What is HIFA and Why Should We Be Concerned?

In August, 2001, the Centers for Medicare and Medicaid Services (CMS) announced the Health Insurance Flexibility and Accountability (HIFA) Demonstration Initiative.  HIFA encourages states to seek waivers of various provisions of the Medicaid Act and the State Children?s Health Insurance Program (SCHIP) to expand basic health insurance coverage to groups not currently eligible to receive benefits.  In return, CMS has promised the states fast-track consideration of their waiver requests.   
However, CMS has also required that a state?s resulting waiver program, with the expansion in coverage contemplated by HIFA, must not cost the federal government any more money over the life of the waiver than it would have paid without the waiver.  In this time of state budget stress, it is likely that this budget neutrality requirement will result in significant benefit cuts for those already receiving assistance, cost-sharing requirements beyond those authorized by the statute (in a provision that is not properly subject to waiver), and/or the imposition of enrollment caps and waiting lists in Medicaid. 
HIFA divides Medicaid and SCHIP recipients into three groups:  mandatory, optional, and expansion.   Those in mandatory groups (see Mandatory vs. Optional Eligibility in Medicaid) would, at least in theory, continue to be entitled to mandatory services and limited cost-sharing.  But HIFA provides states new discretion ? and indeed incentives because of the cost-neutrality requirements ? to cut benefits to and impose unrestrained cost-sharing on most of the optional and expansion groups.  Yet many ?optional? groups would be unable to meaningfully access services if cost-sharing were increased.  Those in ?optional? groups include:
  • 20% of all children enrolled in Medicaid (starting at 100-133% FPL);
  • 43% of all parents enrolled (starting at a mean of 59% FPL);
  • 22% of enrollees with disabilities (starting at 74% of the FPL); and 
  • 56% of seniors enrolled (starting at 74% FPL).
As an example of what a HIFA waiver could allow, Utah?s waiver proposal would impose an annual enrollment fee and higher co-pays on optional (and some mandatory) groups, and implement a presumably non-refundable application fee for its proposed expansion group.  Further, the services offered to the expansion group would not cover in-patient care, nor preventive services or family planning, despite the demonstrated cost-effectiveness of those services. 
The HIFA initiative raises many troubling issues regarding the nature of health care coverage for the elderly, the disabled and the poor of this country.  More broadly, however, by seeking to expand the areas in which the Secretary assumes authority to alter the Medicaid Act, HIFA threatens to erode Congress? role in the process.  As written, the HIFA initiative affords the Secretary the ability to amend the Medicaid Act virtually at will without Congressional input or approval.   
HIFA is based on § 1115 of the Social Security Act (42 U.S.C. § 1315), in which Congress gave the Secretary of HHS authority to waive various provisions of the Medicaid Act in furtherance of ?demonstration projects.? Section 1115 states, in relevant part:
(a)  In the case of any experimental, pilot, or demonstration project which, in the judgment of the Secretary, is likely to assist in promoting the objectives of title . .  XIX of this chapter [i.e., Medicaid], . . . in a State or States 
(1) the Secretary may waive compliance with any of the requirements of section . . . 1902 [42 U.S.C. § 1396a] . . . to the extent and for the period he finds necessary to enable such State or States to carry out such project, and
(2)(A) costs of such project which would not otherwise be included as expenditures under section . . . 1903 [42 U.S.C. 1396b]  . . . shall, to the extent and for the period prescribed by the Secretary, be regarded as expenditures under the State plan . . . .
Section 1115 only authorizes the Secretary to waive requirements of § 1902 of the Medicaid Act.   Section 1902 specifies what a State?s Medicaid plan must and may include.  While it contains numerous provisions central to Medicaid, many other important aspects of the program are found elsewhere in the Act.  Among these are protections for observance of religious beliefs, the HMO consumer protection requirements, and provisions regarding Indian health service facilities.  Provisions not found in § 1902  cannot be waived.
Many aspects of the Medicaid program, however, are mentioned both in §1902 and elsewhere in the Act.  Whether these dually-referenced provisions are subject to waiver will normally depend on the exact language of the provision located outside § 1902.  
These provisions fall into several general categories.  Some state unequivocally that they apply ?notwithstanding any other provision of this chapter?, which encompasses § 1115.   See e.g., SSA § 1931 (treating coverage for those formerly eligible for AFDC).  Other provisions contain an independent requirement that they be included in a State?s Medicaid plan.  Still others are written in mandatory language or involve a core provision of the Act and thus are probably not subject to waiver.  

Further, § 1115(2)(A) authorizes reimbursement to the states for the ?costs of such project which would not otherwise be included as expenditures under section . . . 1903 of this title?.  The reference to ?such project? in this section clearly reflects Congressional intent to allow federal reimbursement for state expenditures that result from an approved waiver.  It is circular ? and renders the § 1115(1) waiver limits meaningless ? to argue, as the Secretary has occasionally done, that this reimbursement authority allows him to approve any expense he chooses, even those that a state could only incur by disregarding a provision of the Medicaid Act that Congress has not authorized the Secretary to waive.
Finally, the scope of the Secretary?s waiver authority in SCHIP is currently unclear and untested.  Section 2107(e) of SCHIP provides that certain sections of the SSA, including § 1115, ?shall apply to States under this title in the same manner as they apply to a State under title XIX [Medicaid].?  Given this language, it is unclear whether Congress intended the Secretary to be able to waive within SCHIP only the types of provisions that he can waive in Medicaid, or whether some broader authority was envisioned.  For example, it is unclear whether the Secretary has the authority to waive the cost-sharing limitations found in § 2103(e) of SCHIP, since he does not have such authority with regard to the cost sharing limits found in § 1916 of the Medicaid Act.

1 Section 1902 addresses much of what must and may be included in a state?s Medicaid plan.  
2 Pharmaceutical Research and Manufacturers of America v. Thompson, 251 F.3d 219, 222 (DC Cir. 2001) (?Although the Act authorizes the Secretary to waive certain Medicaid requirements for such demonstration projects, it does not authorize him to waive any requirements of section 1396r-8's rebate provision or the requirement that Medicaid beneficiaries contribute no more than a "nominal" amount to the cost of medical benefits they receive. See id. § 1315(a)(1).?).

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