Medicaid And The American Rescue Plan: How It All Fits Together

MM Curator summary

The new COVID relief bill includes funding and requirements around treating longer term impacts of COVID, as well as payments for vaccines and testing.


The article below has been highlighted and summarized by our research team. It is provided here for member convenience as part of our Curator service.

In her recent Health Affairs Blog post, Katie Keith provides an inclusive overview of the insurance provisions in the landmark American Rescue Plan Act (the Act). The Kaiser Family Foundation also offers important information on the Act’s new incentives for states that have not expanded Medicaid—to cover all adults with incomes under 138 percent of the federal poverty level (FPL)—to do so. In this post, we take a closer look at the structure of and interactions between several key provisions of the Act, including the COVID coverage and treatment mandate, the postpartum Medicaid coverage option, and the expansion incentive and its relationship to § 1115 of the Social Security Act.

Mandatory Medicaid Coverage Of COVID-19 Testing, Treatment, And Vaccines (§ 9811)

The Act effectively establishes a new mandatory Medicaid COVID treatment bundle. The law classifies COVID-19 testing, treatment, and immunization as a required medical assistance benefit for multiple Medicaid eligibility groups. The new bundle covers not only COVID treatment but services needed for conditions that could complicate COVID treatment; it also includes a provision that appears to act as a legal override of otherwise applicable limits and exclusions on benefits covered under the state plan in cases in which COVID is the underlying diagnosis.

This is a coverage rule, of course, meaning that should eligibility cease during a period of extended coverage and no other basis of eligibility can be established, the entitlement to treatment will cease. But with the exception of early and periodic screening, diagnosis, and treatment (EPSDT) for children (which remains the broadest statement of Medicaid coverage ever drafted), the COVID coverage breadth has no real precedent in Medicaid. To be sure, Congress previously has designed certain special benefit packages for certain eligibility groups, such as coverage of pregnant women for pregnancy-related care, family planning coverage for individuals eligible for family planning and related services, and treatment for people diagnosed with breast or cervical cancer. But the COVID treatment amendment is singular in its reach.

The COVID mandate applies throughout the period covered by the public health emergency declaration under Section 1135 of the Social Security Act, and for a year after the emergency period’s end. The coverage mandate encompasses a broad group of people: individuals “diagnosed with or presumed to have” COVID-19.” It also guarantees a broad range of benefits: the benefits and services covered under the state Medicaid plan as well as “specialized equipment and therapies (including preventive therapies).”

A Benefit-Limit Override

Furthermore, the mandate applies not only to COVID treatment for people “diagnosed with or presumed to have COVID-19,” but also to “treatment of a condition that may seriously complicate the treatment of COVID-19, if otherwise covered under the state plan (or waiver of such plan)”. It appears, in other words, that coverage is mandatory in the case of underlying health conditions that could affect COVID treatment (presumably during both its acute and recovery stages), and treatment of these complicating conditions is covered regardless of limits that might otherwise apply to services covered under the state Medicaid plan.

Thus, the COVID coverage rule appears to act as a benefit-limit override, barring limits on state plan benefits and services when those limits would apply to treatments for COVID or complicating conditions. For example, in states covering case management only for targeted conditions, such a limit would appear to give way if case management is targeted on COVID or the management of conditions that could complicate COVID treatment and recovery.

Detailed guidance from the Centers for Medicare and Medicaid Services (CMS) will be essential here to clarify understanding of the scope and extent of the treatment mandate and benefit-limit override provision. Clarification will be key not only for state agencies but for the comprehensive managed care plans that administer Medicaid for some or all beneficiaries in 39 states and the District of Columbia. Many aspects of the mandate will require elucidation:

  • What constitutes a COVID-19 diagnosis or presumptive case?
  • What is meant by treatment and preventive therapies?
  • Must COVID-19 treatments and preventive theories be covered even in states whose plans do not include the benefit classes that correspond to such treatments and therapies?
  • What evidence is permissible when determining whether a condition could complicate COVID treatment?
  • Do conditions that could complicate COVID treatment include conditions that could complicate COVID recovery in the case of people experiencing long-haul COVID?
  • Which of Medicaid’s dozens of eligibility groups are, or are not, entitled to this expansive COVID medical assistance benefit?
  • How will states be expected to incorporate these rules into their managed care contracts and reprice their agreements?
  • What if any special rules must apply to utilization management and review?

Finally, it is worth noting that for Medicaid beneficiaries (and this is true obviously for millions of other insured Americans under various public and private coverage arrangements), a crucial issue down the line becomes cessation of insurance eligibility in the middle of COVID treatment, which, as the long-haul problem has demonstrated, could be quite lengthy.

Vaccines For Additional Eligibility Groups And Protections Against Cost Sharing

Along with the coverage mandate, the Act reinforces cost-sharing protections for COVID testing, treatment, and immunization, similarly overriding normal state cost-sharing rules (or cost-sharing designs applied under Medicaid managed care). Like the treatment mandate, the special cost-sharing rules apply to a broad range of eligibility groups, including groups normally entitled to more limited benefits. Guidance on the scope of the treatment mandate presumably will also deal with the cost-sharing rule, which also will affect managed care contracts and contract pricing.

Outpatient Prescription Drug Coverage

The Act clarifies that the Medicaid drug rebate program for outpatient prescription drugs applies to “any drug or biological product” associated with the extended coverage rules. The amendment reaches any product furnished as a Medicaid covered benefit for the “treatment or prevention of COVID-19.” Special guidance is needed here as well.

FMAP For Testing, Treatment, And Immunizations

The Act sets the federal medical assistance percentage (FMAP)—the percentage of the cost of care covered by a state Medicaid program paid for by the federal government—at 100 percent for immunizations (vaccines and their administration). The Act retains the normal FMAP rate (as enhanced during the pandemic emergency period) for the new COVID treatment standard.

Improving Postpartum Coverage For Women And Interaction With Pre-Existing Law (Section 9812)

Currently, states much provide full Medicaid coverage to all pregnant women with incomes below 138 percent FPL through 60 days after birth; states have the option of extending that coverage to higher income levels. The Act creates a new state option to increase Medicaid postpartum coverage from 60 days to 12 months.

Under current law, eligibility ends on the last day of the month in which the 60th postpartum day occurs; the Act would extend this period to the last day of the month in which the 12-month extension ends. The option sunsets after five years. Presumably the option either will be made permanent or will join the legion of Medicaid provisions that must be renewed periodically.

The postpartum option is likely to be highly popular given the serious maternal mortality problems facing women across the nation, the value of continuous health care following birth, and the very large percentage of women whose pregnancy is insured through Medicaid but who lose coverage entirely after the current postpartum period.

The new state option is an outgrowth of a multi-year effort to improve coverage for postpartum women, particularly in states that have not enacted the ACA Medicaid expansion and thus expose women to the Medicaid coverage gap at the end of the 60-day postpartum period. But the option also represents a key reform in expansion states. The option ensures 12 months of uninterrupted full-benefit Medicaid coverage (states taking the option also would be required to furnish full Medicaid coverage during pregnancy, not only coverage limited to pregnancy-related care) without the need for further review or reapplication, thus pushing out the date for renewal action until well after the critical newborn phase has passed.

States cannot adopt an amendment extending postpartum coverage to 12 months until one year after the Act’s enactment. But the new option’s presumed popularity means that both states and CMS likely will begin planning for adoption. In approaching implementation, detailed attention may be warranted with respect to various interactions across the new postpartum option, the COVID coverage rule, and the continuous enrollment protection established under the Families First Coronavirus Response Act (FFCRA).

The first such interaction involves postpartum women who at this point are protected by the special FFCRA continuous enrollment protection; continuous coverage is a condition of enhanced FMAP funding under FFCRA during the public health emergency. The public health emergency period is set to last through at least March 2022 and could, of course, go longer. But should the enhancement and associated FFFCRA continuous enrollment guarantee end before a state’s postpartum 12-month extension rule goes live, postpartum women shielded by the continuous enrollment rule may find themselves without a coverage pathway that lasts for the duration of the 12-month postpartum coverage period.

Special transition protocols will be needed to ensure that their eligibility is redetermined and women are moved from FFCRA continuous enrollment status into postpartum coverage. Alternatively, Congress could amend the law to provide that, in the case of postpartum women, continuous enrollment at the enhanced rate remains in place until their 12th month is reached, and that they can transition to another eligibility category, should one be applicable.

A second interaction issue is the relationship between the 12-month postpartum coverage option and the special COVID coverage standard and benefit limit override. This special coverage rule lasts for a full year beyond the end of the public health emergency, meaning that it would apply potentially to postpartum women transitioning from FFCRA continued eligibility to postpartum coverage depending on the state. States and plans will benefit from guidance on COVID treatment and aftercare (including the benefit-limit override rule) during the postpartum period, in particular, how complications during the postpartum period may complicate COVID treatment and recovery.

The New ACA Medicaid Expansion Incentive (§ 9814)

As has been extensively reported and analyzed, the new ACA Medicaid expansion option could heavily boost the amount of federal funding for which newly expanding states (states that did not cover the expansion population as of the date of enactment) would qualify. The new 5 percentage point FMAP increase would be on top of the current 6.2 FMAP percentage point increase under the public health emergency provision of FFCRA, which as noted, is set to last until at least March 2022, if not longer.

The new FMAP incentive, while generous, is also quite specific in the conditions it imposes on states that elect to move forward. Under the terms of the amendment, the enhancement is available for the eight- quarter period beginning with the first calendar quarter during which a qualifying State “expends amounts for all individuals [emphasis added] described in” the ACA expansion eligibility group. The adults who are the focus of the “all new individuals” expenditure targets are those whose incomes do not exceed 138 percent of the federal poverty level and are under age 65, not pregnant, not entitled to Medicare, and not eligible under one of Medicaid’s traditional mandatory eligibility groups. Furthermore, the law specifies that enhanced payments are not available in “any quarter (and each subsequent quarter) during such period during which the State ceases to provide medical assistance to any such individual under the State plan (or waiver of such plan).” [emphasis added].

This language could not be clearer. To qualify for enhanced federal funding, states must cover every individual described in the ACA expansion group. Furthermore, under the terms of the law, in any quarter in which a state covers fewer than all the individuals described in the expansion group, the special federal enhancement payment is not available.

The enhanced funding provision amends § 1905 of the Social Security Act rather than § 1902, which lays out state plan requirements. Section 1905 defines the scope of state activities that qualify for federal Medicaid funding, meaning that the definition of the funding enhancement is tied to the definition of the ACA expansion group.

The Rescue Plan Expansion Enhancement And The Future Of § 1115

Thus, a key question is how this new enhancement provision interacts with § 1115 of the Social Security Act, which authorizes the HHS Secretary to waive certain provisions of federal law in order to undertake “experimental, pilot, or demonstration project[s]” that are “likely to assist in promoting the objectives of” Medicaid. The Biden administration is expected to use § 1115 authority to seek to persuade the remaining states to expand. What leeway does the new enhancement provision offer in terms of the types of expansion demonstrations that states might develop with administration approval?

Under § 1115, the Secretary’s waiver power is confined to § 1902 of the Social Security Act, which lays out Medicaid’s state plan requirements, along with § 1903, which specifies the federal financial contribution rate for various types of state Medicaid expenditures. In the case of the new enhancement incentive however, the amendment is to § 1905, and thus outside the scope of what is waivable under § 1115. Because the Secretary cannot use § 1115 to waive the provisions of 1905, newly expanding states that wish to qualify for the new enhancement funding must cover “all individuals” described in the expansion group as a condition of enhancement funding.

This restriction on the availability of enhancement funding is consistent with a policy issued by the Obama administration in December 2012, in the wake of National Federation of Independent Business v Sebelius. (That case effectively converted the ACA Medicaid expansion into a state option.) The Obama administration concluded that because of the way in which the expansion group language was drafted, partial expansion (e.g., up to 100 percent of the federal poverty level) was legally permissible but would not qualify for the enhanced federal match the ACA provided for the expansion population. This latest iteration of an expansion enhancement appears to be structured to continue the same policy—to qualify for enhancement funds, states must expand to the entire ACA expansion group.

The dozen states that to date have not expanded may yet opt to respond to this latest incentive. The problem is an urgent one; in what may be the most singular example of health care inequity facing the nation, residents of 12 states—disproportionately Black—have been left to face a pandemic without access to either Medicaid or subsidized marketplace coverage, simply because their incomes are too low and their state is a nonexpansion state. Nothing in the American Rescue Plan extends even temporary marketplace coverage to the millions of impoverished people who are caught in this coverage gap. Therefore, how to use § 1115 to spur expansion remains an ongoing subject of extensive discussion and debate; indeed, strengthening Medicaid was a focus of one of the President’s earliest executive orders.

As has been discussed at length, the Obama administration used this special 1115 experimental authority to encourage states to adopt the Medicaid expansion population under terms that, in fact, differed from the eligibility rules applicable in states that covered the group through a simple state plan amendment. Most notably, several of the seven states that adopted the full ACA expansion at enhanced federal funding rates but on a § 1115 demonstration basis were in fact permitted to impose certain eligibility restrictions on the expansion population, such as elimination of retroactive eligibility. At least one state, Indiana, was permitted to lock out members of the eligibility group who failed to pay premiums owed, a sanction akin to the loss of eligibility. Otherwise, however, the Obama administration insisted on full expansion by demonstration states that sought to qualify for enhanced funding as part of their demonstrations.

The Trump administration, of course, took an entirely different view, allowing eligibility restrictions on a demonstration basis that have no place in the Medicaid program. Specifically, the administration used its authority to permit states to add an explicit eligibility restriction tied to compelled work; it continued to permit states pursuing work restrictions to nonetheless qualify for ACA enhancement funding. The legality of work restrictions as a permissible use of § 1115 is now before the United States Supreme Court in the Gresham and Philbrick cases. Whether the case is ever argued and decided is uncertain at this point—the Court has cancelled the March 29 oral argument but has not yet dismissed the case, even though the Biden administration is now in the process of ending work experiments.

The current administration has made clear that work as a condition of Medicaid eligibility is not an experiment it wishes to pursue, and a landmark study has documented the adverse impact of a work requirement on Medicaid coverage. But the Biden team might want to use § 1115 to reach those in the coverage gap, in nonexpansion states. For example, a number of states have sought permission to adopt a partial Medicaid expansion, up to 100 percent of the federal poverty level. Given the improvements in Marketplace subsidies, such a compromise might be more feasible.

However, as with the original ACA enhanced funding language, the new funding enhancement provision also seems to foreclose the HHS Secretary from pursuing such a direction. As the Obama administration did previously, the Secretary might once again allow restrictions that while not a complete elimination of eligibility, certainly constrain the reach of the expansion. The HHS Secretary also might permit other reforms, such using an Arkansas-type “private option” Medicaid buy-in, so that expansion takes the form of coverage through Marketplace health plans for some or most newly eligible beneficiaries. Similarly, the Secretary might revisit other limits allowed during the Obama years, such as more limited coverage and higher cost sharing for the expansion group.

Even as the Biden administration navigates the end of the work experiments and the pending Supreme Court cases, attention increasingly will turn to what types of deals administration officials are prepared to explore with nonexpansion states. This is particularly so in the case of Florida and Texas; these states, which together account for a high proportion of people caught in the coverage gap, only recently received lengthy extensions of their uncompensated care pool funding—seemingly a hefty financial award for rejecting insurance coverage.

Whether the administration will be able to move these two states off their pooling structures and into an insurance model ultimately may depend on whether the Biden administration is willing to honor the 10-year approval period—vastly beyond the five-year experimental coverage period normally allowed—as well as a federal investment of this magnitude without any coverage. This same question—whether the Biden administration will insist on changes to high-cost 1115 demonstrations approved during the Trump era that undermine coverage rather than enhance it, is also squarely on the table in the case of Tennessee; that state’s block grant approval in the waning days of the Trump administration represents an enormous investment of funding by the federal government without any coverage guarantee.

Partial expansion and eligibility restrictions on the expansion population are off the table, at least insofar as enhancement funding is concerned. But it remains to be seen whether the newest version of the funding enhancement, coupled with a more hard-nosed negotiation over the terms of approved 1115 demonstrations that award vast amounts of funding without the promise of coverage, might eventually be a door opener.


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