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Issue Brief: Medicaid Block Grant Demonstration – “Healthy Adult Opportunity”

What Does This Mean?

On January 30, the Centers for Medicare & Medicaid Services (CMS) announced the launch of a new Medicaid demonstration program for states, which CMS is calling the “Healthy Adult Opportunity” (HAO). CMS touted the potential for the HAO to help states “achieve new levels of flexibility in the administration and design of their Medicaid programs while providing federal taxpayers with greater budget certainty.” To participate, states must submit an application to CMS and the agency must approve it, so there will not be any immediate policy changes.

What Will the Executive Order Do?

Currently Medicaid is an open-ended cost-sharing arrangement with the federal government. The HAO will allow states to accept Medicaid dollars from the federal government in either a lump sum (block grant) or a per-enrollee amount. Unlike traditional Medicaid, which provides extra dollars to cover cost overruns, the HAO prevents states from receiving any additional money to cover cost overages. 

The HAO does not convert all Medicaid funding to a block grant. Instead the HAO applies only to those individuals who would not, historically, have been eligible for Medicaid (i.e., healthy adults). In states that expanded Medicaid under the Affordable Care Act (ACA), this might include individuals covered under the expansion, while states that did not expand Medicaid might include groups such as adults with dependent children, low-income parents with incomes above the Medicaid threshold. Thus, depending on the state’s requirements, the number of Medicaid-covered individuals could increase. However, the HAO coverage may differ significantly from coverage available under traditional Medicaid.

In addition to changing the Medicaid funding model for certain populations, the HAO also provided states a number of other flexibilities, including the ability to make changes to the program without CMS prior approval, to require a closed formulary for the new population, to change coverage to more closely mirror that provided by commercial insurance. States must still ensure that coverage under the HAO meets the Essential Health Benefits standard of the ACA and that beneficiary premiums and cost-sharing do not exceed 5% of a family income.

The HAO has an initial demonstration period of five years, with the option for a ten-year expansion. It is also important to note that demonstration projects often forecast an Administration’s long-term goals for a program. Based on the HAO, it is likely that we will continue to see the Administration take steps to curtail or cut the Medicaid program as a whole.

How Might This Impact Pharmacy Practice?

The HAO may limit patient access to care over the long term. Because states will be limited to baseline funding, with no additional federal match for any cost overruns, they are incentivized to keep costs down, which will likely inhibit the inclusion of new enrollees. Additionally, the HAO would create two classes of Medicaid recipient – those covered under traditional state-federal cost-sharing arrangements, and those covered under HAO. For HAO recipients, this may mean they are limited to closed formularies or smaller provider networks. Additionally, HAO beneficiaries may not be covered for all the services other Medicaid beneficiaries receive, may not have retroactive eligibility, and may have higher premiums and cost-sharing. As a result, HAO beneficiaries may have more limited care options that traditional Medicaid beneficiaries.

What’s Next?

States hold the reins on next steps. ASHP will be working with our state affiliates to monitor and assess the impact of state applications to implement the HAO.