The Centers for Medicare and Medicaid Services (CMS) has approved Pennsylvania’s demonstration proposal to expand Medicaid to adults with incomes through 133 percent of the federal poverty line. The state is the 28th (including D.C.) to pursue Medicaid expansion, and one of a growing number of states to do so under an alternative model developed in collaboration with the federal government.

After extensive negotiations between state officials and CMS, Pennsylvania’s demonstration has several features that distinguish it from the typical expansion plan. Notable among them:

Private Care Option: The demonstration authorizes the state to require that a portion of newly eligible beneficiaries receive benefits through private managed care health plans. Under what is referred to as the Private Care Option, the state will offer premium assistance for beneficiaries to purchase these private plans.

Premiums: CMS has also authorized the state to charge premiums to the expansion population, beginning in the second year of the demonstration (2016). CMS limited this authority such that it is applicable against individuals with income over 100 percent of the federal poverty line, and, consistent with federal law, the premium may not exceed 2 percent of the beneficiary’s household income. A beneficiary may be disenrolled from coverage after failing to pay the monthly premium for three consecutive months, but the state cannot enforce a waiting period for re-enrollment.

Incentives to Encourage Health-Promoting Behavior: Beneficiaries will be able to lower their premiums or have their cost-sharing obligations reduced by completing various “healthy behaviors.”   (Outside of the demonstration, beneficiaries may also be eligible for lower premiums through participation in the state’s Encouraging Employment program.)

As mentioned, Pennsylvania is one of many states—including Arkansas, Iowa, and Michigan—moving forward with an alternative Medicaid expansion plan through a Section 1115 waiver.

Arkansas was the first state to receive CMS approval for the “private option” model, implementation of which began earlier this year. It will be interesting to compare how the model plays out in these two states given potentially significant differences. Prior to the demonstration, Arkansas had not enrolled Medicaid beneficiaries in managed care. Pennsylvania, on the other hand, has experimented with Medicaid managed care program since the 1980s. In Arkansas, beneficiaries are not charged a premium. Moreover, the Arkansas expansion is estimated to insure approximately 225,000 adults, whereas it is anticipated that coverage will be extended to approximately 500,000 adults in Pennsylvania. Finally, Arkansas’ demonstration was approved for a period of three years, while Pennsylvania’s demonstration has been approved for five.

While Arkansas pioneered the private option, states have since sought additional flexibility. Pennsylvania’s plan is more reminiscent of Iowa’s expansion, which generally enrolls individuals in a qualified health plan sold through the exchange but also charges premiums and offers financial incentives for beneficiaries accessing preventive care and engaging in health-promoting behaviors. Questions arise as to how states contemplating alternative expansion plans will test the limits of federal compromise and whether further extensions of the model lie ahead. Interestingly, Pennsylvania’s original application sought 24 waivers from 15 provisions of federal law. The demonstration, as approved, includes only four.

Coverage will begin in Pennsylvania in January 2015.