Enhancing Safer Independent Living

Within broad national guidelines established by Federal statutes, regulations, and policies, each state:

Medicare
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Prescription Drugs
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Medicaid
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Medigap
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Long Term Care Insurance
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Minnesota Programs
 Medical Assistance Elderly  Waiver (pdf)

1. establishes its own eligibility standards
2. determines the type, amount, duration, and scope of services
3. sets the rate of payment for services
4. administers its own program

States generally have broad discretion in determining which groups their Medicaid programs will cover and the financial criteria for Medicaid eligibility.  To be eligible for Federal funds, however, states are required to provide Medicaid coverage for certain individuals who receive Federally assisted income-maintenance payments, as well as for related groups not receiving cash payments.  In addition to their Medicaid programs, most states have additional "State-Only" programs to provide medical assistance for specified low income persons who do not qualify for Medicaid.  Federal funds are not provided for State-only programs. 

The following details the mandatory Medicaid "categorically needy" eligibility groups for which Federal matching funds are provided:

• Individuals are generally eligible for Medicaid if they meet the requirements for the Aid to Families with Dependent Children (AFDC) program that were in effect in their state on July 16, 1996, or, at state option, more liberal criteria.
• Children under age 6 whose family income is at or below 133 percent of the Federal poverty level (FPL).
• Pregnant women whose family income is below 133 percent of the FPL (services to these women are limited to those related to pregnancy, complications of pregnancy, delivery, and postpartum care).
• Supplemental Security Income (SSI) recipients in most states (some states use more restrictive Medicaid eligibility requirements that pre-date SSI).
• Recipients of adoption or foster care assistance under Title IV of the Social Security Act.
• Special protected groups (typically individuals who lose their cash assistance due to earnings from work or from increased Social Security benefits, but who may keep Medicaid for a period of time).
• All children born after September 30, 1983 who are under age 19, in families with incomes at or below the FPL.
• Certain Medicare beneficiaries (described below).

• Infants up to age 1 and pregnant women not covered under the mandatory rules whose family income is no more than 185 percent of the FPL (the percentage amount is set by each state).
• Children under age 21 who meet the AFDC income and resources requirements that were in effect in their state on July 16, 1996.
• Institutionalized individuals eligible under a "special income level" (the amount is set by each State, up to 300 percent of the SSI Federal benefit rate).
• Individuals who would be eligible if institutionalized, but who are receiving care under home and community-based services waivers.
• Certain aged, blind, or disabled adults who have incomes above those requiring mandatory coverage, but below the FPL.
• Recipients of state supplementary income payments.
• Certain working-and-disabled persons with family income less than 250 percent of the FPL who would qualify for SSI if they did not work.
• TB-infected persons who would be financially eligible for Medicaid at the SSI income level if they were within a Medicaid-covered category (however, coverage is limited to TB-related ambulatory services and TB drugs).
• Certain uninsured or low-income women who are screened for breast or cervical cancer through a program administered by the Centers for Disease Control. The Breast and Cervical Cancer Prevention and Treatment Act of 2000 (Public Law 106-354) provides these women with medical assistance and follow-up diagnostic services through Medicaid.
• "Optional targeted low-income children" included within the State Children's Health Insurance Program (SCHIP) established by the Balanced Budget Act (BBA) of 1997 (Public Law 105-33).
• "Medically needy" persons (described below).

The medically needy (MN) option allows states to extend Medicaid eligibility to additional persons.  These persons would be eligible for Medicaid under one of the mandatory or optional groups, except that their income and/or resources are above the eligibility level set by their State.  Persons may qualify immediately or may "spend down" by incurring medical expenses that reduce their income to or below their state's MN income level.

Medicaid eligibility and benefit provisions for the MN do not have to be as extensive as for the categorically needy, and may be quite restrictive.  Federal matching funds are available for MN programs.  However, if a state elects to have a MN program, there are Federal requirements that certain groups and certain services must be included; that is, children under age 19 and pregnant women who are medically needy must be covered, and prenatal and delivery care for pregnant women, as well as ambulatory care for children, must be provided.  A state may elect to provide MN eligibility to certain additional groups and may elect to provide certain additional services within its MN program.  As of August 2002, 36 states have elected to have a MN program and are providing at least some MN services to at least some MN beneficiaries.  All remaining states utilize the "special income level" option to extend Medicaid to the "near poor" in medical institutional settings.

Welfare Reform Bill

The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (Public Law 104-193)--known as the "welfare reform" bill--made restrictive changes regarding eligibility for SSI coverage that impacted the Medicaid program. For example, legal resident aliens and other qualified aliens who entered the United States on or after August 22, 1996 are ineligible for Medicaid for 5 years.  Medicaid coverage for most aliens entering before that date and coverage for those eligible after the 5-year ban are state options; emergency services, however, are mandatory for both of these alien coverage groups.  For aliens who lose SSI benefits because of the new restrictions regarding SSI coverage, Medicaid can continue only if these persons can be covered for Medicaid under some other eligibility status (again with the exception of emergency services, which are mandatory).  Public Law 104-193 also affected a number of disabled children, who lost SSI as a result of the restrictive changes; however, their eligibility for Medicaid was re-instituted by Public Law 105-33, the BBA.  In addition, welfare reform repealed the open-ended Federal entitlement program known as Aid to Families with Dependent Children (AFDC) and replaced it with Temporary Assistance for Needy Families (TANF), which provides States with grants to be spent on time-limited cash assistance.  TANF generally limits a family's lifetime cash welfare benefits to a maximum of 5 years and permits states to impose a wide range of other requirements as well--in particular, those related to employment.  However, the impact on Medicaid eligibility is not expected to be significant. Under welfare reform, persons who would have been eligible for AFDC under the AFDC requirements in effect on July 16, 1996 generally will still be eligible for Medicaid.  Although most persons covered by TANF will receive Medicaid, it is not required by law.

Other Programs

Title XXI of the Social Security Act, known as the State Children's Health Insurance Program (SCHIP), is a new program initiated by the BBA.  In addition to allowing States to craft or expand an existing State insurance program, SCHIP provides more Federal funds for states to expand Medicaid eligibility to include a greater number of children who are currently uninsured.  With certain exceptions, these are low-income children who would not qualify for Medicaid based on the plan that was in effect on April 15, 1997.  Funds from SCHIP also may be used to provide medical assistance to children during a presumptive eligibility period for Medicaid.  This is one of several options from which States may select to provide health care coverage for more children, as prescribed within the BBA's Title XXI program.

Medicaid coverage may begin as early as the third month prior to application--if the person would have been eligible for Medicaid had he or she applied during that time.  Medicaid coverage generally stops at the end of the month in which a person no longer meets the criteria of any Medicaid eligibility group.  The BBA allows States to provide 12 months of continuous Medicaid coverage (without reevaluation) for eligible children under the age of 19.

The Ticket to Work and Work Incentives Improvement Act of 1999 (Public Law 106-170) provides or continues Medicaid coverage to certain disabled beneficiaries who work despite their disability.  Those with higher incomes may pay a sliding scale premium based on income.

Scope of Medicaid Services

Title XIX of the Social Security Act allows considerable flexibility within the states' Medicaid plans. However, some Federal requirements are mandatory if Federal matching funds are to be received.  A state's Medicaid program must offer medical assistance for certain basic services to most categorically needy populations.  These services generally include the following:

• Inpatient hospital services.
• Outpatient hospital services.
• Prenatal care.
• Vaccines for children.
• Physician services.
• Nursing facility services for persons aged 21 or older.
• Family planning services and supplies.
• Rural health clinic services.
• Home health care for persons eligible for skilled-nursing services.
• Laboratory and x-ray services.
• Pediatric and family nurse practitioner services.
• Nurse-midwife services.
• Federally qualified health-center (FQHC) services, and ambulatory services of an FQHC that would be available in other settings.
• Early and periodic screening, diagnostic, and treatment (EPSDT) services for children under age 21.

• Diagnostic services.
• Clinic services.
• Intermediate care facilities for the mentally retarded (ICFs/MR).
• Prescribed drugs and prosthetic devices.
• Optometrist services and eyeglasses.
• Nursing facility services for children under age 21.
• Transportation services.
• Rehabilitation and physical therapy services.
• Home and community-based care to certain persons with chronic impairments.

Amount and Duration of Medicaid Services

Within broad Federal guidelines and certain limitations, states determine the amount and duration of services offered under their Medicaid programs.  States may limit, for example, the number of days of hospital care or the number of physician visits covered. Two restrictions apply:

Payment for Medicaid Services

Medicaid operates as a vendor payment program. States may pay health care providers directly on a fee-for-service basis, or States may pay for Medicaid services through various prepayment arrangements, such as health maintenance organizations (HMOs). Within Federally imposed upper limits and specific restrictions, each state for the most part has broad discretion in determining the payment methodology and payment rate for services.  Generally, payment rates must be sufficient to enlist enough providers so that covered services are available at least to the extent that comparable care and services are available to the general population within that geographic area.  Providers participating in Medicaid must accept Medicaid payment rates as payment in full.  States must make additional payments to qualified hospitals that provide inpatient services to a disproportionate number of Medicaid beneficiaries and/or to other low-income or uninsured persons under what is known as the "disproportionate share hospital" (DSH) adjustment.  During 1988-1991, excessive and inappropriate use of the DSH adjustment resulted in rapidly increasing Federal expenditures for Medicaid.  Under legislation passed in 1991, 1993, and again within the BBA of 1997, the Federal share of payments to DSH hospitals was somewhat limited.  However, the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act (BIPA) of 2000 (Public Law 106-554) increased DSH allotments for 2001 and 2002 and made other changes to DSH provisions that resulted in increased costs to the Medicaid program.

States may impose nominal deductibles, coinsurance, or co-payments on some Medicaid beneficiaries for certain services.  The following Medicaid beneficiaries, however, must be excluded from cost sharing: pregnant women, children under age 18, and hospital or nursing home patients who are expected to contribute most of their income to institutional care.  In addition, all Medicaid beneficiaries must be exempt from co-payments for emergency services and family planning services.

The Federal Government pays a share of the medical assistance expenditures under each state's Medicaid program.  That share, known as the Federal Medical Assistance Percentage (FMAP), is determined annually by a formula that compares the state's average per capita income level with the national income average.  States with a higher per capita income level are reimbursed a smaller share of their costs.  By law, the FMAP cannot be lower than 50% or higher than 83%.  In fiscal year (FY) 2003, the FMAPs varied from 50% in twelve states to 76.62% in Mississippi, and averaged 56.6% overall.  The BBA also permanently raised the FMAP for the District of Columbia from 50% to 70% and raised the FMAP for Alaska from 50% to 59.8% through 2000.  The BIPA of 2000 further adjusted Alaska's FMAP to a higher level for FY 2001-2005.  The Jobs and Growth Tax Relief Reconciliation Act of 2003 (Public Law 108-27), in order to bring about State fiscal relief in the current troubled economy, has made three temporary modifications to the States' FMAP calculation: (1) the FMAP for the last two quarters of 2003 will equal the greater of the current law FMAPs for 2002 or 2003; (2) the FMAP for the first three quarters of 2004 will equal the greater of the current law FMAPs for 2003 or 2004; and (3) for the last two quarters of 2003 and first three quarters of 2004, the newly calculated (under 1 and 2 above) FMAP will increase by 2.95 percentage points. The Federal Government pays states a higher share for children covered through the SCHIP program. This "enhanced" FMAP averages about 70% for all states, compared to the general Medicaid average of 56.6%.

The Federal Government also reimburses States for 100% of the cost of services provided through facilities of the Indian Health Service, provides financial help to the twelve States that furnish the highest number of emergency services to undocumented aliens, and shares in each State's expenditures for the administration of the Medicaid program.  Most administrative costs are matched at 50%, although higher percentages are paid for certain activities and functions, such as development of mechanized claims processing systems.

Except for the SCHIP program, the Qualifying Individuals (QI) program (described later), and DSH payments, Federal payments to states for medical assistance have no set limit (cap).  Rather, the Federal Government matches (at FMAP rates) state expenditures for the mandatory services, as well as for the optional services that the individual state decides to cover for eligible beneficiaries, and matches (at the appropriate administrative rate) all necessary and proper administrative costs.  The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (as incorporated into Public Law 106-113, the appropriations bill for the District of Columbia for FY 2000) increased the amount that certain states and the territories can spend on DSH and SCHIP payments, respectively. The BIPA set upper payment limits for inpatient and outpatient services provided by certain types of facilities.

Medicaid Summary and Trends

Medicaid was initially formulated as a medical care extension of Federally funded programs providing cash income assistance for the poor, with an emphasis on dependent children and their mothers, the disabled, and the elderly.  Over the years, however, Medicaid eligibility has been incrementally expanded beyond its original ties with eligibility for cash programs.  Legislation in the late 1980s assured Medicaid coverage to an expanded number of low-income pregnant women, poor children, and to some Medicare beneficiaries who are not eligible for any cash assistance program.  Legislative changes also focused on increased access, better quality of care, specific benefits, enhanced outreach programs, and fewer limits on services.

In most years since its inception, Medicaid has had very rapid growth in expenditures. This rapid growth has been due primarily to the following factors:

Long Term Care

Long-term care is an important provision of Medicaid that will be increasingly utilized as our nation's population ages.  The Medicaid program paid for over 41% of the total cost of care for persons using nursing facility or home health services in 2001. National data for 2000 show that Medicaid payments for nursing facility services (excluding ICFs/MR) totaled $34.4 billion for more than 1.7 million beneficiaries of these services--an average expenditure of $20,220 per nursing home beneficiary.  The national data also show that Medicaid payments for home health services totaled $3.1 billion for more than 995,000 beneficiaries--an average expenditure of $3,135 per home health care beneficiary.  With the percentage of our population who are elderly or disabled increasing faster than that of the younger groups, the need for long-term care is expected to increase.

Managed Care

NOTES:

Medicaid data are based on the projections of the Mid-Session Review of the President's Fiscal Year 2004 Budget and are consistent with data received from the States on the Forms CMS-2082, MSIS, CMS-37, and CMS-64.

The above are brief summaries of complex subjects. They should be used only as overviews and general guides to the Medicare and Medicaid programs. These summaries do not render any legal, accounting, or other professional advice, nor are they intended to explain fully all of the provisions or exclusions of the relevant laws, regulations, and rulings of the Medicare and Medicaid programs.

Source: Centers for Medicare and Medicaid Services (CMS)

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