Making Medicaid Better:
Options to allow States to continue to participate and to bring the
program up to date in today’s health care marketplace
Prepared for the National Governors’ Association
By
Vernon K. Smith, Ph.D.
Principal
Health Management Associates
Abstract: Medicaid is a State-Federal health care program created by the Social Security
Amendments of 1965. States administer the program within Federal guidelines. Over the
years, Congress has added substantially to the scope of Medicaid, and as the program has
expanded it has become increasingly important as a mechanism to finance health care for
low-income children, families, pregnant women, the elderly and persons with disabilities.
It also now finances a large share of mental health, public health and services for the
aging. Over time Medicaid has become burdened with new requirements, and the costs
for states have become greater than ever expected. Medicaid has grown to be larger than
Medicare in terms of program costs and the number of persons served annually. The cost
of Medicaid borne by states has become so large as to raise a question about the ability of
states to pay their share in the future. This paper identifies options that would restructure
the financing of the program so states could afford to contribute to its financing into the
future. These changes would help Medicaid be more effective in providing health
coverage for low-income uninsured Americans.
1
Making Medicaid Better:
Options to allow States to continue to participate and to bring the
program up to date in today’s health care marketplace
Outline
I.
What Medicaid is Today
Indicators of Medicaid’s Importance and Impact: Medicaid’s role in financing
state health services and its impact on state and federal budgets and programs
II.
How to Make Medicaid Better in 2002
Medicaid has been a program under continuous change. Options for Change in
2002
‰
‰
‰
‰
III.
Options to improve federal financial support for Medicaid.
Options to allow states to structure Medicaid coverage and reimbursement
policies so states can be prudent purchasers of medical coverage and
responsible administrators of public funds.
Options to allow states the ability to structure eligibility to simplify program
administration and to cover more low-income uninsured individuals and
families.
Options that would rationalize the relationship between Medicaid and other
coverages, including Medicare, SCHIP and employer-sponsored health
insurance.
Summary and Conclusion
Appendix: 35 Years of Change in Medicaid Law: 1965 to 2000
2
I. What Medicaid is today
Medicaid is a State-Federal program that finances health care for low-income children,
families, pregnant women, the elderly and persons with disabilities. The program is
designed and administered by the states within federal guidelines that are set forth in
regulation and in Title XIX of the Social Security Act. These guidelines define the terms
under which each State Medicaid program can qualify for Federal matching funds. By
federal law, states are entitled to matching funds on all qualifying expenditures.
Similarly, individuals who qualify under the terms adopted by each state are entitled to
Medicaid coverage.
Medicaid has become one of the most significant health care programs in America today.
In federal fiscal year 2001 Medicaid served over 44 million Americans at a cost of $224
billion in federal, state and local funds. Federal expenditures for Medicaid totaled almost
$130 billion, and the non-federal share of Medicaid spending (state general funds and in
some states, state and local funds) was about $94 billion. Medicaid is now one of the
largest categories of state spending, second only to education.
It is difficult to over-estimate the importance and impact of Medicaid, because the
program is so large, it serves so many people in so many different population groups and
plays a role in helping to finance virtually every state program that relates to health. By
any measure, Medicaid makes a great positive difference, even a critical difference, in the
lives of millions of low-income persons. By its design, Medicaid’s impact is greatest
among specific groups that are targeted for coverage, including children, families,
pregnant women, adults and children with disabilities, persons with chronic medical and
mental problems, and the elderly. Medicaid is now a major economic factor in many
segments of the health care market place. Most significantly, Medicaid now has an
enormous impact on state budgets.
Because of the enormous amount of money expended by states for Medicaid services,
and the number of persons served by the program, it is difficult to overlook Medicaid’s
impact and cost. Selected indicators of Medicaid’s impact are listed in the next section.
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Indicators of Medicaid’s Importance and Impact
1. Medicaid will serve over 44 million people this fiscal year (FY 2002).
Compared to Medicare, Medicaid serves more people and its enrollment is
growing faster.
In federal fiscal year 2002 Medicaid will serve a total of 44.7 million persons, compared
to total Medicare enrollment of 40.0 million.
Table 1: Number of Medicare and Medicaid Beneficiaries during Federal Fiscal Years
2000, 2001 and 2002 (Millions)
Program
Fiscal Year 2000
Fiscal Year 2001 Fiscal Year 2002
Medicaid
42.6
43.9
44.7
Medicare
39.1
39.5
40.0
Source: Congressional Budget Office, April 2001 Baseline. For each program the definition of enrollment
is an unduplicated count of persons enrolled for any length of time during the fiscal year.
The Congressional Budget Office projects that Medicaid enrollment will increase at an
annual rate of 2.3%, or by 2.1 million persons, over the two-year period from 2000 to
2002. Over the same two years, Medicare enrollment is projected to increase at an annual
rate of 1.1%, or by 0.9 million persons.
2. Medicaid expenditures will total $245 billion in Federal Fiscal Year 2002. Total
Medicaid spending is not only greater than Medicare, but Medicaid spending is
increasing at a faster rate than Medicare.
In federal fiscal year 2002 Medicaid total expenditures are projected to total $245 billion,
compared to $230 for Medicare. Over the period from 2000 to 2002, the Congressional
Budget Office projects that total expenditures will increase at an annual rate of 10% for
Medicaid, and at an annual rate of 8% for Medicare.
4
Table 2: Expenditures for Medicaid and Medicare, Fiscal Years 2000, 2001 and 2002
Program
Fiscal Year
Fiscal Year
Fiscal Year
Avg. Annual
2000 (billions) 2001 (billions) 2002 (billions) Rate of
Growth 20002002
Medicaid$118
$130
$142
10%
Federal Only
Medicaid$ 86
$ 94
$103
10%
State*
Medicaid$204
$224
$245
10%
Total**
Medicare**
$197
$218
$230
8%
Notes to Table 2: * Medicaid-State is estimated and includes local funds in some states.
**Medicaid expenditures net of third party collections and co-payments. Medicare expenditures are net of
collections, premiums, coinsurance and deductibles.
Source: Congressional Budget Office, April 2001 Baseline.
3. Medicaid is the largest single category of federal grants to states
Medicaid federal funds accounted for 42% of all federal grants to states in 2000. The
proportion has been at this level or higher since 1995. Medicaid’s share of all federal
grants to states increased from 26% in 1987.
Table 3: Medicaid share of Federal Grants to States
1987 – 2000
State Fiscal Year
Medicaid Share of
Federal Grants to
States
1987
26%
1989
29%
1991
35%
1993
41%
1995
43%
1997
44%
1999
43%
2000
42%
Source: National Association of State Budget Officers, 2000 State Expenditure Report, Summer,
2001.
5
4. Medicaid spending increased dramatically since the late 1980s, causing
Medicaid’s share of state budgets to almost double in one decade.
State spending on Medicaid has increased dramatically, particularly since the mid-1980s.
Medicaid spending growth has been much greater than the increases in overall state
spending categories, causing Medicaid to increase as a share of state budgets. Over the
decade from 1987 to 1997, Medicaid general fund spending increased from 8% to 15% of
state general fund budgets. When federal funds are included, total Medicaid spending
increased from 10% to 20% of total state spending from all sources. Medicaid’s
percentage share was stable in the late 1990’s but is increasing again now that Medicaid
spending is again increasing faster than spending for other state programs.
In 2002 almost every state is having to deal with budget shortfalls. In some cases, the
shortfall in the overall state budget is caused in significant part by increases in Medicaid
spending. In every case, Medicaid is affected by state efforts to reduce the recent pace of
spending growth, because of the recent economic downturn and decrease in state general
revenue growth.
Table 4: Medicaid as a Share of State General Fund and Total State Spending
1987-2001
State Fiscal Year
Medicaid General Fund
Medicaid Total Expenditure
as % of Total State
Expenditure as % of All
Expenditures, all Fund
State General Fund
Sources
Expenditures
1987
8.1%
10.2%
1989
9.0%
11.3%
1991
10.5%
14.2%
1993
13.3%
18.8%
1995
14.4%
19.8%
1997
14.6%
20.0%
1999
14.4%
19.5%
2001
14.7%
19.6%
Source: NASBO, State Expenditure Report, various years.
5. Medicaid pays for the prenatal care, delivery and health care services for the
first year of life for over one-third of all infants, and is the source of health
coverage for over 20% of American children.
In 1997 Medicaid paid for over one-third of all births in the U.S. The percentage ranged
from 20% in New Hampshire to 51% in New Mexico.
Since the mid-1980s, Federal law has required Medicaid coverage for low-income
pregnant women and for low-income infants for their first year of life. States are now
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required to cover these groups up to 133% of the federal poverty level, with the option to
cover them to 185% of the federal poverty level. As of October 2000 a total of 39 states
cover these groups at the income levels above the minimum required levels, including 12
states and the District of Columbia that cover pregnant women at or above 200% of the
FPL1.
Over half of all Medicaid beneficiaries are children. In FY 2001 Medicaid covered 43.9
million persons, of whom 22.6 million were children. Medicaid provides health coverage
for more than one child in five in the U.S.
Because the proportion of children with Medicaid coverage is so high, Medicaid has
become a significant source of funding for public child health programs, including
school-based health centers, rural health clinics and community health centers.
6. Medicaid pays for almost half of all nursing home care in the U.S.
Medicaid is the predominant payer of nursing home care in the U.S. A majority of
patient days are for persons with Medicaid. In 1998 a total of $87.8 billion was spent on
nursing home care, of which Medicaid paid $40.6 billion.
Under special “waiver” programs, Medicaid pays for home and community based
services that most other health care plans do not cover. These services allow persons
who might otherwise be in a nursing home to live in a home or community setting.
Under these programs Medicaid pays for supporting medical and non-medical services
such as personal care, respite care or even home repair or modification to allow, for
example, the home to be wheelchair accessible.
Through its payment for nursing home services and for home and community-based
services, Medicaid is the largest single payer for long-term care services in the U.S.
7. Medicaid pays for about half of all AIDS care in the U.S.
Medicaid is the single largest source of public financing for HIV/AIDS health care in the
U.S.2 In FY 2000 Medicaid spending on health care for HIV/AIDS totaled $4.1 billion,
which represented 43% of all spending on the care and assistance for HIV/AIDS
(compared to 18% from Medicare and 17% from Ryan White Care funds).3 Medicaid
covers 55% of adults and 90% of children under age 13 with AIDS.4
1
National Governors’ Association, Center for Best Practices, Health Policy Studies Division, MCH
Update. Available at www.nga.org/
2
Westmoreland, Medicaid and HIV/AIDS Policy: A Basic Primer, Kaiser Family Foundation, 1999.
3
The Kaiser Family Foundation, Federal HIV/AIDS Spending: A Budget Chartbook: Fiscal Year 2000.
4
Centers for Disease Control and Prevention, HIV/AIDS Surveillance Report, Vol. 11, No. 2.
7
8. Medicaid pays for health coverage for persons who are not or cannot be
covered by employer-sponsored health insurance.
Two-thirds of Americans receive their health coverage through their employer. Still, in
the year 2000 about 39 million Americans were without health insurance. Of this total,
about 9 million were children and 30 million were adults ages 18 to 64. Of the 30 million
uninsured adults, only 7.2 million were not working during 2000, and 18.1 million were
working full-time.5 These workers either do not have insurance offered to them or find it
unaffordable to purchase it when it is offered. Many of these workers have incomes low
enough that they or their dependents qualify for Medicaid.
A significant number of persons with disabilities who are employed (or would like to
have a job) find themselves unable to find health insurance coverage. For these persons
Medicaid is the only source of coverage. Without Medicaid coverage the cost of care
would be borne by the individuals themselves, by providers through uncompensated care,
or by higher insurance premiums paid by everyone else.
During a time of economic downturn, Medicaid serves as a safety net for health coverage
for those who lose their employer-sponsored insurance. A recent study shows that an
increase in the unemployment rate of one percent would increase Medicaid enrollment by
over 1.5 million persons, including 400,000 non-disabled adults, 130,000 disabled adults
and one million children. The cost would total almost $3 billion, including $1.2 billion
borne by states.6
9. Medicaid pays for most publicly financed mental health.
According to the Substance Abuse and Mental Health Services Administration
(SAMHSA), Medicaid now pays for more than half of the public mental health services
that states administer. Persons receiving mental health services comprise 10% of all
Medicaid enrollees, but because their care is costly, they are 30% of the “high cost”
enrollees. Depending on the state, between 25% and 50% of persons receiving state
mental health services only receive them from Medicaid. Among the 6-14 age group,
about a quarter of Medicaid spending is for mental health services; in some states it is as
high as 40%.7
10. Medicaid is the source of $15 billion in special “disproportionate share
hospital” (DSH) payments to safety net and other hospitals that serve low income
and uninsured patients.
5
U.S. Census Bureau, 2001.
John Holahan and Bowen Garrett, Rising Unemployment and Medicaid, Urban Institute, October 16,
2001. Also see: Kaiser Commission on Medicaid and the Uninsured, Medicaid Coverage during a Time of
Rising Unemployment, December 2001.
7
Substance Abuse and Mental Health Services Administration, National Expenditures for Mental Health
and Substance Abuse Project
6
8
Since 1987, Federal law has required state Medicaid programs to designate hospitals that
are disproportionately financially dependent on Medicaid as “Disproportionate Share
Hospitals” (DSH). Medicaid pays these hospitals more than otherwise identical hospitals.
The federal purpose was to assure that hospitals that “disproportionately” served the poor
could survive financially. States can decide which hospitals are included, but hospitals
where the Medicaid share of patient-days is greater than one-standard deviation above the
mean, or whose “low-income” percentage is more than 25% automatically qualify.
DSH payments are often the difference between solvency and insolvency for hospitals
serving Medicaid and indigent patients. It should be noted that some states have used the
DSH mechanism to increase hospital payments as part of a strategy that also involved
provider taxes or donations to the state, or transfers from government-owned hospitals.
Statutory and regulatory changes since the mid-1990s have significantly restricted this
use of DSH financing. However, DSH remains an important mechanism for Medicaid to
support safety net hospitals.
11. Medicaid pays for the Medicare premiums, coinsurance and deductibles for
low-income elderly and disabled beneficiaries who qualify for both programs at
the same time.
For persons enrolled in Medicare, Medicaid also pays for services Medicare does not
cover, including prescription drugs and nursing home care. About 6 millions elderly and
disabled persons are covered by both Medicare and Medicaid. These six million persons
are about 15% of all Medicaid beneficiaries, but they account for over 30% of all
Medicaid expenditures.
12. Medicaid and Medicare are credited with the largest one-time drop in the
number of uninsured in the U.S.
Before the enactment of Medicaid and Medicare in 1965 about 60 million persons were
without health insurance -- one-third of Americans. By 1975, after implementation of
these two programs, the number dropped to 19 million or 11% of Americans. (By 1991
the rate had increased to 14%. In 2000 the proportion without health insurance is still
14%.)
Summary
Because of the amount of money spent on Medicaid, taxpayers and beneficiaries alike
deserve the best possible program. There are ways to make Medicaid a better program so
it is more effective at covering the low-income uninsured, so it better reflects the current
market place and so it better reflects the ability of states to continue to finance it. In the
following section specific options for change are listed that would accomplish this
purpose.
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II.
How to Make Medicaid Better in 2002
Medicaid: A program under continuous change
The history of Medicaid spans several decades. It is a story of continuous change.
When President Lyndon Johnson signed into law the Social Security Amendments of
1965, he quoted former President Franklin D. Roosevelt, who in 1935 had described the
creation of Social Security as “a cornerstone in a structure that is being built but which is
by no means complete.” Medicare and Medicaid, said President Johnson, “…were the
most important additions to that structure in the three decades since the cornerstone was
first laid.”8
Medicaid’s immediate predecessor was the Kerr-Mills program, which Congress adopted
in 1960. Kerr-Mills provided important precedents for Medicaid. Kerr-Mills, for
example, was a state-federal program to finance vendor payments to medical providers
who provided services to low-income persons on welfare, or who met state-set
categorical eligibility standards; federal matching funds were available to states for
qualifying expenditures.9 These features carried over to Medicaid. However, the KerrMills program was never fully successful. Its shortcomings are instructive even today.
Eligibility was limited, in that the program covered only the poor elderly receiving
welfare cash assistance under the aid to the aged program. Like Medicaid, Kerr-Mills was
optional for states, and many states simply chose not to participate. The primary reason
for the low-participation was that states regarded the federal matching formula as
insufficient. At its peak, no more than 30 states opted into the Kerr-Mills program, so it
was never a national program.
With the Social Security Amendments of 1965, Medicaid was to be an improvement on
the Kerr-Mills program. Eligibility was expanded to include not just the elderly poor on
welfare, but also children and families receiving welfare under the Aid to Dependent
Children program, and adults on welfare under the aid to the blind or aid to the disabled
programs. Like the Kerr-Mills program, Medicaid was to be a vendor payment system for
8
Office of the White House Press Secretary, The White House, “Remarks of the President at the Signing of
the Medicare Bill,” July 30, 1965. From the archives of the Lyndon Baines Johnson Library, Austin,
Texas.
9
In the words of one of the program’s architects, Wilbur Cohen, Medicaid’s roots in the welfare system
went back at least to 1950: “Changes were made in federal legislation in the welfare program, which was
the beginning of what we would later call Medicaid, namely about vendor payments for medical care for
persons who were on the welfare rolls or whose incomes were somewhat higher but not able to pay for
heavy medical costs…So with the various increases beginning in 1950 that authorized payments for
medical care in the welfare program, it was inevitable [that Kerr-Mills and Medicaid] would be primarily
related to the welfare program. And since the welfare program was primarily related to state operations,
financed partially by federal funds and with federal standards, the Medicaid program became a federal-state
system, whereas Medicare became a federal system. That is how these two programs evolved.” Source:
George Weeks, Wilbur Cohen: An Oral History of Medicare and Medicaid, 1977.
10
medical services for persons on welfare. In addition, Medicaid could cover persons who
were “medically needy” when their large medical bills were taken into account.
Almost immediately after enactment, efforts were initiated to amend, expand and
improve Medicaid. A review of the key changes in Medicaid law reveals a list of
legislative milestones that show a process of change and improvement that has occurred
continuously for almost four full decades.10 Over the years, changes to Medicaid law
either mandated or provided states the option to extend Medicaid coverage to new
population groups, e.g., to children, pregnant women, families or the working disabled.
Other changes were motivated by a desire to control how states would use new delivery
and financing systems in the health care market place, e.g., by the emergence of managed
care in the 1980s and 1990s.
Through these changes federal Medicaid law (and the associated federal regulations)
have imposed new requirements on states to cover new population groups, to cover
services provided by specific providers, and to use specific reimbursement
methodologies. In some cases, the law prevents states from using specific policies that
have become common among employment-based health insurance, such as limits on
certain benefits or beneficiary cost sharing.
For these reasons, plus inflation in the cost of health care services, Medicaid has evolved
into a program whose size, cost and significance are far beyond the original vision of its
creators. Medicaid is now much more than a vendor payment system to pay providers for
medical services for persons on welfare, as it was first designed. Indeed, Medicaid now is
a mechanism for financing a wide range of health care services for an increasing number
of low-income uninsured, and has become a critical source of revenue for important
safety net providers.
In the tradition of the past three decades, it is time again for Medicaid to be updated.
Medicaid law needs to reflect some very important realities relating to the current health
care market place and the ability of states to continue to finance the program in 2002 and
beyond. The next section describes the changes needed that would bring the program
into line with these realities.
How to Improve Medicaid: Options for Change in 2002
Medicaid is at a critical juncture in its evolution. On the one hand, states have
demonstrated their solid commitment to Medicaid and its public policy objective of
assuring health coverage for low-income persons. This commitment has been shown
through increasingly large annual appropriations of state general funds, and by a
willingness to expand coverage to include increasing numbers of children, pregnant
women, adults in families where the children are covered and working adults with
disabilities. State general fund appropriations for Medicaid more than doubled from $50
billion in 1992 to $103 billion in 2002.
10
A list of key legislative milestones is in Appendix A.
11
The state general fund cost of Medicaid is increasingly difficult for states to bear. In
fiscal year 2002, Medicaid enrollment is increasing at the same time that state economies
have weakened and state revenues have dropped. Almost every state is now faced with a
shortfall in its overall general fund budget just at the time that the need for Medicaid has
increased.11
From a state perspective there is an urgent need for significant changes in Medicaid
financing. The most needed changes are those that would increase federal funding for
Medicaid, because States simply are not in a position to increase funding for Medicaid
faster than for other programs, year after year. Nor can states increase funding for
Medicaid when other programs are being cut. That is what will continue to happen if
Medicaid remains as it is currently configured.
Needed changes are in the following categories, so states can be prudent purchasers of
medical coverage, responsible administrators of public funds and can afford to continue
to participate in Medicaid in the future.
‰
‰
‰
‰
Changes to improve federal financial support for Medicaid
Changes to allow states to structure Medicaid coverage and reimbursement policies
so states can be prudent purchasers of medial coverage and responsible administrators
of public funds.
Changes to allow states the ability to structure eligibility to simplify program
administration and to cover more low-income uninsured individuals and families
Changes that would rationalize the relationship between Medicaid and other
coverages, including Medicare, SCHIP and employer-sponsored health insurance
These proposed changes and specific options for consideration are outlined below.
A. Changes to improve federal financial support for Medicaid.
There is an urgent need for greater federal financial support for Medicaid.
Almost every state is now facing a shortfall in the overall state budget. In every case,
Medicaid expenditures are contributing to the shortfall. The overall budget shortfalls are
forcing states to make difficult choices on how to reduce the growth in Medicaid
expenditures.
One of the great virtues of the current Medicaid structure is that states are given
significant responsibility for the design and financing of the program. This allows each
state to design its program to reflect the unique values, priorities and health care delivery
system in that state. This great virtue becomes an Achilles heel, however, in times of
economic stress such as the current economic downturn. We see now, for example, that
state revenues are declining just at the time Medicaid costs are increasing. As a means11
Smith and Lannoye, Medicaid and State Budgets: An October 2001 Update, The Kaiser Commission on
Medicaid and the Uninsured, October 2001. Publication 4019.
12
tested program, Medicaid is designed to serve a counter-cyclical role. However, States
are unable to afford the new higher costs of Medicaid at a time when major budget cuts
are required across all state programs. As a result, states are forced to cut Medicaid just
when the demand for Medicaid services increases. Even with the cuts, current state
general fund Medicaid spending continues to increase faster than the rest of the state
budget and faster than the overall growth in state general fund revenues.
For states the current Medicaid financing situation is unsustainable. Several options
would provide the kind of fiscal relief that would allow states to continue to participate in
Medicaid.
Option 1: To apply the same federal support for all children and families covered by
Medicaid and the State Children's Health Insurance Program (SCHIP), apply the
current federal matching rate for SCHIP to all Medicaid services provided to children,
adults and families who are not also enrolled with Medicare. This would include
children and families, pregnant women and about two-thirds of adults with disabilities.
Using the SCHIP federal matching rate for Medicaid would be an important step toward
the needed fiscal relief for financing Medicaid. It is justified by the fact that many
children and families currently move back and forth between the two programs. It is
difficult to justify a lower federal matching rate for families and children on Medicaid
when these families are in lower-income households and in greater need, compared to
SCHIP. Using the SCHIP federal matching rate would provide equity, administrative
simplification and financial relief to states.
Option 2: To recognize the federal responsibility for persons on Medicare, increase the
federal Medicaid matching rate to 90% for Medicaid payments for persons who are
enrolled in Medicare and also on Medicaid (“dual eligibles”).
Through Social Security and Medicare, it is generally understood that the federal
government has primary responsibility for persons over age 65 and with permanent
disabilities. It was never intended that Medicaid should spend an enormous share of its
resources as a co-insurer for persons on Medicare. However, federal law now requires
that Medicaid pay for Medicare premiums, Medicare coinsurance and deductibles and for
services not covered by Medicare. Medicaid payments for persons on Medicare have
become over 30% of total Medicaid expenditures. This has placed an unintended and
unaffordable burden on state budgets.
It would be logical for the federal government to pay 100% of these costs now borne by
the states. As an initial step, one option would increase the federal matching rate for all
states to 90%. This step would recognize the federal responsibility for paying for
medical services for low-income Medicare beneficiaries who also qualify for Medicaid.
Option 3: To partially finance the federal cost of the enhanced federal Medicaid
matching rates, prohibit states from obtaining federal matching for any payments in an
arrangement now known as an “upper payment limit” (UPL) arrangement.
13
Over the past several years, many states have responded to the fiscal pressure caused by
Medicaid by pursuing strategies to increase federal funding through use of UPL
arrangements.
Fiscal pressures at the state level have driven states to great lengths to maximize federal
funding wherever possible. Examples over the last decade include arrangements for
provider donations, provider taxes and more recently, upper payment limit (UPL)
arrangements. States have developed these approaches – which are legal – to improve the
level of federal support of Medicaid.
No one at the state or federal levels would regard these strategies as the best of public
policy. However, states that have used them have felt compelled to do so out of fiscal
necessity. Without these approaches states would have been under even greater pressure
to reduce or constrain the growth in Medicaid spending.
In 2000 and 2001, new federal rules were issued that would further limit the use of this
UPL approach. These rule changes will significantly reduce federal Medicaid dollars to
some states beginning in federal fiscal year 2002. Unless increases in the FMAP occur at
the same time, the result will be a dramatic withdrawal of federal support for Medicaid at
a time when it will be impossible for states to make up the difference. The dollars
foregone by giving up these financing opportunities would help finance the federal cost
of enhancing the FMAP, would eliminate concerns about the inadequate distribution of
federal dollars and would assure that current federal financial support is used to support
the Medicaid program.
Option 4: To achieve equity among states and territories, calculate the FMAP for the
Territories using the same methodology as is used for the states.
It is generally not well understood that the U.S. territories are treated inequitably with
regard to financing their Medicaid programs. Federal Medicaid support for the territories
differs from the states in three important ways:
‰
The federal Medical Assistance Percentage (FMAP), the federal Medicaid
matching rate, is set by federal law at 50%. A state with a relatively low per
capita income will have a higher FMAP. The highest current FMAP is 76%
but in the past FMAPs have exceeded 80%. However, the FMAPs for poorest
of U.S. political entities – the territories – are permanently set at 50%. Their
lower per capita income is not recognized, as it would be for a state.
‰
The total federal support of Medicaid for each territory is capped. For states,
a claim on federal Medicaid matching funds is an uncapped entitlement.
Federal matching funds are available to a state for all qualifying expenditures.
However, a territory has a limited claim on federal funds that goes only up to
the cap. Above the cap, the territory must spend its own general revenue
14
dollars. The result is that the effective federal matching rate for the territories
is less than 50%, the lowest of all U.S. entities, even lower than the wealthiest
of U.S. jurisdictions.
‰
Territories are prohibited from making special payments to disproportionate
share hospitals. Among the states, DSH payments provide essential support to
public and other hospitals that serve a disproportionate share of Medicaid and
other indigent patients, including the uninsured. DSH payments now
constitute about 6% of all Medicaid payments. However, territorial Medicaid
programs cannot qualify for federal matching funds for DSH payments, and
are unable to provide similar support for their public hospitals.
This option would provide territories the same opportunity to claim federal matching
funds as the states, by calculating FMAP with consideration for annual per capita income,
allowing an uncapped claim and allowing DSH payments for territorial hospitals.
Option 5: To improve financial stability for states, limit to one-half of one percent any
annual decreases in the FMAP when it is recalculated each year.
The FMAP is recalculated each year, based on the most recent data on state per capita
income. The recalculation inherently lags the economy, so it does not reflect the reality
of the current economic situation. As a result, some states will suffer significant
reductions in their FMAP, even when their state revenues are affected by the economic
downturn. From a state perspective, the lower FMAP is a direct loss of federal funds that
must be made up dollar-for-dollar with state general funds just to maintain the Medicaid
program as it is.
Two current state examples will illustrate. In the most recent recalculation of FMAP for
federal Fiscal year 2003, California and Michigan were the two biggest losers in terms of
dollars lost. California suffered a drop in its FMAP of 1.4% and will have to replace
$324 million in lost federal funds with state general revenue. For Michigan the drop in
FMAP was 0.94% and Michigan will have to find an additional $73 million in state
general fund revenue just to maintain the program. These states currently are dealing with
enormous state budget deficits, and there is no general fund revenue that is available to
make up the loss in federal funds. In total for 2003, there were 23 states with higher
FMAPs and 17 states with lower FMAPs, including six with decreases greater than
0.5%.12
This option would limit any annual reduction in FMAP to one half of one percent (0.5%).
12
The six states with decreases greater than 0.5percent from 2002 to 2003 are: CA –1.4%; MI –94%; ND –
1.51%; SD – 0.64%; VT – 0.65%; and WY – 0.65%. Federal Funds Information for states, 2003 FMAPs:
Bureaus Meet Their Match, Issue Brief 01-56. October 19, 2001.
15
Summary: Changes to improve federal financial support for Medicaid.
These options address the fundamental issue of states’ ability to finance the state share of
Medicaid costs from limited state revenues into the future. State general fund revenues
derived from income taxes and sales taxes historically have not grown as fast as the
growth rate for medical costs. As a result, Medicaid has taken an increasing share of
state budgets over time, and states are increasingly hard pressed to raise the general fund
revenue needed to support Medicaid. In the current period of fiscal stress, it is virtually
impossible for a state to maintain the needed level of financial support for Medicaid.
16
B. Changes to allow states to structure Medicaid coverage and reimbursement
policies so states can be prudent purchasers of medical coverage and responsible
administrators of public funds.
Even in the current economic climate, states would like to improve their programs and
make them work better within the current health care market place. For example, some
states would like to extend Medicaid coverage to working persons who do not have any
health insurance, and whose household incomes are above the federal poverty levels.
When states look at the how to do this within current rules, they are frustrated by the
application of federal Medicaid rules that were written decades ago when Medicaid was a
very different program. At that time, almost everyone on Medicaid was on welfare, and
even the few not receiving cash welfare assistance typically were “medically needy”
persons with net incomes after medical costs well below the federal poverty level.
Medicaid eligibility has now been “de-linked” from welfare, and Medicaid coverage now
extends to families and certain other population groups with incomes well above the
federal poverty level. Many current Medicaid beneficiaries are working, and most are
not on welfare.13 They live in communities where their neighbors may have employersponsored health coverage. For these groups, a reasonable benchmark for good health
coverage would be the health coverage small businesses in their communities typically
offer their employees. Such coverage typically would not meet Medicaid requirements,
because it is less comprehensive and requires more cost sharing than is allowed under
federal Medicaid rules.
Option 6: Change federal Medicaid law to allow a state plan option for coverages and
cost sharing similar to those offered by employers in that state for persons at or above
the federal poverty level.
Of particular importance to states is the ability to require cost sharing for groups at and
above the federal poverty level. This issue is important because there is a belief that even
a small patient copay encourages the responsible use of covered services, and also
encourages a sense of personal responsibility and dignity to the user of a service. Current
federal rules severely limit cost sharing to a minimal amount, and require that the
provider render the service (or provide the product, such as a prescription drug) even if
the Medicaid beneficiary is unable or unwilling to pay the minimal amount. Certain
groups such as children and pregnant women (for pregnancy related services) and persons
receiving hospice care are exempt, as are certain services such as family planning and
emergency services.
A significant barrier to extending coverage to additional groups would be removed if a
state were able to structure Medicaid coverages and cost sharing so they were similar to
13
Ellis and Smith, Medicaid Enrollment Trends: June 1997 to December 2000, Kaiser Commission on
Medicaid and the Uninsured, (forthcoming, January 2002.) In December 2000, more than half of Medicaid
enrollees were not on welfare in all 17 states for which these data were reported. The proportion of nonwelfare Medicaid enrollees averaged 63%, and exceeded 80% in two states.
17
those offered to employer groups in that state for population groups above the federal
poverty level. Currently, this option is only available under a Section 1115 demonstration
waiver. The extra requirements imposed by the waiver process on states make the
Section 1115 waiver an unattractive option for many states. However, extending
coverage would be more attractive if states had the increased flexibility under a Medicaid
state plan option to structure Medicaid benefits for population groups with higher
incomes.
A key area of flexibility relates to the desire of states to manage the pharmacy benefit
effectively. Current federal law places restrictions on what a state can do, making it
impossible for a state to manage the pharmacy benefit like a well-run health plan would.
Part of this option would include the flexibility to be a prudent manager of this benefit.
In February 2001 the National Governors’ Association adopted a proposal for Medicaid
restructuring based on the principal that states should have the flexibility to structure
benefits and cost sharing for optional eligibility groups.14 The proposal called for state
flexibility so that Medicaid might adopt policies similar to those of employer-sponsored
insurance for these groups. The proposal also called for enhanced federal matching rates
for certain categories of benefits and population groups.15
Discussion relating to the 2001 NGA proposal has noted that only about 35% of
Medicaid spending is for mandatory services provided to mandatory populations,
reflecting the interest states have had to extend optional benefits such as prescription
drugs to all beneficiaries, and to cover optional populations such as medically needy
elderly and disabled, as well as higher income families and children. Some comments
also suggested that full flexibility requested in the NGA proposal would not incorporate
the protections of current federal law and might result in added federal spending with no
gain in coverage.16
The option in this section is intended to provide the flexibility for states to expand
coverage by structuring benefits and cost sharing for non-disabled, non-elderly adults
with incomes at or above the federal poverty level. Together with increases in the federal
Medicaid matching rates, this flexibility would provide a strong incentive for states to
expand coverage that would reduce the number of persons without health coverage. In
these tough economic times states are unlikely to pursue coverage expansions, or even
14
National Governors Association, Policy Position HR-32, Health Care Reform Policy. Available at:
www.nga.org/nga/legislativeupdate/
15
Current federal law defines the set of benefits a state must include in its Medicaid program, as well as a
set of benefits that the state may cover if it chooses to do so. Similarly, federal law defines eligibility
categories the state must cover in its Medicaid program, and those it may cover if it chooses.
For a list of mandatory and optional services and eligibility groups, see Medicaid “Mandatory” and
“Optional” Eligibility and Benefits, Kaiser Commission on Medicaid and the Uninsured, July 2001.
Publication #2256. Pages 8-9. Available at www.kff.org/
16
An analysis of the NGA proposal is in Medicaid “Mandatory” and “Optional” Eligibility and Benefits,
Kaiser Commission on Medicaid and the Uninsured, July 2001. Publication #2256. Available at
www.kff.org/
18
maintain recent expansions, without an increase in the federal financial support for the
Medicaid program.
Summary: Changes to allow states to structure Medicaid coverage and
reimbursement policies so states can be prudent purchasers of medical coverage and
responsible administrators of public funds.
A decade ago, when Medicaid was still largely a health program for persons receiving
welfare, it was easier to rationalize the broader coverages and prohibition on most cost
sharing. Now however, more than half of Medicaid beneficiaries are not on welfare.
Many Medicaid beneficiaries are in households where someone is working, and often
incomes are above the poverty level. In these situations it would make sense for states to
have the latitude to model Medicaid coverage for certain beneficiary groups after
employer-sponsored health coverage that might be offered by businesses in that area.
C. Changes to simplify eligibility policy allow states to cover more low-income
uninsured persons.
Option 7: Federal law should be changed to allow states the option to define eligibility
for Medicaid based only on state-defined income levels, without regard to arbitrary
eligibility categories.
A defining characteristic of Medicaid eligibility law has been the concept of “eligibility
categories.” To be eligible for Medicaid, a person has had to fit a specific category. The
familiar categories are children, adults in families with children, pregnant women,
persons with disabilities, and persons age 65 and older. Depending on how they might be
defined, in a particular state there might be several dozen (or more) categories and subcategories. Notably, single individuals and childless couples (who are not aged or
disabled) are not a coverable category; these persons cannot ever qualify for Medicaid
regardless of how low their assets and incomes (except when covered as part of a special
Section 1115 demonstration waiver).
Historically, the concept of Medicaid eligibility categories was directly related to the tie
between Medicaid and welfare eligibility. With the de-linking of Medicaid and welfare
as a part of welfare reform in 1996, the concept of eligibility categories no longer has a
policy basis. Eliminating the myriad of Medicaid eligibility categories has the potential to
greatly simplify administration of the eligibility process.
A few states have adopted coverage of childless individuals and couples through a
Section 1115 demonstration waiver. However, the hassle of the waiver process should
not be necessary for a state to offer coverage for these groups if the state wishes to do so.
19
D. Changes that would rationalize the relationship between Medicaid and
Medicare, SCHIP and employer-sponsored health insurance.
Medicaid continuously interacts with other providers of health coverage, including
Medicare, SCHIP and employer-sponsored health insurance. Like other providers of
health coverage, Medicaid must coordinate benefits to ensure that Medicaid pays only for
what it is responsible for, whether it is the whole claim, part of a claim, a coinsurance or
deductible.
SCHIP law prohibits enrollment in SCHIP if the child is eligible for Medicaid or is
covered by any health insurance, so the issue between Medicaid and SCHIP is keeping up
with the ever-changing insurance and income status that determines eligibility.
Medicaid coverage “wraps around” Medicare and employer-sponsored coverage, paying
for benefits not covered by these payers. About 15% of Medicaid beneficiaries are also
enrolled with Medicare, and some Medicaid beneficiaries are covered by an employersponsored health insurance coverage.
Medicaid’s subsidy of Medicare is a key reason that Medicaid expenditures have grown
so large. Currently, about 30% of Medicaid expenditures are for low-income Medicare
beneficiaries. Over the years, federal law has layered new responsibilities on states to
pay for Medicare premiums, coinsurance, deductibles and for services that Medicare does
not cover (notably prescription drugs and nursing home care). At the same time that
states are required to be accountable for the costs of care for this group, federal law has
prohibited states from exercising any control over these costs.
Medicaid’s interaction with other health insurers is critically important, affecting both
coverage and also the administrative burden borne by beneficiaries and Medicaid. There
are several options to improve the relationship and interaction between Medicaid and
Medicare, SCHIP and employer-sponsored insurance.
Option 8: If Medicare does not assume all or most responsibility for the costs of
medical care for Medicare-Medicaid dual eligibles (See Option 2, above), then federal
law might allow states to require dual eligibles to be subject to state Medicaid policies
relating to coverages, cost sharing and managed care enrollment.
The relationship between Medicaid and Medicare has become increasingly and
unnecessarily complex. There are now six categories of “dual eligible” Medicare –
Medicaid beneficiaries. The Medicaid responsibility is different in each case, ranging
from full Medicaid coverage to partial payment of Part B Medicare premiums. However,
because Medicare is primary, and because Medicare law dictates full freedom of choice
and the availability of the fee-for-service option, Medicaid is precluded from applying its
policies for Medicare beneficiaries.
When Medicaid does implement a policy to coordinate care, Medicaid is unable to
benefit fully from its efforts. It is Medicaid that bears the cost (of case management or
20
prescription drugs, for example) and it is Medicare that reaps the savings (through lower
use of expensive services, such as inpatient hospital care, for example). One option
would be to allow Medicaid to require dual Medicare-Medicaid eligibles to be subject to
all Medicaid policies, such as mandatory enrollment in managed care. If this is not
possible the federal matching rate should be increased to recognize the federal
responsibility for this eligibility group (See Option 2, above).
Option 9: To rationalize the relationship between Medicare and Medicaid, the
administrative relationship between the programs could be simplified. This would
require changes in federal law to minimize the burden now placed on Medicaid.
In addition to the need for the Medicare responsibility to be recognized in the federal
Medicaid matching rate, there also is a need to simplify the administrative relationship
between Medicare and Medicaid.
Under current law, Medicaid is required to administer complex administrative systems to
enroll Medicare beneficiaries into the correct dual eligibility category, initiate payment of
the Part A and Part B premiums depending on the eligibility group, and reconcile
payments as beneficiary circumstances change. The state is required to initiate changes in
enrollment status that result in transfers of payments for premiums to the federal
government. For the “QI-1” and “QI-2” categories, the state must go through the
administrative processes, but no state matching funds are required. It should be possible
to simplify the entire process so it works better for Medicare, Medicaid and for the
beneficiaries.
Option 10: To improve coordination, continuity of coverage and to simplify the
relationship between Medicaid and the State Children’s Health Insurance Program
(SCHIP), change federal SCHIP law to allow the parents of children who apply for
SCHIP and are found eligible for Medicaid to choose enrollment in SCHIP.
Current SCHIP law prohibits any child who is eligible for Medicaid from enrolling in
SCHIP. This requirement prevents a state from earning the higher SCHIP matching rate
by enrolling children in SCHIP when they otherwise would be enrolled in Medicaid. If
the matching rate is equalized (See Option 1, above) this incentive is removed.
Allowing a child to remain enrolled in SCHIP would simplify administration of SCHIP,
because of the high rate of “churning” among enrollees. Children flow into and out of
SCHIP eligibility through the normal changes that occur in families. SCHIP eligibility is
a narrow band in the income distribution, expressed as a percentage of the federal poverty
level (FPL). Since the FPL varies by family size, any of several changes (e.g., a new
child in the household, or a reduction in earned income) will place the family at a lower
or higher percentage of the FPL, and possibly make them eligible for Medicaid and
ineligible for SCHIP.
An unintended consequence of the churning between Medicaid and SCHIP is the
potential for a child to lose all coverage for a period of time, during a shift from Medicaid
21
to a state’s separate SCHIP program. The Medicaid enrollment may end before SCHIP
enrollment actually begins. This would occur because SCHIP coverage is always
effective prospectively, such as the first day of the next month. (Medicaid coverage is
effective up to 90 days retroactively from the date of application, but SCHIP eligibility is
not retroactive.) A gap in coverage might also occur during the application process.
For example, the SCHIP eligibility worker might make a determination that the child is
Medicaid eligible, and so refers the application to Medicaid. The Medicaid review may
take a few weeks, and then determine that the child is actually eligible for SCHIP. As a
result of the SCHIP eligibility, the child cannot be enrolled in Medicaid. In the
meantime, the child has had no coverage of any kind during the process, and cannot have
retroactive coverage under SCHIP.)17
In other circumstances, some parents simply do not want to have anything to do with
Medicaid. They want to pay the nominal premium and enroll their child in SCHIP.
Anecdotes abound of parents who refused Medicaid coverage when they were told they
were eligible for Medicaid and therefore could not enroll their child in SCHIP. This
option would make it possible for a parent to make an informed choice and enroll in
SCHIP.
Option 11: To improve the availability of needed medical, hearing, vision and dental
coverage for low-income children who qualify for SCHIP, this option would remove
the prohibition on SCHIP enrollment for children who are covered by employersponsored health coverage that is not as comprehensive as SCHIP, and allow SCHIP
to “wrap-around” the employer-sponsored coverage, just as Medicaid does.
Under current SCHIP law, a child cannot enroll in SCHIP if the child is covered by any
other health insurance. This means that a child is prohibited from enrollment in SCHIP
when the working parent has a policy with a deductible of several thousand dollars, or
when there is no coverage services important to the child such as prescription drugs,
dental, hearing or vision. In this case, Medicaid is a model for SCHIP. Medicaid has
always allowed enrollment without regard to other insurance, because the other coverage
is primary, and Medicaid pays only for services not covered by the other insurance.
Current SCHIP law prevents many eligible children from coverage for services they may
need, since their employer-sponsored coverage is not as comprehensive as the SCHIP
coverage. One option would allow limited enrollment in SCHIP only for specific services
such as dental, hearing and vision. Another option would change SCHIP policy so all
other insurance is treated as primary, just as Medicaid does.
Option 12: To improve coordination between Medicaid and employer-sponsored health
insurance, this option would allow Medicaid payments to subsidize and encourage the
use of health coverage offered through employers.
17
These examples were described in focus group discussions with Medicaid and SCHIP parents and with
Medicaid and SCHIP eligibility workers in four states. The focus groups were conducted by the author for
the Kaiser Commission on Medicaid and the Uninsured during 2001.
22
Medicaid has the potential to increase coverage through employer-sponsored health
insurance. This option would specifically allow states to use Medicaid to subsidize
health coverage available through employers. As one current example, some states have
initiated “one-third share” pilot programs, under which the employer, the employee and
the state program equally share the cost of premiums. Other models might be designed by
states that would effectively improve the take-up rate for employer-sponsored health
coverage by making it more affordable for employees and employers.
This option would build on the experience several states are now getting as they offer
coverage to persons with disabilities who are working. This experience has reinforced
the importance workers attach to health coverage. It is likely that states would find ways
to use Medicaid to encourage workers to maintain their health insurance through their
job, as well as increase the likelihood of persons accepting employment and making a
transition to employer-sponsored coverage. The opportunity here is for states to design
and implement their own strategies to reduce the number of uninsured by increasing the
number with employer-sponsored health insurance.
Summary and Conclusion
This paper has described how important Medicaid has become in providing needed health
coverage for over 44 million children, families, the elderly and persons with disabilities,
as well as other groups of low-income persons with inadequate health coverage, or with
no other health coverage at all. The paper has shown how expensive Medicaid costs have
become for states, and how the future of Medicaid coverage is in jeopardy because states
will be unable to afford the rapidly increasing costs in the future.
Several options are listed that would change federal law to restructure the financing of
Medicaid. These changes would allow states to improve the program and extend
coverage to additional groups of low-income persons. Some of the changes would
provide the flexibility to states to structure a benefit package and cost sharing that is
similar to that offered in the current employer-sponsored health insurance market. Other
changes are specifically targeted to shift some of the financial burden of Medicaid from
the states to the federal government.
These improvements in federal financial responsibility are critically needed if states are
to be able to afford their share of Medicaid costs in the future. They are important if
states are to sustain the recent expansions in coverage that have reduced the number of
uninsured. Indeed, without changes such as might be achieved through the listed options
(or others that might provide similar fiscal relief to states for the Medicaid cost burden), it
is unlikely that states will be able to afford future Medicaid cost increases.
Under current program rules, Medicaid cost increases now anticipated cannot be funded
by states without significant reductions in the state general fund budgets for other state
programs, such as education, corrections, transportation or welfare. The situation in the
23
immediate future has already forced states to face very difficult choices, as Medicaid cost
pressures are increasing just as state general fund revenues are declining due to the recent
economic downturn. The choices will hardly be easier when the economy rebounds,
because future Medicaid spending is expected to continue to increase faster than state
revenues. Important changes to Medicaid and its financing will be needed if the program
is to survive into the future and continue to provide critically important health coverage
for the persons it serves.
24
Appendix A:
35 Years of Change in Medicaid Law
1965-2000
Social Security Amendments of 1965
(P.L. 89-98)
‰
Established Medicaid by expanding the Kerr-Mills program.
Social Security Amendments of 1967 (P.L. 90-248)
‰
‰
Established Early and Periodic Screening, Diagnostic and Treatment (EPSDT)
program for children within Medicaid. In 1989, EPSDT was amended to add services
or broadly expand the amount, duration and scope of services.
Permitted states to cover children in two-parent families.
Social Security Amendments of 1972 (P.L. 92-603)
‰
‰
Established the Supplemental Security Income Program (SSI) for the aged, blind and
disabled and linked SSI to automatic Medicaid eligibility.
Repealed the 1965 provision requiring states to move toward comprehensive
Medicaid coverage.
Omnibus Reconciliation Act of 1980 (P.L. 96-499)
‰
The Boren Amendment required states to pay for inpatient hospital and nursing home
care at “reasonable and adequate standards.”
Omnibus Reconciliation Act of 1981 (P.L. 97-35)
‰
‰
Section 1915 (b) and 1915 (c) waiver programs (freedom of choice and home and
community-based services) established.
Allowed for supplemental payments to hospitals serving a “disproportionate number”
of low-income Medicaid and Medicare beneficiaries.
Deficit Reduction Act of 1984 (P.L. 98-369)
‰
Mandated coverage of “qualified” children (born after September 30, 1983 and under
age 5 whose family incomes fall below state AFDC payment levels) and pregnant
women (who would be eligible for AFDC and for AFDC-UP after their children are
born.)
25
‰
‰
Extended eligibility 12 months for persons losing AFDC and thus Medicaid benefits
as a result of increased countable income from earnings (Transitional Medical
Assistance)
Mandated coverage for one year for newborns born to women receiving Medicaid as
long as their mothers remain eligible for Medicaid.
Medicare Catastrophic Coverage Act of 1988 (P.L. 100-360)
‰
‰
‰
Mandated coverage of pregnant women and infants to 100 percent of the federal
poverty level.
Mandated coverage of qualified low-income Medicare beneficiaries (QMBs) up to
100% of the federal poverty level.
Established special eligibility rules for institutionalized persons whose spouse
remained in the community to prevent “spousal impoverishment.”
Omnibus Budget Reconciliation of 1989 (P.L. 101-239)
‰
‰
‰
Extended mandatory coverage of pregnant women and children under 6 to 133
percent of the federal poverty level.
Expanded EPSDT requirements and penalties for non-compliance.
Mandated coverage and full cost reimbursement of federally qualified health centers
(FQHCs).
Omnibus Reconciliation Act of 1990 (P.L. 101-508)
‰
‰
‰
Mandated the phased-in coverage of children age 6 through 18 to 100 percent of the
federal poverty level.
Required States to pay part B premium for Medicare beneficiaries with incomes to
120 percent of the federal poverty level (SLMBs).
Required states to provide out-stationed enrollment of poverty level pregnant women
and children at federally qualified health centers and disproportionate share hospitals.
Medicaid Voluntary Contribution and Provider-Specific Tax
Amendments of 1991 (P.L. 102-234)
‰
Restricted use of provider donations; imposed provider tax criteria; capped provider
taxes to 20% of state share of Medicaid spending; and capped disproportionate share
hospital payments at 1992 levels.
‰
Expanded use of Section 1115 Research and Demonstration waivers to extend
coverage to non-traditional Medicaid populations and expand managed care.
.
26
The Personal Responsibility and Work Opportunity, 1996
Reconciliation Act of 1996 (P.L. 104-193)
‰
‰
‰
‰
Replaced the Aid to Families with Dependent Children (AFDC) welfare program, an
individual entitlement, with Temporary Assistance for Needy Families, a block grant
to the states. Severed the automatic link between welfare assistance and Medicaid
eligibility. Medicaid eligibility level in place before July 16, 1996 became a
minimum, with some flexibility.
Restricted access to Medicaid for many current legal immigrants through the repeal of
the entitlement status of Medicaid to “qualified aliens” (individuals legally admitted
for permanent resident before August 22, 1996); eligibility for this group only at state
option.
Barred new legal immigrants who enter the country after August 22, 1996 from
receiving Medicaid or other means-tested programs for five years.
Made the SSI disability definition more restrictive for children.
The Balanced Budget Act of 1997 (P.L. 105-33)
‰
‰
‰
‰
‰
Restored Medicaid eligibility changed by the welfare reform law to elderly and
disabled legal residents who lived in US and received assistance as of August 22,
1996 and to children who lose SSI benefits.
Permitted States (Section 1932) to condition Medicaid coverage for nearly all
enrollees on mandatory enrollment in a qualified MCO without a federal waiver.
Repealed the Boren Amendment, which had required state Medicaid payments to
hospitals and nursing homes to meet a “reasonable and adequate” standard.
Revised the DSH payment requirements; limited payment to IMDs.
Enacted the Children’s Health Insurance Program (SCHIP) as a federal block grant to
states. Allocated $20.3 billion to states over five years. Allowed states to either
expand Medicaid or create a separate program to cover more children.
The Medicare, Medicaid, and SCHIP Benefits Improvement and
Protection Act of 2000 (P.L. 106-554)
‰
‰
‰
‰
‰
‰
Increased the Disproportionate Share Hospital (DSH) allotments for each of fiscal
years 2001 and 2002, including special rules for public hospitals.
Created a new prospective payment system for FQHCs and Rural Health Clinics
Streamlined approval of continuations of section 1115 waivers.
Established a transition for Medicaid upper payment limits for publicly (but not State)
owned or operated health facilities and for outpatient as well as inpatient entities.
Extended transitional Medicaid coverage for one year, until September 20, 2002.
Expanded the list of entities that a state may authorize to establish Medicaid or
SCHIP eligibility on a presumptive basis to include: elementary or secondary schools,
a state or tribal child support enforcement agency, McKinney Homeless Assistance
27
Act grantees, a state or tribal office or entity involved in enrollment in Medicaid,
SCHIP, or TANF, and entities that determine eligibility for federally assisted housing.
This section was developed from: Kaiser Commission on Medicaid and
the Uninsured, "Medicaid: A Primer,
Introduction and Overview," March
2001. Pp. 11-14. Publication 2248.
28