretary the ability to amend the Medicaid Act virtually at will without Congressional input or approval. 
  • The HIFA initiative invites States to seek waivers of Medicaid Act provisions that the Secretary does not have the legal authority to waive.
  • Yet Congress? role in Medicaid is crucial ? federal Medicaid payments to the states represented 40% of all federal grant-in-aid allocation ? the highest single percentage
  • The Consequences of HIFA:  Whether or not a waiver includes a coverage expansion, people already eligible for Medicaid who have very limited incomes ? including very low-income elderly and people with disabilities ? may be left with fewer benefits and higher costs.  They may also face enrollment caps and/or waiting lists ? aspects which undermine the core foundation of the Medicaid program that all eligible individuals must receive services.
  • The HIFA initiative raises many troubling issues regarding the nature of health care coverage for the elderly, the disabled and the poor.  While decreasing the numbers of uninsured is an important goal, it must be done in a manner that provides meaningful insurance while not diluting the coverage for those already insured because low-income individuals:
  • are more likely to suffer health problems than higher income health consumers; and
  • cannot ? unlike higher income health consumers ? supplement their health coverage by paying out-of-pocket for non-covered services.  If a service is not included in a benefit package, a low-income consumer  often foregoes the service, leading to more serious illness and an avoidable health problems.
  • States? Proposals:  Initial HIFA proposals suggest that the newly eligible individuals would receive such minimal health care services that they should not be considered ?insured.?  For example: 
  • Budget Neutrality:  Unfortunately, HIFA does not provide any new money to pay for expanded coverage but requires budget neutrality ? states cannot spend any more money to cover additional individuals.  States can thus only find savings by:
    • Cutting Disproportionate Share Hospital (DSH) funds to hospitals which underwrite care for the uninsured;
    • Using unspent SCHIP funds at a time when a 900,000 drop in SCHIP enrollment is predicted between FY 2003 and 2006 because of funding shortfalls; or
    • Restricting eligibility and services.  
    • Utah:  Utah?s approved waiver would expand coverage but only provide primary care without access to specialists, in-patient care, or preventive services, despite the demonstrated cost-effectiveness of those services.  This ?expansion? is paid for in part by imposing an annual enrollment fee and higher co-pays ? up to 11% of annual income ? on parents with incomes less than 53% of the Federal Poverty Level.
    • Michigan:  Michigan?s proposed waiver would reduce Disproportionate Share Hospital (DSH) payments to hospitals currently providing care to the uninsured.  But the state would not cover in-patient care for the newly eligible.  Thus, the DSH hospitals would face increased pressures from losing DSH funds while still  absorbing the treatment costs of these individuals whose hospital costs are not reimbursed.
    • Illinois:  Illinois? approved prescription drug waiver contains a 5 year cap on all Medicaid spending for the elderly and disabled.
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