Manatt on Health: Medicaid Edition

Manatt on Medicaid: Arizona Releases Draft Waiver Request for Approval to Implement Reforms to ACA Medicaid Expansion

Authors: Deborah Bachrach, Partner, | Patricia Boozang, Senior Managing Director | Mindy Lipson, Manager


On August 18, 2015, Arizona released the Modernizing Arizona Medicaid proposal for a new 1115 waiver to implement coverage and delivery system reforms in its Medicaid program, the Arizona Health Care Cost Containment System (AHCCCS).1 Among other initiatives, Arizona’s draft waiver application seeks to establish AHCCCS CARE (Choice, Accountability, Responsibility, Engagement), and thereby modify features of coverage for Arizona’s expansion population, previously eligible childless adults, and Temporary Assistance for Needy Families (TANF) parents, while maintaining a Medicaid managed care delivery system.2,3 According to the waiver application, reforms to Medicaid coverage under AHCCCS CARE are intended to achieve three goals:

(1) Engage Arizonans to take charge of their health,
(2) Make Medicaid a temporary option, and
(3) Promote a quality product at the most affordable price for Arizona’s Medicaid expansion and other adult populations.

The AHCCCS CARE provisions of the proposed waiver reflect requirements contained in State legislation passed during the 2015 legislative session: Senate Bill 1475 and Senate Bill 1092. Specifically, these laws require the State to institute premiums set at 2% of income for all enrollees, charge co-payments of up to $25 for non-emergency use of the emergency department (ED), and eliminate coverage of non-emergency medical transportation (NEMT). In addition, they instruct the State Medicaid Agency to seek Centers for Medicare & Medicaid Services’ (CMS) approval for several coverage features that CMS has not previously authorized, including:

  • Instituting a work requirement for enrollees
  • Limiting lifetime Medicaid enrollment to five years
  • Disenrolling individuals from Medicaid for failure to report an income change or inaccurate reporting of work status
  • Imposing both premiums and co-payments for individuals with incomes below 100% of the federal poverty level (FPL)

State legislation does not link the continuation of expansion to CMS approval of these provisions. However, the legislation requires that annually the AHCCCS director reapply for any waivers that have not been granted.

The State projects that 570,883 individuals will be enrolled in coverage under the AHCCCS CARE portion of its demonstration:

Eligibility Group Number of Projected Enrollees
Newly eligible adults 62,763
Previously eligible childless adults 251,987
TANF parents 256,133



Under AHCCCS CARE, Arizona will provide the benefits specified under its State Plan. The State is seeking to waive the Medicaid requirement to provide NEMT.

Premiums and Cost Sharing

Monthly Payments

Arizona is requesting a waiver to require all AHCCCS CARE enrollees to make monthly payments encompassing a premium of up to 2% of annual household income and co-payments for services already obtained of up to 3% of annual household income. As required by federal law, enrollee contributions (premiums and cost sharing) will be capped at 5% of annual household income. The third-party administrator managing the State’s AHCCCS CARE Accounts (health savings-like accounts, described in more detail below) will calculate co-payment amounts based on enrollees’ managed care claims. No co-payments will be collected at the point of service.

Consequences of Non-Payment

Individuals with incomes above 100% FPL who do not make their monthly payments will be disenrolled from coverage for six months; those with incomes below 100% FPL who fail to make their monthly payments will owe a debt to the State.

Services Subject to Co-Payments

The State is planning to impose “strategic” co-payments in the following circumstances:

  • Non-emergency use of the ED
  • Prescriptions for opioids, except in the case of patients who have cancer or are terminally ill
  • Prescriptions for brand-name drugs when a generic is available
  • Services that would have been rendered at a missed appointment
  • Specialist visits without a referral from the individual’s primary care provider

For the circumstances listed above, co-payment amounts will be consistent with Arizona’s State Plan, with the exception of non-emergency use of the ED, where the State is seeking to charge the following amounts based on State legislative directive:

  • For individuals with incomes below 100% FPL, the first non-emergency ED visit will be subject to an $8 co-payment; thereafter, a $25 co-payment will be imposed.
  • For individuals with incomes above 100% FPL, the State will institute a $25 co-payment for all non-emergency ED visits.
  • For individuals at all income levels, the State will impose a $25 co-payment for non-emergency use of the ED if a community health center, rural health center, or urgent care center is within 20 miles of the hospital.

All other services, including those related to primary care, managing chronic illness, and OB-GYN, will not be subject to co-payments. In addition, individuals with serious mental illness will be exempt from co-payments.


All AHCCCS CARE enrollees who make their monthly payments in a timely manner, partake in AHCCCS CARE’s work initiative, AHCCCS Works (described in more detail below), and achieve Healthy Arizona healthy behavior standards (described in more detail below) will have access to an AHCCCS CARE Account, similar to a health savings account. AHCCCS CARE Accounts will primarily be funded through enrollee premiums, although employers and philanthropic organizations may also contribute. Individuals may use their AHCCCS CARE Accounts to pay for benefits not covered by their managed care plan, such as dental, vision, or nutrition counseling services. AHCCCS CARE Accounts will be managed by a third-party administrator.


Based on legislative requirements, Arizona is seeking a waiver to implement AHCCCS Works, which imposes a “work requirement” that “able-bodied” individuals enrolled in AHCCCS CARE must be working, searching for work, attending school, or participating in a job training program. On a monthly basis, individuals will have to report whether they are meeting AHCCCS Works requirements. Individuals who report that they do not meet work requirements will not have access to an AHCCCS CARE Account. The waiver proposal indicates that individuals who misrepresent their work status can be disenrolled from Medicaid and prohibited from re-enrolling for a year.

Under AHCCCS Works, Arizona will also seek to incentivize work by collaborating with State employment supports programs, permitting employers to contribute to their employees’ AHCCCS CARE Accounts, and allowing individuals to keep their AHCCCS CARE Accounts after their income increases beyond Medicaid limits.

Healthy Arizona

Arizona will institute Healthy Arizona, an initiative under AHCCCS CARE to incentivize individuals to meet wellness and chronic disease targets, such as obtaining a flu shot or managing their asthma. Individuals who achieve Healthy Arizona targets will have the option of making a lower monthly payment or rolling over their AHCCCS CARE Account balance to the next year. The State is exploring private partnerships that may be able to offer additional incentives to enrollees who meet multiple targets.

Limits on Enrollment

Based on directives from the Arizona Legislature under Senate Bill 1092, the State is seeking a waiver to limit “able-bodied” individuals’ lifetime enrollment in Medicaid to five years beginning at the approval of this demonstration. In addition, the State is seeking approval to disenroll for one year individuals who “knowingly” fail to report a change in income. The State proposes to exempt certain populations from these two provisions, including individuals receiving disability benefits, sole caregivers for a child under age 6, and full-time high school students aged 19 and older. In addition, pregnant women and individuals who work full-time but remain income eligible for Medicaid will be exempt from the five-year lifetime enrollment limit.

Moving Forward

Arizona is the first state implementing a traditional Medicaid expansion to release a waiver intended to modify its expansion approach. The State’s application proposes many features being instituted by states operating alternative Medicaid expansions, including premiums, health savings-like accounts, elimination of NEMT, and healthy behavior standards. Arizona is also proposing a number of features that have not previously been approved by CMS, many of which are required to be in the waiver application because of State legislation. The proposed waiver provisions related to work and disenrollment are unlikely to be approved by CMS.

1 Arizona has chosen to pursue a new 1115 waiver instead of extending its current 1115 waiver, which expires on September 30, 2016.

2 Other components of the Modernizing Arizona Medicaid 1115 waiver application include proposing a Delivery System Reform Incentive Payment program, instituting an American Indian Medical Home initiative, and developing a transition plan to phase out the State Safety Net Care Pool for Phoenix Children’s Hospital.

3 In 2000, Arizona voters enacted Proposition 204, which authorized and funded the expansion of Medicaid coverage to childless adults with incomes up to 100% of the federal poverty level (FPL). In 2011, the State froze enrollment for this population. When the State implemented Medicaid expansion under the Affordable Care Act in 2014, Arizona reopened enrollment for childless adults with incomes up to 100% FPL in addition to expanding eligibility to childless adults with incomes between 100% FPL and 138% FPL.



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