The Biden administration has an opportunity to break new ground in using Section 1115 demonstration authority to improve health care for children. This new ground comes in the form of a request from the state of Oregon to restructure its Medicaid program to provide continuous coverage of infants and young children from birth through age five regardless of changes in financial or other family circumstances. Oregon’s proposal, included in the state’s renewal request for the Oregon Health Plan, was submitted on February 8, 2022, and is currently under consideration at the Centers for Medicare and Medicaid Services.

The policy proposal is designed to minimize a phenomenon known as “churn”—that is, unnecessary breaks in Medicaid coverage (in this case for young children), which in turn elevates the risks of uninsurance and the loss of regular health care. In view of the vital role played by regular, continuous health care during infancy and early childhood, leading experts and health professionals have long called for stability of coverage so that parents can be secure knowing that their children will have stable health care during this crucial period. Ensuring coverage stability from birth through the point of entry into kindergarten would be a major breakthrough in rethinking child health policy and promoting children’s growth and development. The State of Washington is soon to submit a similar Section 1115 request, and legislators in California and New York are advancing similar legislation.

Why Continuous Eligibility In Medicaid Is Important

Coverage churn across all eligible populations, including children, has been a persistent feature of Medicaid. Children’s participation rates in Medicaid and the Children’s Health Insurance Program (CHIP) have improved over the years, but they still fall short of the near-universal participation of the nation’s elderly adults in Medicare. Eligible children often lose Medicaid at renewal as a consequence of procedural hurdles and are among those most at risk for high levels of churn. States run eligibility and enrollment processes for Medicaid and CHIP within federal rules, but practices differ widely across states and states sometimes impose procedural roadblocks in an effort used to lower enrollment. Given that children who are Black, Hispanic, or members of indigenous populations disproportionately rely on Medicaid and CHIP, they are at higher risk of experiencing gaps in coverage.

Twelve months of continuous eligibility for children is a state plan option for both Medicaid and CHIP. Currently 24 states, including Oregon, have adopted this policy for Medicaid. A state could extend this period of uninterrupted eligibility using its own funds, but states largely depend on federal financing to support Medicaid. Unless Congress revises the continuous enrollment option to lengthen the permissible time period for uninterrupted coverage of children, states would be able to secure federal funding only to the extent that they are permitted to do so using the special federal demonstration authority established in 1962 under the Social Security Act. Continuous eligibility for adults is only permissible under a Section 1115 waiver; Oregon’s proposal also seeks to extend eligibility for all Medicaid beneficiaries ages six and older for two years. This demonstration authority empowers the Department of Health and Human Services (HHS) secretary to allow states to operate their Medicaid programs under alternative rules not normally recognized under federal law and to receive federal funding to help defray the cost of their demonstrations. To exercise this power, HHS must determine that, “in the judgment of the Secretary, is likely to assist in promoting the objective” of the state-administered public welfare program that is the subject of the experiment.

How Continuous Medicaid Eligibility For Young Children Promotes The Objectives Of Medicaid

Medicaid’s core purpose is to ensure necessary medical assistance for the people who are eligible. Continuous Medicaid coverage represents a significant tool to reduce gaps in coverage and enhance continuity of care. Policies such as the one proposed by Oregon have the potential to improve children’s health status and well-being, help combat racial inequities, allow for better measurement of quality of care and accountability for managed care plans, and reduce administrative burdens. A recent report from the state of Minnesota calls for continuous eligibility through age five as a policy that can work to combat racism in the health care system. Extending continuous eligibility for longer periods for young children in this critical stage of early development would promote consistent access to health care to address concerns that may affect school readiness. The Bright Futures child health screening periodicity schedule developed by the Academy of Pediatrics recommends 15 office visits by the time a child turns six.

The nation is currently living through an unexpected experiment on the virtues of continuous coverage during the COVID-19 pandemic. As a consequence of the Families First Coronavirus Response Act (Public Law 116–127), no one can be involuntarily disenrolled from Medicaid as long as the federally declared public health emergency remains in effect. Early data suggest that the number of uninsured children has stabilized during the pandemic and may have even been reduced. This is a welcome change after the recent reversal of fortune for children’s coverage rates during the years of the Trump administration (from 2016 to 2019, approximately one million more children became uninsured). But when the continuous coverage protections lift, millions of children (and adults) are at risk for a period of uninsurance. Oregon’s proposal will mitigate against these losses and build on the period of continuous coverage that all Medicaid beneficiaries have benefitted from during the pandemic.

The Transformative Potential Of Oregon’s Continuous Coverage Provision For Young Children

The financial protections and peace of mind for new parents whose children will have Medicaid coverage until they are school age would be a major new support for families with young children. The proposed policy of continuous coverage would promote the administration’s strategic vision and goals for Medicaid and CHIP—which include promoting coverage and reducing racial disparities.

Oregon’s proposal provides a rich opportunity to study the impact of stable coverage on the quality of care, health and functioning, and school readiness—and creates incentives for Medicaid managed care plans (in Oregon’s world accountable care organizations) to use a longer planning horizon. Oregon’s proposed 1115 demonstration could provide vital new information to state and federal policy makers and key stakeholders about the impacts of longer-term continuous eligibility policies for young children including:

  • To what extent does a continuous eligibility policy for children younger than the age of six lower their uninsured rates and reduce gaps in coverage?
  • Does continuous coverage increase receipt of recommended well child visits, screenings, and related services and reduce their unmet health needs?
  • Does continuous coverage reduce stress and financial burdens among parents?
  • How do these impacts differ by the race and ethnicity of the child or their parents?
  • To what extent is the demonstration covering children whose family incomes are substantially above the Medicaid eligibility cut off for children?
  • How, if at all, are practices of pediatricians and other primary care providers for young children affected?
  • Do Medicaid managed care plans rethink approaches to meeting the health care needs of young children?

Section 1115 Under Medicaid: Purpose, History, And Budget Neutrality Guardrails

Because the purpose of 1115 Medicaid demonstrations is to identify ways Medicaid can be improved to better achieve its statutory objective, when ruling on Oregon’s request, HHS will consider whether its proposal is likely to do so. Over decades, HHS has used these special 1115 powers frequently to allow states to test Medicaid program restructurings that expand eligibility, strengthen coverage, and introduce health care service delivery innovations. In each case, HHS has determined that these experiments are “likely to promote” Medicaid’s most fundamental objective. Oregon’s demonstration request to extend continuous Medicaid eligibility for children younger than six clearly supports the statutory objective of Medicaid of providing health care to low-income children (a core population for Medicaid) and will also yield important new information.

Where HHS determines that an experiment meets 1115 standards, not only can the agency waive normal federal program requirements and restrictions, but, as noted, it also can approve federal expenditures on the demonstration that differ from normally applicable standards. In the case of a continuous Medicaid enrollment demonstration, approval would mean that federal funds will continue to flow to coverage for children who are part of the demonstration population regardless of underlying changes in circumstances that otherwise cause breaks in enrollment.

To temper this very broad agency power, successive presidential administrations, beginning with the Carter administration, have operated their 1115 demonstration initiatives in accordance with a self-imposed rule (not present in the statute) that requires authorized 1115 experiments to be budget neutral. This budget neutrality requirement means that the total cost to the federal government of a state’s 1115 experiment cannot exceed what the federal government would have spent on the state’s program over the time period covered by the demonstration. Estimating what a state would have spent in the absence of a section 1115 demonstration is, of course, a hypothetical exercise.

HHS will also assess whether Oregon’s proposed demonstration complies with the federal budget neutrality guardrails. In view of how these guardrails have guided past demonstrations, the answer should be an unqualified “yes,” especially given the powerful health and economic benefits associated with stable coverage that this demonstration has the potential to yield. The budget neutrality guardrail clearly has turned out to be a flexible one, since in determining budget neutrality, HHS has regularly permitted states to use a methodology that offsets estimated experimental expenditures against expected savings flowing from the experiment. The results are not always budget neutral as, for example, has been the case for Arkansas’s “private option” Medicaid expansion.

As Cindy Mann, Anne O’Hagen Karl, and Heather Howard recently argued in Forefront, the section 1115 budget neutrality policy has disincentivized states from considering investments in children that may require longer time thresholds to show a return on investment. They argue that budget neutrality needs to be radically rethought or perhaps even jettisoned. Budget neutrality assumptions do not take into account savings that may accrue in other programs outside of Medicaid—such as reductions in disability payments in adulthood that accrue from providing children with Medicaid coverage.

The long-term benefits of providing Medicaid to children have been widely documented. One study found that expanding Medicaid to low-income children paid for itself by the time the children reached age 36. Other studies have found that Medicaid in childhood is associated with better health in adulthood, higher levels of educational attainment, and higher tax payments.

In sum, the Biden administration should approve Oregon’s request to provide continuous coverage for young children and requests from other states that are anticipated given its potential to improve the receipt of needed health care among low-income children. In the world of Medicaid, states are the innovators. Enrollment in stable Medicaid coverage is not sufficient to address racial and economic disparities in access and outcomes that affect children, but it is likely a necessary precondition. Continuous enrollment is exactly the kind of bold change needed to improve the lives of children and precisely what section 1115 demonstrations are designed for.

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