The federal government recognizes that each states' population is different. The needs of the citizens of New York may differ from the needs of those residing in Montana. To promote a Medicaid program that is suitable and useful for individual states, there is a process by which state governments can seek to deviate from the federally-mandated Medicaid rules. The purpose of the program is to not only allow states leeway in implementing the Medicaid program given their unique population, but to also allow for the testing and development of differing rules to see if the Medicaid program as a whole could benefit from the new rules.
This process of deviation from the federal rules entails submitting a waiver to Centers for Medicare and Medicaid Services (CMS). For a waiver to be granted, it must increase recipient coverage, strengthen available provider networks, improve health outcomes for recipients, or increase the effectiveness of care via service delivery networks. If granted, waivers are approved for 5 years, typically. Additional extensions may be granted.
So, even though Federal law requires retroactive coverage for Medicaid recipients, states may seek renunciation of the obligation by submitting a demonstration waiver to CMS. Successfully procuring a waiver allows the state to skirt the well-established retroactive coverage rule. Many states rationalize these waiver requests by showing a combination of several factors including a showing that the waiver promotes the use of Medicaid or commercial insurance, prior to medical need arising; a financial benefit to the state; a history of infrequent use; and the presence of other coverage or presumptive eligibility.
Promoting Consistent Coverage and Access to Other Coverage:
Some states that have successfully obtained waivers focus on the importance of encouraging individuals to obtain and retain consistent health care coverage. An individual covered prior to a Medicaid application would, theoretically, not need the retroactive payments. A needy person eligible for Medicaid coverage should do so when they first become eligible - this eliminates a surprise bill for the states when retroactive coverage applies. Those not impoverished enough to qualify for Medicaid should prudently obtain other, commercial, coverage.
Proactively Accessing Medicaid:
One could argue that continuous coverage via Medicaid saves the state money over the long term because these individuals have regular access to medical care, keeping them healthier longer. On the other hand, unlimited access to Medicaid-paid healthcare can incentivize an eagerness to seek out medical care for otherwise rudimentary conditions. A Medicaid-covered individual is far more likely to visit the ER for a bad cold than another individual with a $250 ER copay. Such use is certainly not cost saving for the states.
Proactively Accessing Commercial Coverage:
Keeping up on one's health logically increases the likelihood of staying healthy. Thus, having consistent coverage promotes this objective. Unfortunately, though, the inability to qualify for Medicaid coverage due to being over-resourced does not mean that these individuals can afford commercial coverage - let alone the costly copays and deductibles associated with the plans. For many, paying out-of-pocket for commercial insurance actually impoverishes them, yet they still cannot qualify for Medicaid because without the expense, they are not needy enough.
Because many cannot afford commercial coverage but still do not qualify for Medicaid, they go without health insurance altogether. If a medical event happens that renders them unable to work, then they may qualify for Medicaid without their income. For example, say a senior receives Social Security benefits and works part-time. With those two income sources combined, their income is over the limit and they cannot qualify for Medicaid. If the senior suffers a fall and cannot work at their part-time job, their income falls below the limit and they are otherwise eligible. Retroactive benefits would cover the cost of the medical event, if it was determined that they lost their job and didn't have that additional income at the time immediately following the fall. Without retroactive coverage, the person may qualify after the hefty bills from the medical event were accrued and leave them unable to pay the debt personally.
To further the problem, commercial insurers do not cover long-term care. Many states' waivers include those age 65 and older - the most obvious group of people likely to be forced into long-term care. An individual receiving long-term care services experiences no benefit from having commercial coverage. Without retroactive coverage for these long-term care costs, an individual scrambling to get the necessary documentation ready for an application for Medicaid benefits could be left with extensive medical debt incurred pre-application. Eliminating retroactive coverage leaves medical facilities providing pre-application care at a loss because those eligible for Medicaid do not have the resources to pay the incurred debt. Thus, the state may financially benefit, but at the expense of medical care institutions.
Financial Benefit to the State:
States can easily argue that eliminating retroactive payments would benefit the state financially. Obviously, not paying for services rendered is money not spent. However reimbursement for retroactive costs may not be the greatest source of expense to the states, and the lack thereof may harm both individuals and medical care facilities.
Lack of Use:
An element of retroactive Medicaid coverage is based upon the presence of neediness during the months preceding application. In order to avail themselves to retroactive benefits, the applicant must have been Medicaid eligible during that retroactive period. If an applicant would not have been eligible based on their financial condition during the retroactive coverage period, then that backdated coverage would not be accessible.
For example, if an individual with too many resources for Medicaid eligibility expends their wealth on expensive medical care until their level of need meets Medicaid requirements, the individual would not be eligible for the retroactive coverage until the exact point they were otherwise financially eligible. There could be a gap of responsibility during this time. These individuals have no way to pay for further pre-application expenses because paying for previous care led them to poverty. And if retroactive benefits are not available, the Medicaid applicant could have an even larger gap in responsibility while he or she gathered the necessary paperwork to submit a successful Medicaid application.
These cases account for much of the lack of use argument. If the number of ineligible applicants is great enough, then states can argue that the program is of no realistic benefit and should be eliminated based on the scarcity of its use.