House Ways and Means Committee Overview of the Medicaid Program

Executive Summary

Medicaid was enacted in 1965, in the same legislation that created the Medicare program, the Social Security Amendments of 1965 (P.L. 89-97). It grew out of and replaced two earlier programs of Federal grants to States that provided medical care to welfare recipients and the aged.
Medicaid is a means-tested entitlement program. It is jointly financed by Federal and State funds. Federal contributions to each State are based on a State?s willingness to finance covered medical services and a matching formula. Each State designs and administers its own program under broad Federal rules. The Centers for Medicare and Medicaid Services (CMS), within the U.S. Department of Health and Human Services (HHS), is responsible for Federal oversight of the program. In FY2002, total (preliminary) Federal and State spending on Medicaid reached $258.2 billion, slightly exceeding total outlays for Medicare. No other means-tested cash or noncash program comes close to approaching this spending level. In fact, of all federally supported social programs, only Social Security costs more.
To many, Medicaid is an enigma. The program?s complexity surrounding who is eligible, what services are paid for, and how those services are reimbursed and delivered is one source of this confusion. Variability across State Medicaid programs is the rule, not the exception. In recent years, more and more States have implemented a variety of major program changes using special waiver authority. Income eligibility levels, services covered, and the method for and amount of reimbursement for services differ from State to State. Furthermore, Medicaid is a program that is targeted at individuals with low-income, but not all of the poor are eligible, and not all those covered are poor. For populations like children and families, primary and acute care often are delivered through managed care, while the elderly and disabled typically obtain such care on a fee-for-service basis. Nationwide, Medicaid finances the majority of long-term care services. Such services include, for example, nursing home care and community-based services designed to support the elderly and disabled in their homes. Recently, some States have begun to integrate Medicare and Medicaid financing and/or coordinate acute and long-term care services for these populations.
The complexity of Medicaid presents an enormous challenge for anyone attempting to make generalizations about the program. This subsection describes Federal Medicaid rules that govern: (1) who is eligible, (2) what services are covered and how they are delivered, (3) how the program is financed and administered, (4) key provider reimbursement issues, and (5) the significant role of waivers in expanding eligibility and modifying services. It concludes with a brief legislative history beginning with major laws affecting Medicaid since 1996.
MEDICAID

OVERVIEW 

Medicaid was enacted in 1965, in the same legislation that created the Medicare program, the Social Security Amendments of 1965 (P.L. 89-97). It grew out of and replaced two earlier programs of Federal grants to States that provided medical care to welfare recipients and the aged.

Medicaid is a means-tested entitlement program. It is jointly financed by Federal and State funds. Federal contributions to each State are based on a State?s willingness to finance covered medical services and a matching formula. Each State designs and administers its own program under broad Federal rules. The Centers for Medicare and Medicaid Services (CMS), within the U.S. Department of Health and Human Services (HHS), is responsible for Federal oversight of the program. In FY2002, total (preliminary) Federal and State spending on Medicaid reached $258.2 billion, slightly exceeding total outlays for Medicare. No other means-tested cash or noncash program comes close to approaching this spending level. In fact, of all federally supported social programs, only Social Security costs more.
To many, Medicaid is an enigma. The program?s complexity surrounding who is eligible, what services are paid for, and how those services are reimbursed and delivered is one source of this confusion. Variability across State Medicaid programs is the rule, not the exception. In recent years, more and more States have implemented a variety of major program changes using special waiver authority. Income eligibility levels, services covered, and the method for and amount of reimbursement for services differ from State to State. Furthermore, Medicaid is a program that is targeted at individuals with low-income, but not all of the poor are eligible, and not all those covered are poor. For populations like children and families, primary and acute care often are delivered through managed care, while the elderly and disabled typically obtain such care on a fee-for-service basis. Nationwide, Medicaid finances the majority of long-term care services. Such services include, for example, nursing home care and community-based services designed to support the elderly and disabled in their homes. Recently, some States have begun to integrate Medicare and Medicaid financing and/or coordinate acute and long-term care services for these populations.
The complexity of Medicaid presents an enormous challenge for anyone attempting to make generalizations about the program. This subsection describes Federal Medicaid rules that govern: (1) who is eligible, (2) what services are covered and how they are delivered, (3) how the program is financed and administered, (4) key provider reimbursement issues, and (5) the significant role of waivers in expanding eligibility and modifying services. It concludes with a brief legislative history beginning with major laws affecting Medicaid since 1996.
ELIGIBILITY 
The Federal Medicaid statute defines over 50 distinct population groups as being potentially eligible for States? programs. Some groups are mandatory, meaning that all States that participate in the Medicaid program must cover them; others are optional. Prior to the 1980s, Medicaid eligibility was limited to very low-income families with dependent children, poor elderly and disabled individuals, and the ?medically needy.?
Beginning in the 1980s, additional eligibility pathways were added to the Medicaid statute to allow for the coverage of higher income children and pregnant women as well as other elderly and disabled individuals. Most recently, States were given the option to provide Medicaid to other groups with specific characteristics including certain women with breast or cervical cancer, to uninsured individuals with tuberculosis, and to working individuals with disabilities. Not all groups of Medicaid beneficiaries receive the same set of benefits. To understand the different benefits offered to each group, see ?Benefits? below.
Medicaid is a means-tested program. To qualify, applicants? income and resources must be within certain limits. The specific income and resource limitations that apply to each eligibility group are set through a combination of Federal parameters and State definitions. Consequently, those standards vary considerably among States, and different standards apply to different population groups within a State. For many of those groups, moreover, States have permission under a special provision, Section 1902(r)(2), to use more liberal standards for computing income and resources than are specified within each of the groups? definitions. Most States use Section 1902(r)(2) to ignore or disregard certain types or amounts of income or assets, thereby extending Medicaid to individuals with earnings or assets too high to otherwise qualify under the specified rules for that eligibility pathway.
FAMILIES, PREGNANT WOMEN, AND CHILDREN 
The two primary pathways to Medicaid for low-income family members, pregnant women, and children are through (1) Section 1931 of Medicaid statute, for those families who would have been eligible for cash welfare payments under former Aid to Families with Dependent Children (AFDC) program rules, and (2) a series of targeted Medicaid expansions for poor pregnant women and children begun in the 1980s. Other important pathways for low-income family members, including transitional medical assistance, other AFDC-related groups, and children qualifying for the State Children?s Health Insurance Program (SCHIP) who are receiving their health coverage under the Medicaid program, are explained below.Section 1931: Persons qualifying under the former AFDC program rules

Families who are eligible for Temporary Assistance for Needy Families (TANF) are not automatically eligible for Medicaid. Medicaid?s Section 1931, however, preserves Medicaid entitlement for individuals who meet the requirements of the former AFDC programs in effect in their States on July 16, 1996. This categorical group was created when TANF replaced AFDC in 1996 to ensure that low-income families do not lose Medicaid as a result of welfare reform. States have significant flexibility in defining the income and resource standards for those families qualifying for Medicaid under Section 1931: (1) income standards may be reduced below those in effect in 1996, but they cannot be lower than those used on May 1, 1988; (2) income and resource standards may be increased for any period after 1996, but by no more than the percentage increase in the Consumer Price Index (CPI) for the same period; and (3) States may use less restrictive methods for counting income and resources than those in effect on July 16, 1996.
Certain individuals qualifying under the Section 1931 pathway may be denied Medicaid coverage if they refuse to cooperate with States? TANF work requirements. States are permitted to deny Medicaid benefits to nonpregnant adults and heads of households who lose TANF benefits because of refusal to work, but must continue to provide Medicaid coverage to their children.
In 2002, 39 States had taken advantage of the flexibility of Section 1931 to expand eligibility for working families by disregarding some earned income, thereby allowing families with higher total income to qualify for the program. Other States eliminated various income and assets rules, thus expanding lowincome working families? access to Medicaid.
Poverty-related pregnant women and children 
Between 1986 and 1991, Congress gradually extended Medicaid to new groups of pregnant women and children. Under these provisions, States are required to cover pregnant women and children under age 6 with family incomes below 133 percent of the Federal poverty income guidelines. Coverage for pregnant women qualifying through this pathway is limited to services related to the pregnancy or complications of the pregnancy and extends to 60 days after termination of the pregnancy. Children receive full Medicaid coverage.
States are required to cover all children over the age of five and under 19 who are in families with income below 100 percent of the Federal poverty level (FPL). This requirement has been phased-in since July 1, 1991 and was fully implemented in 2002.
States have the option to go beyond the above mandatory groups to include pregnant women and infants under 1 year of age whose family income is over 133 and up to 185 percent of the FPL. In 2002, 36 States and the District of Columbia extended coverage to some or all pregnant women and infants in this category.
Transitional medical assistance 
Transitional medical assistance (TMA) was established prior to the 1996 welfare reform to address the concern that individuals receiving AFDC payments would not seek work or would turn down work opportunities for fear of losing Medicaid. TMA requires States to continue providing Medicaid for 6 months to families that were receiving Medicaid under Section 1931 in at least 3 of the last 6 months. The extended Medicaid coverage is available to individuals (and their families) who would otherwise have lost such assistance due to increased work hours, increased earnings of the caretaker relative, or the loss of one of the timelimited earned income disregards. In addition, States are required to extend Medicaid coverage for a second 6 months to families that were covered during the
entire first 6-month TMA period, and whose earnings are below 185 percent of poverty. The provisions authorizing TMA are due to sunset at the end of March 2004, although this date has been repeatedly extended. A small additional group of mandatory TMA-eligible persons are those who would otherwise lose Medicaid coverage under Section 1931 because of increased child or spousal support. Families eligible for this 4-month extension must have been receiving Medicaid under Section 1931 in at least 3 of the preceding 6 months.
Other AFDC-related groups 
While the AFDC program no longer exists, a number of Medicaid eligibility groups tied to States? former AFDC rules remain. States must provide Medicaid to recipients of adoption assistance and foster care (who are under age 18) under Title IV?E of the Social Security Act. In 1999 States were given the option to extend Medicaid to former foster care recipients who are aged 18, 19, or 20.
Ribicoff children, a pathway named for the former Senator who sponsored legislation authorizing this group, are those under age 21 who meet income and resource requirements for the former AFDC Program but who do not meet other categorical requirements for AFDC. States have the option to cover Ribicoff children and have a great deal of flexibility in defining the specific group of children to be covered under this category. Often States use this authority to cover children in State-sponsored foster care, children who are institutionalized, or who are inpatients in psychiatric facilities. Although many of the children who have traditionally been covered under Ribicoff are now eligible under other povertyrelated groups, Ribicoff remains an important pathway to eligibility for some small groups of older adolescents in foster care and children in two-parent families.
Targeted low-income children authorized under the State Children?s Health Insurance Program (SCHIP)
Section 4911 of the Balanced Budget Act of 1997 (BBA 1997, P.L. 105-33) established an additional coverage group for low-income children. Targeted lowincome children are those who are not otherwise eligible for Medicaid, are not covered under a group health plan or other insurance, and are living with families with income that is either: (1) above the State?s Medicaid financial eligibility standard in effect in June 1997 but less than 200 percent of the FPL; or (2) in States with Medicaid income levels for children already at or above 200 percent of the poverty level as of June 1997, within 50 percentage points over this income standard. States either can establish a specific coverage group for targeted lowincome children or they can build upon other existing Medicaid coverage groups for
children. As of February 2003, 37 States cover targeted low-income children under Medicaid.
THE AGED AND PERSONS WITH DISABILITIES 
Persons who qualify for Supplemental Security Income (SSI)
With one important exception, States are required to provide Medicaid coverage to recipients of SSI. SSI, authorized under Title XVI of the Social Security Act, is a means-tested cash assistance program for aged, blind, and disabled individuals whose income falls below the Federal maximum monthly SSI benefit and whose resources are limited. To qualify for SSI, a person must satisfy the program criteria for age or disability and meet certain citizenship or United States residency requirements. Eligibility for SSI is restricted to otherwise qualified individuals whose resources do not exceed $2,000 for an individual and $3,000 for a couple; certain resources, such as a person?s home, are exempt. Income cannot exceed the maximum Federal SSI benefit of $552 per month in 2003 for an
individual living independently, and $829 for a couple living independently. The SSI benefit level of $552 per month for an individual is 74 percent of FPL.
The major exception to Medicaid coverage of SSI recipients is in States that exercise the so-called ?209(b)? option described in Section 209(b) of the Social Security Amendments of 1972 (P.L. 92-603). Such States may use income, resource, and disability standards that are no more restrictive than those in place on January 1, 1972. As of 2001, there were 11 Section 209(b) States, including Connecticut, Illinois, Hawaii, Indiana, Minnesota, Missouri, New Hampshire, North Dakota, Ohio, Oklahoma, and Virginia. Each of these has at least one eligibility standard that is more restrictive than current SSI standards and some have certain standards that are more liberal. States that use more restrictive eligibility rules under Section 209(b) must also allow applicants to deduct medical expenses from their income when determining financial eligibility for Medicaid. This process is sometimes referred to as ?spend-down.?4
Recipients of State Supplemental Payment (SSP) benefits 
Many States provide SSP benefits with State-only dollars on a monthly basis. These payments are intended to cover such items as food, shelter, clothing, utilities,

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