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The federal government is balking at Michigan's approval request to continue health care coverage for nearly 600,000 low-income residents, state officials say.

The development, they say, threatens the program's future.

Under state law, Michigan must, by Dec. 31, receive a waiver from the Centers for Medicare and Medicaid Services on the health care cost-sharing requirements in its Medicaid expansion law — or the state's program will end. The agency is part of the U.S. Department of Health and Human Services, which oversees the federal Affordable Care Act.

The program could continue if federal officials find a way to approve the waiver or if the Legislature changes the state's Medicaid expansion law to meet federal concerns. The final legislative approval of the expansion squeaked through the state Senate, 20-18, in August 2013, and political experts and lawmakers indicated Tuesday that changing the law would be an uphill battle.

Asked Tuesday about the seriousness of concerns about not receiving federal approval, Michigan Medicaid Director Steve Fitton said: "It's an issue we take very seriously, because there's 600,000 people on the program.

"When you have 600,000 people that are getting health care, with a delivery and cost-sharing structure that's very creative, and it seems to be functioning very well, any degree of risk would be of concern."

The program provides Medicaid coverage to adults with incomes between 100 percent and 133 percent of the federal poverty level, or roughly $12,000 for one person. It's been popular, exceeding multi-year enrollment projections just months after it launched April 1, 2014.

The Legislature approved the expansion contingent on federal approval for two waivers: One, already approved, allow residents to share in the costs of their Medicaid coverage. Republican lawmakers insisted on the cost-sharing requirements because the federal government will gradually stop paying for all of the cost of the health coverage after 2017.

Though critics worried that cost-sharing would discourage enrollment, Michigan's expanded Medicaid program, called Healthy Michigan Plan, has been widely lauded as a model of reform by encouraging personal responsibility.

The first waiver was granted in December 2013, allowing Michigan to charge recipients from 3-5 percent of their income for coverage, depending on their earnings. A resident with an income of $12,000 annually would contribute 3 percent, or $360 annually.

Under the second waiver, people would be required to make a choice after 48 months on the program. They could purchase a policy on the health insurance exchange at HealthCare.gov, or start contributing up to 7 percent of their income to remain on the Healthy Michigan Plan.

Fitton said federal officials are concerned because the Affordable Care Act allows only those people without health insurance to purchase coverage through the health insurance exchange. As the Michigan law is written, people could try to purchase coverage at HealthCare.gov while still insured by the Healthy Michigan Plan.

Another issue is the increase on the cost-sharing rate to 7 percent. The federal Medicaid center has capped cost-sharing at 5 percent in other states.

The Centers for Medicare and Medicaid Services said Tuesday they are "unable to comment on waiver requests that are pending or under review."

The administration of Gov. Rick Snyder, who supported Medicaid expansion, will want to work through any problems with federal officials without involving the Legislature, government officials and other experts said Tuesday.

"The state continues to have constructive discussions with the federal government on this important issue, working toward what we hope will be a positive outcome in compliance with state law," Snyder spokesman David Murray said Tuesday.

Fitton, the state Medicaid director, said the administration is "studying various options where the federal government has waiver processes that provide flexibility," but wouldn't elaborate.

"We're in a negotiation with the federal government, and we need to have private discussions … so we can work our way through it," Fitton said.

Marianne Udow-Phillips, director of the Center for Healthcare Research and Transformation at the University of Michigan, said it's in the Obama administration's interest to approve Michigan's waiver request.

"Were they to lose that coverage, it would be really devastating to the individuals and to the providers, and everybody will be working as hard as they can to resolve these issues," Udow-Phillips said. "I don't think it is definitive by any means to say it won't be approved."

Michigan Health & Hospital Association spokeswoman Ruthanne Sudderth agreed.

"We are optimistic that the Centers for Medicare & Medicaid Services ... will find a way to embrace Michigan's innovative model," Sudderth said.

The situation provides an opening for critics such as state Sen. Patrick Colbeck, R-Canton, who opposes the Medicaid expansion and the Affordable Care Act. A free-market advocate, Colbeck has proposed giving low-income residents access to direct primary care services and high-deductible, tax-exempt insurance plans for catastrophic medical care.

"It's consistent with my assertion from the beginning that the Affordable Care Act is all about control, not care," Colbeck said. "Here we are trying to do a responsible interpretation of what … some of my colleagues thought was a good approach for serving those who are struggling to get access to health care, and they are saying that that's not a viable option."

Rep. Brandon Dillon, D-Grand Rapids, said ending Healthy Michigan "would be cataclysmic" and would force the Legislature to act.

"You would have nearly three-quarters of a million people who would have the proverbial health care rug pulled out from under them," Dillon said. Plus, he said, the state would lose about $250 million in annual savings from the federal government, picking up costs for community mental health programs that the state used to shoulder.

John Truscott, a Lansing Republican political consultant who sometimes works on health care issues, said the federal agency's hesitation is a conundrum for Snyder and the White House.

"I think it is a difficult issue for the Snyder administration. It is a bigger political issue for the Obama administration," Truscott said. "Michigan has been a big success story for the Affordable Care Act.

"If (Obama officials) don't grant a little more flexibility that helps make the program work and the Michigan program falls apart, they just lost one of their shiny examples of success."

kbouffard@detroitnews.com

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