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Opportunities To Use Medicaid in Support of Access to Health Care Services

Basic Description of the Medicaid Program

Federal law provides that a State may qualify for Federal Medicaid matching funds only if it designs its program within specific Federal requirements. These include eligibility for specific population groups, coverage for certain medical services and medical providers, and adherence to specific rules relating to payment methodologies, payment amounts, and cost-sharing for Medicaid beneficiaries.

To qualify for Federal Medicaid matching funds, a State must obtain the U.S. Department of Health and Human Services, Centers for Medicare and Medicaid Services (CMS) approval of its Medicaid State Plan. The State Plan is the contract between the Federal government and the State, which spells out the terms and conditions under which the State will receive Federal Medicaid matching funds. Every change in eligibility for beneficiaries, change in coverage of services or change in methodology of reimbursement in a State's Medicaid program requires a State Plan Amendment that must be approved by CMS.

Waivers of Federal Requirements
Federal law requires that Medicaid beneficiaries have freedom of choice of providers, that the program is statewide, and that services are available in an amount, duration and scope sufficient to achieve their purpose.

The Federal law provides flexibility to States to cover optional services and eligibility groups. Some options are specifically described in the Federal law. Other options may be available through "waivers." CMS has authority to "waive" certain statutory requirements so a State can, for example, cover certain benefits or eligibility groups that could not otherwise be covered under Medicaid.

CMS may grant "program waivers" or "research and demonstration waivers". The most common program waiver is under Section 1915(b), which waives the freedom of choice requirement so a State can implement a managed care program. Recently, the Balanced Budget Act of 1997 provided that a State has a choice of a managed care waiver or a State Plan Amendment. Either approach will be approved with a set of specific terms and conditions. Section 1915(c) waivers provide for Home and Community Based Services waivers. Research and demonstration waivers are granted under Section 1115 for more comprehensive programs of health reform. Section 1115 waivers may involve restructuring the State's Medicaid program, as well as the terms and conditions of Federal funding.

The Impact of Medicaid Managed Care
Increasingly, Medicaid programs have moved toward the use of managed care arrangements as delivery systems for Medicaid beneficiaries. Medicaid managed care may involve enrollment with health maintenance organizations (HMOs) and managed care organizations (MCOs) which are paid on a capitated basis, or a Primary Care Case Management (PCCM) system, which is a fee-for-service program that the state develops and manages itself. Some states have found that a PCCM works well in rural areas that may be served by few or no HMOs.

An HMO, a MCO or a PCCM system will require the Medicaid beneficiary to enroll with a specific primary care provider, who by contract with the Medicaid agency accepts certain responsibilities for providing and authorizing needed medical care. Providers not in the HMO network, or not referred by the primary care provider in a PCCM system, may not be able to be reimbursed for services provided to Medicaid beneficiaries.

The use of managed care can raise significant issues for Medicaid reimbursement of services delivered by public health agencies, mental health agencies, health centers or other publicly assisted agencies. This is particularly true for care provided through capitated HMOs and MCOs. Public providers may need to negotiate participation and reimbursement arrangements with an HMO instead of with the Medicaid agency. Public providers would be well served to monitor the development of State Medicaid policy to be sure their interests are taken into account as managed care policy is developed. It is sometimes possible and advantageous to the State agency and the State budget to arrange for certain services to be "carved out" of capitated managed care contracts and directly reimbursed by Medicaid. Services often considered for a carve-out include: family planning; prenatal care and other pregnancy services; selected Early and Periodic Screening, Diagnostic and Treatment (EPSDT) services; immunizations; or mental health services.

Qualifying for Federal Medicaid Matching Funds
Medicaid is a program that provides open-ended Federal contributions according to a statutory formula to participating States with approved plans. CMS reimburses the State Medicaid Agency for a portion of actual expenditures made under the provisions of the State Plan. Federal reimbursements (Federal financial participation, or "FFP") are based on qualifying expenditures for either "medical assistance" (i.e., medical services) or for program administration.

The amount of Federal payments to a State for medical services depends on two factors. The first is the actual amount spent that qualifies as matchable under Medicaid. In general, this means that:

  • The expenditure is for a covered service;
  • Provided by a qualified provider enrolled with the Medicaid program; and
  • To a person eligible for and enrolled in Medicaid at the time of service.

The second factor is the Federal Medical Assistance Percentage (FMAP) for each State. The FMAP percentage is computed from a formula that takes into account the average per capita income for each State relative to the national average. By law, the FMAP cannot be less than 50%. States with per capita personal incomes below the national average have a FMAP rate as high as 77% in fiscal year 2000. This means, for example, for every $1 in qualifying Medicaid expenditures made by a State, the State is able to claim and receive at least $0.50 and as much as $0.77, depending on the State FMAP.

Expenditures for Medicaid-related administrative activities also qualify for Federal matching funds. For administrative expenditures to qualify, the activities must be related to the administration of the State Medicaid program. Unlike the FMAP for medical services, which is different for each State, the administrative matching rates are the same for all States. Expenditures necessary for the administration of the program generally are reimbursed at 50%. Certain administrative expenditures qualify for higher Federal matching rates. For example, certain activities requiring skilled medical professionals qualify for 75% Federal matching. Some expenditures relating to the development of new information technology systems may qualify for Federal matching rates of 75% or 90%.

Medicaid allows State and local agencies that provide or arrange for covered services to Medicaid enrollees to receive Federal payments toward the cost of such services. For these expenditures to qualify for Federal Medicaid payments, service delivery and administrative activities must be carried out under the terms of an inter-agency agreement with the Medicaid agency. The agreement is a contract that spells out the medical and administrative services that will be treated by the Medicaid agency as Medicaid expenditures; and thus, will qualify for Federal funds. The Medicaid agency will include those qualifying expenditures identified in the agreement in its claim for Federal funds. The agreement usually holds the service delivery agency responsible for any potential future recoveries if an audit should find the claim for Federal matching funds included non-qualifying expenditures.

Opportunities to Use Medicaid
Federal Medicaid matching funds have proven to be a rich source of financing for many State and local health programs. Federal Medicaid funds may help finance a new program or coverage, or the expansion of an existing program. In some cases, where an existing health program was previously financed entirely from State or local funds, the availability of Federal Medicaid matching funds may reduce the cost of general fund dollars borne by State or local government.

The opportunity to use Medicaid as a source of financing for State or local health programs depends on the ability of policymakers to design programs (or redefine on-going programs) that meet the Medicaid requirements.

How to Increase Medicaid Funding for State and Local Health Services
Policy changes that will permit a State program to qualify its expenditures for Medicaid matching funds can be classified as follows:

I. Increase the Number of Persons Who Qualify for Medicaid Coverage: Expenditures cannot qualify for Federal Medicaid matching funds when services are provided to persons who are not enrolled in Medicaid. Thus, one avenue for increasing Medicaid support for a program is for eligibility to be expanded so a greater number of persons served by a program may qualify. Many persons who are eligible for Medicaid do not apply because they do not know they are eligible, or they regard the application process as difficult.

State residency requirements are not allowed under Medicaid. This means, for example, that migrant workers and their children are able to qualify on the same terms as any other person in a specific State.

Medicaid eligibility is determined in general by two key factors. First, persons must be in a qualifying category. Second, persons must meet State-defined income and asset criteria. (Other requirements also apply, such as being a legal U.S. resident.) Each Medicaid program must cover certain groups of persons, but has the opportunity to offer coverage to other optional eligibility categories.

Medicaid eligibility rules are complex. The following is a general description of Medicaid eligibility categories and rules:

Mandatory Eligibility Groups: Federal law specifies that States must cover certain eligibility categories, including:

  • Low-income families with children who would have qualified for Aid to Families with Dependent Children (AFDC) cash assistance in July 1996. These persons may or may not be receiving Temporary Assistance to Needy Families (TANF) cash assistance now.
  • Children under age 6 in families with incomes below 133% of the federal poverty level (FPL).
  • Children ages 6 to 17 in families with incomes below 100% of the FPL (to age 18 in 2001).
  • Pregnant women with family income below 133% of the FPL.
  • Elderly, blind or disabled adults and children receiving Supplemental Security Income (SSI) payments.
  • Children receiving foster care or adoption assistance under Title IV of the Social Security Act.
  • Persons who lose eligibility for AFDC/TANF due to earnings (i.e., leave welfare for work) may continue on Medicaid for up to a year; those who leave due to increases in child support payments, may continue on Medicaid up to four months.
  • Certain Medicare beneficiaries, with benefits depending upon income up to 175% of FPL are also eligible for Medicaid. "Dual Eligibles" are a group enrolled in both Medicaid and Medicare. Depending on the individual's income, these persons qualify for various levels of Medicaid coverage and support. Persons who qualify under SSI income standards qualify for full Medicaid coverage. Persons above this level may not receive full Medicaid benefits. Medicaid pays for all or a portion of Medicare premiums, deductibles, and coinsurance, depending on the income level of the beneficiary. (An asset test also applies such that countable assets cannot exceed $4,000 for an individual, or $6,000 for a couple.)
  • Qualified Medicare Beneficiaries (QMBs): Income up to 100% of the FPL. Medicaid pays Medicare part A and B premiums, deductibles and cost sharing related to Medicare covered benefits.
  • Specified Low-Income Medicare Beneficiaries (SLIMBs): Income between 100% and 120% of the FPL. Medicaid pays only for the Medicare Part B premium.
  • Qualified Individuals (QIs): Medicaid pays all or part of the Medicare Part B premium for persons who would be eligible to be a QMB except their income is between 120% and 135%, or at state option up to 175% of the FPL.
  • Qualified Disabled and Working Individuals (QDWIs): Persons who are disabled, but who lost their Medicare Part A benefit due to increased earnings, and whose income is between 100% and 200% of the FPL. Medicaid pays the only the Part A premium.

Optional Eligibility Groups: Federal law specifies that States may, at the option of the State, cover low-income persons in a number of specified eligibility groups. These include (but are not limited to) the following:

  • Pregnant women, infants, children and parents of any Medicaid-eligible child, including parents in two-parent families with income and assets at or below state-defined levels.
  • Disabled children who would be eligible under criteria in effect in July 1996.
  • Persons in institutions with incomes less than 300% of the SSI Federal benefit level.
  • Recipients of SSI payments, and disabled or elderly persons with incomes below100% of the FPL.
  • Certain working disabled persons who would qualify for SSI if they were not working, up to 250% of the FPL.
  • Children under a "Medicaid Expansion" State Child Health Insurance Program.
  • Persons who are "Medically Needy".
In 1999, 42 states had a Medically Needy Program.

The "Medically Needy" category provides for a different method of determining eligibility, based on actual medical expenses incurred by an individual. Medically needy persons are individuals who fall within one of the mandatory or optional eligibility groups, but have income and resources that would make them ineligible, except when the cost of their medical care is taken into account. When they incur medical expenses they "spend down" their income, and become eligible for the balance of the eligibility period from the point in time they spend down their income to the eligibility level. The process begins again at the beginning of the next state-defined eligibility period.

Income Eligibility Levels: States have considerable flexibility in setting permissible income levels. Income eligibility levels can be set separately for specific groups, such as children, families, pregnant women, the disabled and the elderly.

States can increase effective eligibility levels for pregnant women, children, families with children, elderly and disabled persons by "disregarding" a certain amount of income. In this way, eligibility for children could be extended above 185% of the FPL (technically the upper limit for pregnant women and infants), by setting the disregarded amount to a level that would bring countable income down to 185% of the FPL. To extend the eligibility level to 285% of the FPL, for example, a State would set the disregarded amount at 100% of the FPL.

The income disregard provisions can also be used to effectively increase the income limits for Qualified Medicare Beneficiaries (who receive Medicaid assistance with their Medicare premiums, deductibles, and coinsurance), and some aged, blind and disabled Medicaid groups. This flexibility over countable income is found in Section 1902 (r)(2) and Section 1931 of the Social Security Act.

State Children's Health Insurance Program (SCHIP): A State can implement its SCHIP program as a Medicaid expansion, or as a separate health insurance program. Another option is for a State to have both a Medicaid expansion and a separate program operating at the same time with each one targeted at health coverage for different groups of children. SCHIP has an enhanced Federal matching rate, ranging from 65 percent to about 85 percent. Because the matching rate is higher, a State can extend coverage to children at a lower State cost through SCHIP than through regular Medicaid.

A key feature of SCHIP is its focus on finding children who are eligible, but not yet enrolled in either Medicaid or a separate SCHIP program. Matching funds are available specifically for the purpose of marketing, outreach and determining eligibility.

II. Increase Services Covered by Medicaid: Each State determines what medical services will be covered under Medicaid. By defining services appropriately, a State can be sure services provided by other State agencies qualify for Medicaid reimbursement. Typically, medical services provided through public health, mental health, disability, substance abuse treatment, aging, or education agencies can qualify for Federal Medicaid matching funds. Federal Medicaid matching funds can help finance capacity expansion in these programs or reduce the net cost to the State for these services, if they are specifically covered in the State Plan.

Mandatory coverage includes the following services:

  • Hospital services, inpatient and outpatient
  • Physician services
  • Lab and X-ray
  • Immunizations and other well-child services listed under the Early and Periodic Screening, Diagnostic and Treatment requirements, including any medically necessary diagnostic and treatment services, plus vision, dental and hearing services for children.
  • Family planning services
  • Nurse midwife, pediatric and family nurse practitioner serves
  • Federally-qualified health center (FQHC) and rural health clinic (RHC) services
  • Home health care services
  • Nursing home services
  • Transportation for medical services

Optional coverages include 34 specific services, including the following:

  • Prescription drugs
  • Clinic series
  • Rehabilitation and physical therapy services
  • Prosthetic and orthotic devices
  • Optometrist services and eyeglasses
  • Hearing services
  • Dental Services
  • Home and community based care for persons with certain impairments
The number of optional services covered by states
range from 13 to 33. The median is 24.

III. Set Medicaid Reimbursement Rates at Appropriate Levels: State Medicaid programs are required by Federal law to set their payment rates at a levels sufficient to achieve access to needed care. Medicaid may want to set rates to achieve specific public policy objectives, such as access to primary care, well-child care, prenatal care or deliveries.

Rates for safety net providers, including FQHCs and RHCs, can be set to assure their financial viability. Federal law specifies cost-related reimbursement methods for FQHCs, but meeting the minimum legal requirement may not assure full reimbursement of costs for Medicaid patients. Medicaid has the option under the law to provide full-cost reimbursement for these providers.

The maximum amount that the State Medicaid Programs are allowed to pay is defined by the Upper Payment Limit, which is generally the amount Medicare would have paid for the same services and patients. If a Medicaid program were to pay an amount greater than the upper payment limit, the amount above the limit would not qualify for Federal Medicaid matching funds.

Special "Disproportionate Share Hospital" (DSH) payments can be made to hospitals that qualify on the basis of their service to Medicaid and the uninsured. Each State is able to define the specific criteria these hospitals must meet to qualify. Funds are distributed based on a state-defined formula. DSH payments are limited to inpatient and outpatient hospital providers.

IV. Find and Enroll Potential Eligibles: Medicaid, Title V Maternal and Child Health Program or Temporary Assistance to Needy Families (TANF) funding can support administrative activities that are directed at case-finding, education and outreach initiatives that help locate and enroll persons who are eligible for Medicaid. Medicaid funding also is available to create the systems needed to determine eligibility and to enroll individuals into Medicaid. Federal Medicaid funds can be used to support outstationed enrollment services of FQHCs, DSH payment hospitals, health departments and other community sites.

Medicaid can also reimburse for case management as an administrative activity. Case management may apply in situations where enrolled persons have complex medical conditions; and it is beneficial to set up a process to systematically manage their medical care.

Related Links

HRSA Provider Reimbursement

Centers for Medicare and Medicaid Services

Kaiser Commission on Medicaid and the Uninsured (not a U.S. Government Web site)

National Academy for State Health Policy (not a U.S. Government Web site)

National Health Law Program (not a U.S. Government Web site)

Center on Budget and Policy Priorities (not a U.S. Government Web site)

Urban Institute New Federalism Project (not a U.S. Government Web site)

Rural Policy Research Institute (not a U.S. Government Web site)