New Jersey Department of Human Services, DAB No. 115 (1980)

GAB Decision 115

August 8, 1980 New Jersey Department of Human Services;
Docket No. 78-159-NJ-HC Dell'Acqua, Frank; Woodruff, Robert Przybylinski, Donald

Background

Title XIX of the Social Security Act (hereafter Act), popularly known
as Medicaid, was enacted in 1965 for the purpose of enabling each state,
as far as practical under conditions in the state, to provide medical
assistance on behalf of families with dependent children and of aged,
blind or disabled individuals with insufficient financial resources to
meet the costs of necessary medical services. Medicaid is a joint
Federal/state program. States initiate, design and operate the
programs. The Department of Health and Human Services (formerly Health,
Education, and Welfare), through the Health Care Financing
Administration (HCFA), approves each State's plan which provides the
basis for claiming Federal financial participation (FFP).

People who receive cash assistance under Aid to Families with
Dependent Children (AFDC) authorized by Title IV-A of the Act are
automatically covered under Medicaid. Aged, blind and disabled people
who receive cash assistance under the Supplemental Security Income (SSI)
program authorized by Title XVI of the Act or under state
supplementation programs are also automatically covered. However,
states can impose Medicaid eligibility requirements on SSI recipients
that are more restrictive than SSI requirements. States can also cover
certain people not entitled to cash assistance. In all cases, however,
the terms and conditions of eligibility must be specified in the State
plan which is approved by HHS. Each state determines who is eligible
for various benefits within the state. Accordingly, eligibility
requirements and benefits available to individuals may vary among the
states.

Under the provisions of Section 121(b) of Public Law 89-97 (Title
XIX) enacted July 30, 1965, no payment may be made to any State under
Title I, Title IV-A, Title X, Title XIV or Title XVI of the Act for
Medical care and services after December 31, 1969. Thereafter, FFP in
vendor payments for medical or remedial care is only available under
Title XIX of the Act.

There is evidence that New Jersey was aware of some of the
ramifications of participating in Medicaid. A report to the New Jersey
General Assembly dated September 10, 1968, prepared by its Committee on
Institutions and Welfare (Tab No. 35, Record of Reconsideration) pointed
out that the State was obligated to develop a State plan to implement
Title XIX or lose Federal funding for medical assistance. The report
recognized the differences between "categorically needy," "medically
needy," and "categorically related" individuals and how the inclusion of
one group in the State plan might require extending coverage to other
groups because of the provisions of the law.

The report specifically addressed New Jersey's Medical Assistance for
the Aged (MAA) program which is the focus of this appeal. Noting the
various options available to the State, the Committee recommended that
all MAA recipients eligible for Old Age Assistance (OAA) (Title I) be
transferred to that program and that the State continue to provide
medical assistance for the remainder at its own expense. The Committee
rejected the option of covering all MAA recipients under Medicaid
because this would require the inclusion of additional individuals not
then receiving MAA, without the benefit of Federal matching funds.

There is also evidence that when State officials were formulating
procedures to implement Title XIX, Federal officials were involved in
the planning. It appears that both the New Jersey Legislature and State
administrators were informed by Federal officials that some recipients
of New Jersey's MAA program would not be able to qualify for the OAA
program because of income and resources in excess of the eligibility
standards (Tab No. 25, Record of Reconsideration). At that time,
monthly income of $160 or less would satisfy the standard of need for
the OAA program (Division of Public Welfare Circular Letter No. 715,
dated November 12, 1969).

New Jersey's Medicaid State Plan, effective January 1, 1970, since
its initial submission, covered only the categorically needy, but
included the optional categorical group described in 45 CFR 248.10(b)(
2)(ii) as eligible individuals. (See State Medical Assistance Manual,
effective January 1, 1970, Section C, page 223, Item 3a)(Tab No. 30,
Record of Reconsideration).

Regulations at 45 CFR 248.10(b)(2)(ii) permit a state, at its option,
to extend Medicaid coverage to a categorically eligible group described
as:

Persons in a medical or intermediate care facility who, if they left
such facility would be eligible for financial assistance under another
of the State's approved plans.This includes persons who have enough
income to meet their personal needs while in the facility, but not
enough to meet their needs outside the facility according to the
appropriate State plan. . . .

During the period from January 1, 1970, through June 30, 1971, New
Jersey's Title I, X, and XIV plans, and therefore its Title XIX State
plan, provided for the recognition of "special circumstance items . . .
essential for the physical health and safety of persons in specified
situations" in calculation of recipients' budgets. Thus, individuals
with incomes in excess of the basic monthly standard of need, against
which applicants' incomes were ordinarily assessed in the course of
determining eligibility for benefits, could be eligible for public
assistance benefits if their incomes were below the financial limit
augmented to include special need items.

New Jersey, however, did not initially make a claim for FFP in paying
the costs of medical services rendered to these individuals during the
period prior to June 30, 1971. The State, without FFP, paid the costs
of care for individuals with incomes over the monthly public assistance
need standard, yet insufficient to meet the costs of nursing home care.
This group apparently included some persons who actually belonged to the
optional Medicaid categorically eligible group as well, and thus should
have been covered under the Medicaid Federal cost sharing program.

On July 1, 1971, New Jersey altered its State plan to provide for a
consolidated standard or "flat grant." That is, all recognized need
items were averaged into single money amounts, which varied only
according to family size. Although provision remained in the plan for
making needed homemaker services available to individuals or family
units already determined to be eligible for assistance, neither the cost
of homemaker service or of any other special circumstance item was
included as a factor in the process of determining financial eligibility
for benefits. The income standard against which institutionalized
individuals' incomes were to be compared for purposes of establishing
Medicaid eligibility was a set monetary level that remained constant
irrespective of any special needs that an individual might have if he
were residing in the community.

The State apparently believed that the income limitation was absolute
and did not initially request FFP for those individuals in medical
facilities whose income and resources exceeded OAA eligibility standards
but whose means were insufficient to meet the costs of institutional
care. According to the Deputy Director, Division of Medical Assistance
and Health Services (Tab No. 17a, Record of Reconsideration), State
officials did not become aware of the fact that at least some of the
individuals could qualify for Medicaid until late September 1973. After
learning that a reasonable fee for homemaking services could be added to
the standard of need for institutionalized individuals, New Jersey
amended its State plan to provide for this category of beneficiary. The
amended State plan was approved by HHS on December 10, 1973, with an
effective date of October 1, 1973.

The State included in its Quarterly Statement of Expenditures for the
period October 1 through December 31, 1974 a claim for FFP in the amount
of $14,842,373 in the costs of rendering services to institutionalized
MAA patients whose special needs would have inflated their basic cost of
living if they had resided in the community, during the period from
January 1, 1970 through October 30, 1973. The Agency informed the State
on May 5, 1975, that the claim was being denied, "(as) New Jersey only
covered in its State Plan for Titles I, X and XIV, persons whose income
was less than $162 until the Plan was amended in November 1973, it is
not possible to claim federal matching prior to that date."

On May 15, 1975, the State requested reconsideration of the
disallowance (SRS Docket No. ME-NJ-7501). After considering substantial
input from the State and Agency officials, including a conference with
the then Acting Administrator on July 1, 1976, the Administrator of HCFA
issued a decision on November 22, 1978 which upheld the Regional
Commissioner's disallowance of the claim for $14,842,373 for FFP in the
State's MAA program for the period July 1, 1971 to September 30, 1973
because under Section 1903(a)(1) of the Act, FFP is allowable solely for
costs incurred in rendering medical assistance to individuals covered
under an approved State plan. The Administrator did hold, however, that
the State could submit a revised claim for the period from January 1,
1970 through June 30, 1971, because the State plan did in fact provide
coverage of the institutionalized population upon which the State based
its claims.

The State did submit a revised claim with its June 1979 Quarterly
Statement for $2,839,237 in FFP for the period from January 1, 1970
through June 30, 1971. It is assumed that this claim has been satisfied
and the only amount still in dispute is for the period from July 1, 1971
to September 30, 1973.

This decision is based on the State's application for review dated
December 20, 1978 and filed in accordance with 45 CFR Part 16, the
Agency's Record of Reconsideration, the Agency's response to the appeal
and the State's reply brief.

This case presents two issues on which the decision could turn. The
primary argument of the State appears to be that the Agency is estopped
from denying New Jersey's claim for FFP because Federal officials
provided inaccurate, incomplete or misleading information upon which the
State relied to its detriment. The State further argues that at least
some of the individuals for whom Federal sharing is being claimed were
in fact covered under the State plan.

As has been noted by both parties in submittals to the Board, the
events leading to formulation of the State plan and its implementation
have become blurred by the passage of time. There does not appear to be
a genuine dispute as to the factual content of evidentiary material
submitted for consideration, and therefore, there is no need for a
hearing under 45 CFR 16.8(b)(2), as was requested by the State. There
is, however, disagreement as to the import of the information and the
conclusions to be drawn therefrom.

Estoppel

New Jersey alleges that Federal officials not only failed to advise
the State that it could increase eligibility standards so as to permit
the MAA population to participate in Medicaid but made material
misrepresentations of fact and law with respect to the State's rights
and options. The State argues that but for Federal officials'
incomplete or erroneous advice, New Jersey would have amended its State
plan to allow for Medicaid coverage of the MAA population since the
State did furnish a full range of services to that group solely at its
own expense.

Under cover of a letter dated April 7, 1976 (Tab No. 17, Record of
Reconsideration), New Jersey submitted affidavits from various State
officials purporting to show that Federal officials did in fact fail to
inform and guide the State in formulating its Medicaid Plan. In
addition, the letter pointed out that the Medicaid State Plan did
provide for coverage of an optional categorically eligible group of
individuals who had enough income to meet their needs while
institutionalized but not enough to meet their needs outside the
facility. It seems, however, that the State did not fully understand
the significance of this information with respect to the period from
January 1, 1970 through June 30, 1971 because it did not argue that it
was clearly entitled to FFP for at least this period of time.

On July 30, 1976 (Tab No. 25, Record of Reconsideration), New Jersey
submitted additional material intended to show that Federal officials
were aware of the State's erroneous beliefs with respect to the
potential eligibility of its MAA population to Medicaid coverage and
were responsible, at the very least, for allowing the State to maintain
its misunderstanding of Federal requirements.

In response to a legal opinion furnished by HHS's Assistant General
Counsel to the Director of the Division of Special Claims (Tab. No. 26,
Record of Reconsideration), the State argued (Tab. No. 28, Record of
Reconsideration) that it is immaterial whether Federal officials misled
the State by statements or silence; the Federal Government was still
liable because of its affirmative duty to provide the State with
technical and legal advice.

In the State's view, the Agency, as a fiduciary of Title XIX monies,
has an affirmative duty to assist the states in developing as inclusive
a program as possible with the aid of Federal funds. The State points
out that Title XIX is remedial legislation and urges that its provisions
be given liberal interpretation in order to fulfill the objectives of
the legislation. Further, the State characterizes 45 CFR
248.10(b)(2)(ii) as ambiguous and notes that New Jersey could not be
expected to understand and apply its provisions without special guidance
from Federal officials. The State argues that by denying the claim for
FFP, the Agency thwarts the State's discretion to develop a medical
assistance program to meet its needs and undermines the framework of
cooperative federalism since the State can no longer rely upon Federal
expertise.

The Agency's response to the State's application for review denies
that the record established a factual basis for the allegations
regarding incorrect or misleading information furnished by Federal
officials. The Agency states that even if the allegations were true,
the Federal Government would not be estopped from denying New Jersey's
claim for benefits.In essence, the Agency argues that the government
could not be estopped when acting in its sovereign rather than
proprietary capacity. In addition, HCFA proposes that the government
could not be bound by its employees' unauthorized representations or by
its employees' passive failure to provide information.

Although the record is by no means conclusive as to what occurred
during the time in question, it is reasonable to assume that the State
was not specifically informed that it could claim FFP for the MAA
population under the State plan in effect January 1, 1970 through June
30, 1971. Otherwise, New Jersey would have claimed the Federal share
from the outset and retained the provisions of the State plan which
granted eligibility to that group. This is not to say, however, that
the Board accepts the State's theory that the Agency is estopped from
denying payment of the claim for the period from July 1, 1971 to
September 30, 1973.

Title XIX of the Social Security Act was carefully considered by both
Houses of Congress prior to its passage. The precise language of the
statute demonstrates that it was the intent of Congress that each State
would determine, within a broad general framework, the extent to which
it would participate in the program. Section 1901 of the Act specifies
that "(for) the purpose of enabling each State, as far as practicable
under the conditions in such State. . ." (emphasis added), to furnish
medical assistance and other services, sufficient sums will be
appropriated to carry out the purpose of the Title. The instrument
evincing the state's degree of participation was to be the State plan
for medical assistance (Section 1902 of the Act). While the state was
charged, as a condition of Federal participation in funding, with
formulating and implementing the State plan, the Secretary of HHS was
given the responsibility to insure that the State plan, as formulated,
conformed to the statutory requirements (Section 1116 of the Act) and to
determine whether the State plan, as implemented, complied with
statutory requirements (Section 1904 of the Act). Thus, the Federal
role in administering this cooperative program was essentially limited
to ensuring that the states were acting in accordance with the
conditions set forth in the legislation.

Given these circumstances, the Board rejects the theory that Federal
officials have a legally enforceable obligation to provide advice and
guidance to states regarding the content of State plans. This is
particularly true in view of the fact that states are not bound to
follow such advice. Federal officials are not privy to the various
policy considerations which determine the scope of a State plan and
cannot be expected to anticipate problems which might result from the
State's implementation of its plan. To the extent that there is a
national policy of "cooperative federalism," it is inconsistent to allow
a state to shift the responsibility for its errors or omissions to
Federal officials and thereby avoid the consequences of its actions.

In the instant case, there is evidence that New Jersey was familiar
with the concept of adjusting the standard of eligibility to allow for
special circumstances. The State plan in effect in 1970 contained an
artfully drafted proviso (Tab No. 17b, Record of Reconsideration) which
granted coverage to the MAA population and entitled New Jersey to FFP in
the expenditures made for this group. The fact that State officials
administering the plan may have been misinformed or uninformed would not
alter the outcome with respect to its claim for FFP for the period from
July 1, 1971 through September 30, 1973. If a state has any doubt
whether it is entitled to FFP, it may submit a claim and receive an
official Agency determination. Likewise, if a state has a question
whether any group may be properly included within the state plan, it may
include the group and receive an official Agency determination whether
such inclusion conforms with the statutory requirements. In both
instances, there are review and appeal rights which the state may
pursue. Thus, even if New Jersey was misinformed, the Board can only
conclude that the State was not diligent in protecting its interests.

Federal regulations encourage the states to consult with regional
staff when a plan is being prepared or revised. Also, regional staff is
expected to initiate discussions with the state on clarification of
significant aspects of the plan (see 45 CFR 201.3(a)(b)). This in no
way, however, shifts the responsibilities of the respective parties.
The state still must present a comprehensive plan for medical assistance
describing the nature and scope of its program and the Agency, on behalf
of the Secretary, must determine prior to approval whether the plan
meets the requirements set forth in the statutes.

Eligibility of MAA Recipients

The State alleges that institutionalized MAA recipients qualify for
"aid or assistance" under the State plan for Title I, X and XIV programs
and thus are eligible, in accordance with the provisions of Section
1902(a) (10) and Section 1905(a) of the Act, for Title XIX benefits.
The "aid or assistance" which the MAA recipients were eligible to
receive was purchased social services, but the State argues that this is
sufficient to meet the statutory requirement in that they would have
been eligible for financial assistance under another State plan had they
returned to the community at large.

The Agency rejected the State's theory that provisions in the State
plan for furnishing social services to individuals with special needs
was sufficient to qualify the MAA population for Title XIX
participation. The Agency stated that the controlling regulation, 45
CFR 222.55, which stipulates that the State may elect to provide
services to certain specified subgroups of people, applied to former or
potential recipients of financial assistance. The fact that the MAA
population would be potentially eligible to participate in various
programs intended to provide special social services was insufficient.

The Board does not agree with the State's interpretation of Section
1902(a)(10)(A) of the Act. Under 45 CFR Part 222, as in effect during
the critical period, various mandatory provisions for all service
programs under Titles I, IV, X, XIV and XVI of the Act are set forth and
include certain mandatory services which must be made available to all
persons eligible under the State plan. In addition, the regulations
provide that states may provide a wide range of optional services. The
optional provisions include in addition to homemaker services such
services as home delivered meals, companionship services, education
services related to consumer protection and money management, assistance
in obtaining recreational and educational services and services for such
groups as alcoholics. If the State's theory is correct, recipients of
any of these services would qualify for medical assistance under Title
XIX because they received "aid and assistance" under one of the
appropriate Titles of the Act.

In the opinion of the Board, when Section 1902(a)(10) speaks of
making medical assistance available to all individuals receiving aid or
assistance under any plan of the State approved under Titles I, IV-A, X,
XIV or XVI of the Act, it is referring to the "categorically needy." Any
other result would require as a matter of law that medical assistance be
furnished to anyone receiving optional services under the State plans of
any of the other Titles. Judging from the evidence of record, New
Jersey intended to restrict its plan to the categorically needy (See Tab
No. 35, Record of Reconsideration).

Retroactivity of Plan Amendment

New Jersey urges that the revision of its State plan in the final
calendar quarter of 1973 be applied retroactively to July 1, 1971. In
support thereof, the State argues that there is no statutory
proscription against retroactive amendment. Noting that 45 CFR 201.3(
g) stipulates that the effective date of a new plan or a plan amendment
that makes new groups eligible for assistance or services provided under
the approved plan may not be earlier that the first day of the calendar
quarter in which it was submitted, the State cites Smale & Robinson v.
United States for the proposition that although Federal administrators
may not waive substantive requirements of a statute, they do have the
power to waive regulatory requirements as to procedure and form which
are shown to be intended solely for administrative convenience which
should not bar retroactivity of the amended State plan.

The Board does not agree. While it is true that Title XIX of the Act
does not specifically prohibit retroactive application of a State plan,
it appears that Congress intended an approved State plan as a requisite
for FFP. Section 1902(a) of the Act requires a State plan to include a
variety of provisions which must be applied contemporaneously with the
service provided.Obviously, these provisions cannot be enforced
retroactively. In this case, for example, the Agency would have no way
of knowing if the State during the period in question granted MAA
benefits to all individuals who met the standards set forth in the
December 1973 amendment to the State plan. The State itself probably
has no way of knowing if this was done. While the Agency could
determine the Federal share of the cost for the institutionalized MAA
population, it could not determine whether in the administration of the
MAA program during the period from July 1, 1971 through September 30,
1973 the State applied the revised standard of eligibility established
by the amended State plan to all eligible or potentially eligible
individuals. If it did not, such actions would constitute failure to
comply substantially with various provisions of Section 1902(a).

Thus, 45 CFR 201.3(g), which limits the effective date of the amended
State plan, is not a mere procedural matter promulgated for
administrative convenience. It is an important portion of the Agency's
process in fulfilling the statutory obligation to determine whether the
State plan was administered in compliance with the provisions of Section
1902(a).

Income Eligibility Level

The Board has also considered the State's contention that the income
eligibility level for MAA recipients should be $170 rather than $162.
This contention is apparently based on the fact that during the time in
question, the State allowed to those individuals requiring assistance in
day-to-day living arrangements, $150 per month for boarding home care
plus $20 per month as a personal allowance. It is not clear, however,
how this can be related to a determination of eligibility for the MAA
population. The section of New Jersey's Financial Assistance Manual
which is cited clearly limits exenditures for designated classes of
eligible individuals rather than sets forth eligibility standards. It
is assumed that the State relies on Section 131.1 of the Manual which
allows $170 for individuals requiring boarding home care rahter than
Section 131.2 of the Manual which allows $220 for individuals requiring
services in an Intermediate Care Facility because it wants to invoke the
provisions of 45 CFR 248.10(b)(2) (ii). This will not do, however, in
the absence of provisions in the State plan which specifically provide
for special needs when determining eligibility. It is the absence of
such provisions which is cause of this controversy. The State cannot
bootstrap allowances for eligible individuals to exceptions in the
established eligibility standards for individuals not otherwise
eligible.

Finally, the State also asserts that the Agency's final decision
failed to include $139,317 attributable to MAA recipients for the period
July 1973 through September 1973, representing FFP disallowed for five
State mental hospitals resulting from adjustment of interim per diem
rates to a final approved rate. It appears, however, that the State
raised this claim for the first time in its application for review. The
$14,842,373 which was the amount originally in dispute was identified on
New Jersey's Quarterly Statement of Expenditures as "MAA claims for
institutionalized patients 1/70 - 10/73." The supporting worksheets do
not indicate that any of this amount was for adjusted rates. If the
State wishes to present a claim for additional FFP, it must do so in
accordance with the pertinent regulations and Agency policy. The Board,
in accordance with 45 CFR 16.91, does not have jurisdiction over this
subsequent claim and will not consider it at this time.

Conclusion

There is no dispute regarding the central fact in this matter. New
Jersey did not include coverage under its State plan for the period from
July 1, 1971 through September 30, 1973 for a portion of its aged,
institutionalized citizens, referred to throughout this decision as the
MAA population. Likewise, there is no dispute that the State could have
properly claimed FFP for services rendered to members of this group had
the State plan continued to provide them coverage. The State has urged
the Board to apply the equitable remedy of estoppel because of the
alleged failure of Federal officials to properly perform their duty.
Although there is some dispute as to the Federal officials' role in the
formulation, administration and amendment of the State plan, the Board
does not believe it is necessary to resolve this issue.The Board bases
its decision on the conclusion that Title XIX of the Social Security
Act, as a condition of Federal financial participation, places sole
responsibility for formulation and implementation of the State plan upon
the State. The role of the Agency vis-a-vis the State is to ensure that
the State plan is in conformance with Title XIX and that it is
administered in compliance therewith.

The Board also finds that the State failed to establish that the
State plan provided coverage for at least a portion of the MAA
population during the period from July 1, 1971 through September 30,
1973.

Accordingly, the decision of the Administrator of the Health Care
Financing Administration dated November 22, 1978, is sustained with
respect to the denial of the claim for FFP for the period from July 1,
1971 through September 30, 1973.

OCTOBER 04, 1983