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Advocacy >> Memorandum
To: AHCA/NCAL Members
From: Steven Gregory, Director, Medicaid Reimbursement & Research
Subject: Newly Eligible Medicaid Recipients Under Health Care Reform and Federal Matching Funds (§2001) - Eff. Date: 1/1/2014
Date: 8/24/2010
Expansion of Medicaid Eligibility and Federal Matching Funds for Expanded Medicaid Eligibility Under National Health Care Reform

Introduction

President Obama signed into law the Patient Protection and Affordable Care Act (PPACA) in March 2010.  Section 2001 and 10201 of the PPACA, as well as section 1201 of HCERA,[1] expands Medicaid eligibility and provides for enhanced federal matching funds to cover the costs associated with such an expansion in the states.

This memo provides a brief summary of a more detailed memo written by Joel Hamme, Esq., with the law firm Powers Pyles Sutter and Verville.  The detailed memo is provided below as Attachment A.

Background

Prior to enactment of health reform, state Medicaid programs were required only to provide coverage to certain categories of lower income individuals, including children, pregnant women, the disabled, and the elderly.  Childless adults under age 65 who were not pregnant or disabled were not required to be covered. 

With passage of health reform legislation and effective January 1, 2014, state Medicaid programs must provide Medicaid benefits to individuals who are:

  • under age 65
  • not pregnant
  • not entitled to or enrolled in Medicare Part A
  • not enrolled in Medicare Part B
  • not otherwise eligible for Medicaid under any other provision or category
  • and have incomes at or below 133% of the federal poverty line (FPL).[2]

A state may also elect, on or after April 1, 2010, to furnish Medicaid coverage to such individuals as part of its state plan.  This is optional for states.  A state may also phase-in such coverage prior to January 1, 2014, so long as it does so in a manner that covers lower income individuals before it encompasses higher income individuals.

Individuals covered under the expansion will be eligible for “benchmark coverage” or “benchmark equivalent coverage.”[3]  As such, the Medicaid eligibility expansion group will not be entitled to the full panoply of state Medicaid benefits.  For example, nursing facility services and services in facilities for the developmentally disabled are not covered benefits in such plans.  Rather, benchmark or benchmark equivalent plans focus primarily on acute (hospital) and medical (physician) care.

Substantially enhanced federal match rates will be available to states to assist them in paying for this expansion.  This includes both state Medicaid programs that previously did not cover any of the individuals in the expansion group and states that did cover those individuals.  As such, a two-tier system was created to distribute the enhanced federal matching funds to states according to their expansion level category as an “expansion state” or a “non-expansion state.”  See Attachment A for more information.

Impact

Among the primary objectives of health reform was to extend health insurance coverage to as many as possible of the estimated 45 million to 50 million people in the country who are currently uninsured.  Expanding Medicaid eligibility was seen as one way to accomplish this objective.[4]

Despite the fact that there will be significantly increased federal match rates to help the states in covering the costs of expanding the number of Medicaid eli­gibles and that these new eligibles will not be entitled to the full array of traditional Medicaid benefits, many states are concerned about the expansion.  Virtually all state Medicaid budgets are already under tremendous strain and, even though the expan­sion is not effective until January 1, 2014, when the economic picture may be brighter, there is no assurance that budgets will have improved by then.

For long term care providers, including nursing facilities, this provision to provide for expanded Medicaid eligibility will have little direct impact.  Because the package of benefits required for the new Medicaid eligibles does not include nursing facility services or institutional care for the developmental­ly disabled, it does not appear that such providers will necessarily see an increase in the number of newly eligible Medicaid patients.  To the degree that these individuals require institutional care (or other Medicaid services not in the benefits package), they will – as in the past – have to spend down resources until they reach traditional Medicaid eligibility categories that include such services as benefits.  So, in that regard, it appears there will be no significant change in the status quo for providers as to the payor source of their patient censuses.

Nonetheless, the expansion of Medicaid eligibility – and its financial repercussions for states – may still have troublesome or adverse effects on long term care providers.  Even with the enhanced federal matching funds, states will be looking for ways to save dollars and insulate their budgets from not only the enduring effects of a poor economy but also any potential “ripple” effects from a surge of new Medicaid eligibles.  This could result in cuts to provider payments, an expansion of managed care, or an increased push for home and community-based services (HCBS).  

AHCA Policy Options

AHCA will be vigilant of any potential impacts that the expansion of Medicaid eligibility will have in the states and on providers.  We will work with nursing facility providers in the states to protect critical Medicaid funds.  In addition, we will monitor any efforts to expand managed care and HCBS in the states.

For a discussion of other policy options, please see Attachment A.  And please let us know if you have any questions, concerns or recommendations. 

Steven Gregory
Director, Medicaid Reimbursement & Research
202-898-2849

Attachment A

Seventh Floor
1501 M Street, NW
Washington, DC  20005-1700
Phone: (202) 466-6550  Fax: (202) 785-1756

MEMORANDUM 

To:

American Health Care Association
(Steven Gregory, Elise Smith, Janice Zalen)

From:

Joel M. Hamme

Date:

July 27, 2010

Re:

Expansion of Medicaid Eligibility And Federal Matching Monies For Expanded Medicaid Eligibility Under National Health Care Reform

TABLE OF CONTENTS

I. INTRODUCTION........................................................................................................... 2

II. SYNOPSIS OF THE PROVISIONS RELATING TO MEDICAID ELIGIBILITY EXPANSION, COVERED BENEFITS UNDER THE EXPANSION, AND FEDERAL FUNDING OF THE EXPANSION.................................................................................................................... 2

III. MEDICAID ELIGIBILITY EXPANSION................................................................ 3

IV. BENEFITS FOR THE MEDICAID ELIGIBILITY EXPANSION GROUP...... 5

V. ENHANCED FEDERAL MATCH RATES FOR THE NEWLY MEDICAID ELIGIBLES      7

VI. IMPLICATIONS OF THE EXPANSION OF MEDICAID ELIGIBLES AND THE INCREASED FEDERAL MATCH............................................................................. 9

A. States..................................................................................................................... 9

B. LTC Providers................................................................................................... 11

I.       INTRODUCTION

            This memorandum is the second in a series of memoranda that the American Health Care Association has requested as to the terms and implications of various provisions of the federal health reform enactments.  In this memorandum, we examine the provisions of the Patient Protection and Affordable Care Act (“PPACA”), P.L. No. 111-148 (Mar. 23, 2010) and the Health Care and Education Reconciliation Act of 2010 (“HCERA”), P.L. No. 111-152 (Mar. 30, 2010), relating to new Medicaid eligibles and enhanced federal matching funds for their coverage under health reform.  PPACA, § 2001 and 10201; HCERA, § 1201.

            First, the memorandum furnishes a brief summary of these provisions.  After that, it examines in more detail the expansion of Medicaid in terms of the newly eligible individuals who will qualify for Medicaid coverage under PPACA, § 2001.  The memorandum then reviews the program benefits to which those individuals will be entitled.  Next, it elaborates upon the federal financing mechanisms for the costs attributable to covering these new Medicaid eligibles.  Finally, the memo­randum furnishes discussions as to the potential implications of these provisions for state Medicaid programs and for providers, particularly long term care providers (“LTC providers”) such as nursing homes, assisted living facilities, and facilities for the developmentally disabled.

II.      SYNOPSIS OF THE PROVISIONS RELATING TO MEDICAID ELIGIBILITY EXPANSION, COVERED BENEFITS UNDER THE EXPANSION, AND FEDERAL FUNDING OF THE EXPANSION   

            Sections 2001 and 10201 of PPACA and Section 1201 of HCERA are the governing health reform provisions.  Under them and effective January 1, 2014, state Medicaid programs must provide Medicaid benefits to individuals who:

·         are under age 65;

·         are not pregnant;

·         are not entitled to or enrolled in Medicare Part A;

·         are not enrolled in Medicare Part B;

·         are not otherwise eligible for Medicaid under any other provision or category; and

·         have incomes at or below 133% of the federal poverty line (“FPL”).

See Section III, infra.

            Such individuals will be eligible for “benchmark coverage” or “benchmark equivalent coverage” as defined by federal law and described in Section IV, infra.

            Substantially enhanced federal match rates will be available to states to assist them in paying for this expansion.  As detailed in Section V, infra, this includes both state Medicaid programs that previously did not cover any of the individuals in this group and states that did cover those individuals.

III.     MEDICAID ELIGIBILITY EXPANSION

            Prior to enactment of health reform, state Medicaid programs were required only to provide coverage to certain categories of lower income individuals, including children, pregnant women, the disabled, and the elderly.  Childless adults under age 65 who were not pregnant or disabled were not required to be covered.  Indeed, such individuals could only receive Medicaid pursuant to federal waiver programs.  Or, a state could extend coverage pursuant a program that was fully funded by the state.  Few states chose to do so.

            In addition, there have been wide variations in state Medicaid eligibility standards.  For instance, in 2009, Medicaid eligibility thresholds for working parents ranged from a national low of 17% of the FPL to a high of 215% of the FPL, leading to further concerns about inequities in access to health care coverage. 

            Among the prime objectives of health reform was to extend health insurance coverage to as many as possible of the estimated 45 million to 50 million people in the country who are currently uninsured.  One of the mechanisms for doing so was to expand Medicaid eligibility and create a higher and more uniform coverage floor nationally.

            The major provision for accomplishing this was Section 2001(a)(1)(C) and (3) of PPACA, which mandates that, effective January 1, 2014, states must extend Medicaid eligibility to individuals between the ages of 19 and 65 (i.e., 19 years or older but less than 65 years old) who:

            (a)       have incomes of 133% of the FPL but

            (b)       are not pregnant, not entitled to or enrolled for Medicare Part A benefits, not enrolled for Medicare Part B benefits, not eligible for Medicaid – as of December 1, 2009 – under the state plan or a waiver of the state plan for full benefits, benchmark coverage, or benchmark equivalent coverage.  This preclusion even extends to those eligible, at that time, but not enrolled or on a waiting list for capped or limited enrollment Medicaid waivers.[5]

            A state may also elect, on or after April 1, 2010, to furnish Medicaid coverage to such individuals as part of its state plan.  This is optional for states.  A state may also phase-in such coverage prior to January 1, 2014, so long as it does so in a manner that covers lower income individuals before it encompasses higher income individuals.[6]

            A few factual observations may help place this expansion and the demo­graphic population that it represents in perspective.  First, in 2009, 133% of the FPL was $14,404 annually for individuals and $29,327 annually for a family of four.  Second, it is estimated that about 17.1 million non-elderly uninsured adults would currently qualify for Medicaid under this expansion although some of that number may be undocumented immigrants or immigrants not yet in the United States legally for a period of five years – both of which groups are ineligible for coverage.  It may also include some individuals who already qualify for Medicaid. 

            So, of the projected 32 million people who will gain health care coverage under health reform, roughly one-half will do so pursuant to these provisions.  Third, this group of adults comprises about 37% of all of the uninsured in the country.  A majority of them do not have dependent children, and about half of them have family incomes below 50% of the FPL.  Fourth, at the time health reform was passed, about 39 states set Medicaid coverage levels for parents at levels below 133% of the FPL.  Stated somewhat differently, the vast majority of states will have to expand Medicaid coverage as a result of health reform, some dramatically and some modestly.[7]


IV.     BENEFITS FOR THE MEDICAID ELIGIBILITY EXPANSION GROUP

            It should be emphasized that, under Section 2001(a)(2)(A) of PPACA, the Medicaid eligibility expansion group described above will not be entitled to the full panoply of state Medicaid benefits.  Rather, those individuals will be entitled to “benchmark coverage” or “benchmark equivalent coverage.”[8]

            “Benchmark coverage” is defined at 42 U.S.C. § 1396u-7(b)(1) as benefit plans that are:

            (1)       the standard Blue Cross/Blue Shield preferred provider option service benefit plan offered to federal employees; or

            (2)       the health benefits coverage plan offered and generally available to state employees; or

            (3)       the health insurance coverage plan offered by the health maintenance organization in the state that has the largest insured commercial, non-Medicaid enrollment; or

            (4)       such other health benefits coverage as approved by the Secretary upon application by the state.

Nursing facility services and services in facilities for the developmentally disabled are not covered benefits in such plans.  Rather, such plans focus primarily on acute (hospital) and medical (physician) care.

            “Benchmark equivalent coverage” is defined at 42 U.S.C. § 1396u-7(b)(2) as:

            (1)       including the following benefits:

                        (a)       inpatient and outpatient hospital services;

                        (b)       physicians’ surgical and medical services;

                        (c)        laboratory and x-ray;

                        (d)       well-baby and well-child care; and

                        (e)        other appropriate preventive services as designated by the Secretary;

            (2)       having an aggregate actuarial value equivalent to one of the benchmark benefit packages; and

            (3)       having an actuarial value equal to at least 75% of the actuarial value of coverage in a benchmark benefits package for each of the following additional services for which coverage is provided:

                        (a)       prescription drugs;

                        (b)       mental health services;

                        (c)        vision services; or

                        (d)       hearing services.

            Individuals with benchmark coverage or benchmark equivalent coverage must also have access, through that coverage or otherwise, to rural health clinic and federally qualified health center services.

            As with benchmark coverage, nursing facilities services and services in facilities for the developmentally disabled are not encompassed within benchmark equivalent coverage.[9]

            Accordingly, there is no requirement that the Medicaid benefits package for the newly eligibles include nursing facility services or institutional services for the developmentally disabled, though states are free to apply with the Secretary for approval of a more comprehensive benefits package.  In the current economic environment with states facing major fiscal problems, it seems unlikely that many, if any, states would exercise such an option.  In the long run, though, it is con­ceivable that this could change if states find themselves less strapped budgetarily.

            Interestingly, there is an argument that nursing facility services for those 21 years or older must be included for the newly eligible Medicaid class.  Under Section 2001(a)(1)(C) of the PPACA, Congress added the newly eligibles as one of the classes of Medicaid beneficiaries pursuant to 42 U.S.C. § 1396a(a)(10)(A)(i).  The introductory portion of that provision, 42 U.S.C. § 1396a(a)(10), specifies that the state plan must “provide”:

            (A)       for making medical assistance available, including at least the care and services listed in paragraphs (1) through (5), (17), and (21) of section 1396d(a) of this title, to --

[all of the listed categories of individuals] (emphasis and bracketed material added).

One of the services included in the cited provisions of 42 U.S.C. § 1396d(a) is nursing facility services for individuals 21 years and older.  See 42 U.S.C. § 1396d(a)(4).

            The counter argument, which is the better reading of the statute and reflects clear congressional intent, is that the definition of the newly Medicaid eligible class in 42 U.S.C. § 1396a(a)(10)(A)(i)(VIII) also includes the caveat that it is “subject to subsection (k).”  It is this subsection, 42 U.S.C. § 1396a(k)(1), which confines the benefits for the newly Medicaid eligible class to benchmark or benchmark equiva­lent coverage.

            The implications for states and providers of this Medicaid benefits package as to the new eligibles will be discussed in Section VI, infra.

V.      ENHANCED FEDERAL MATCH RATES FOR THE NEWLY MEDICAID ELIGIBLES                                                               

            Recognizing that many states would have major concerns with absorbing the costs of expanding Medicaid eligibility, Congress provided fairly generous increases in the federal match rates to cover these individuals.  In doing so, it created two categories of states: (1) states that, before December 1, 2009, had not provided statewide Medicaid eligibility to the class of non-pregnant, childless adults, and parents whose income is at least 100% of the FPL (non-expansion states); and (2) states that had furnished such Medicaid eligibility before December 1, 2009 (expansion states).[10]  Note that states that offered coverage only to such parents or only to such non-pregnant, childless adults are considered non-expansion states.


            For non-expansion states, the federal match rates for the Medicaid costs attributable to the newly eligible class will be:

                        Calendar Year 2014 – 100%
                        Calendar Year 2015 – 100%
                        Calendar Year 2016 – 100%
                        Calendar Year 2017 – 95%
                        Calendar Year 2018 – 94%
                        Calendar Year 2019 – 93%
                        Calendar Year 2020 and thereafter – 90%.

            For expansion states, the federal match rate for the newly eligibles will be the state’s normal federal match rate plus the product of a transitional percentage multiplied by the difference between the federal match rate being received by the non-expansion states and the expansion state’s normal federal match rate.  The transi­tional percentages for expansion states will be:

                        Calendar Year 2014 – 50%
                        Calendar Year 2015 – 60%
                        Calendar Year 2016 – 70%
                        Calendar Year 2017 – 80%
                        Calendar Year 2018 – 90%
                        Calendar Year 2019 and thereafter – 100%.

This means that, on and after 2019, expansion states will receive the same federal match rates for the newly Medicaid eligibles as the non-expansion states.

            To illustrate how this works and to compare it to non-expansion states, assume that Expansion State A ordinarily has a 50% federal match rate.  Here is how its enhanced federal match rates for newly eligibles would look versus those of non-expansion states:

                                    Expansion State A                          Non-Expansion State

            2014               75%                                                    100%
                                    50% + (50% x[100%-50%])

            2015               80%                                                    100%
                                    50% + (60% x [100% - 50%])

            2016               85%                                                    100%
                                    50% + (70% x [100% - 50%])

 

 

                                    Expansion State A                          Non-Expansion State

            2017               86%                                                    95%
                                    50% + (80% x [95% - 50%])

            2018               89.6%                                                 94%
                                    50% + (90% x [94% - 50%])

            2019               93%                                                    93%
                                    50% + (100% x [93% - 50%])

            2020               90%                                                    90%
                                    50% + (100% x [90% - 50%])

            Finally, for states that require their political subdivisions to contribute part of the non-federal share of Medicaid (regardless of whether the state is an expan­sion or non-expansion state), the state will not be eligible for any enhanced federal match for newly Medicaid eligibles if it requires any political subdivision to con­tribute a greater percentage of expenditures for Medicaid or disproportionate share hospitals than it required on December 31, 2009.[11]  Voluntary contributions by the political subdivisions are exempt from this rule.

VI.     IMPLICATIONS OF THE EXPANSION OF MEDICAID ELIGIBLES AND THE INCREASED FEDERAL MATCH                                           

            A.        States

            Despite the fact that there will be significantly increased federal match rates to help the states in covering the costs of expanding the number of Medicaid eli­gibles and that the newly eligibles will not be entitled to the full array of traditional Medicaid benefits, many states are troubled about the expansion.  Virtually all state Medicaid budgets are already under tremendous strain and, even though the expan­sion is not effective until January 1, 2014, when the economic picture may be brighter, there is no assurance of that.


            These types of concerns have led about 20 states to initiate legal challenges to health reform, including the Medicaid expansion “mandate.”  A legal analysis of those claims is well beyond the scope of this memorandum but, suffice it to say, challenges to this portion of health reform will likely face an uphill climb.  After all, participation in Medicaid is voluntary on the state’s part.  As such, its option in this respect, is to drop out of the Medicaid program if it finds the eligibility expansion problematic.  Obviously, however, the voluntary nature of the program from a legal perspective does not mean that withdrawal from the program is politically possible.

            To understand the implications for states and state budgets, one has to look at individual states and consider multiple factors such as:

                        (1)       whether the state will be an expansion or a non-expansion state;

                        (2)       the normal federal match rate that the state is likely to have if it is an expansion state;

                        (3)       the projected numbers of additional individuals in the state who will be Medicaid eligible due to the expansion; and

                        (4)       the approximate costs (and state share of such costs) over time to furnish those additional eligibles with benchmark or benchmark equivalent coverage or, if the state is so inclined, a more comprehensive set of benefits.

Clearly, the results of such analyses will affect Medicaid providers, including LTC providers because of competing demands (e.g., beneficiary coverage costs versus reimbursement of providers) for state resources.  As in other periods of financial downturn or distress, states faced with escalating Medicaid costs after expanded Medicaid eligibility may consider steps such as:

                        (a)       curtailing Medicaid reimbursement to providers;

                        (b)       eliminating or reducing optional services;

                        (c)        altering Medicaid benefits packages to the extent permitted by federal law; and/or

                        (d)       changing eligibility standards for Medicaid or for certain Medicaid services to the degree allowed by federal law.

            Finally, providers will need to monitor states closely to ensure that, as indi­viduals transition from Medicaid benchmark or benchmark equivalent coverage to full Medicaid coverage that entitles them to a wider array of benefits, states apprise those individuals of their new and different coverage status on an informed and timely basis.  Unfortunately, because full Medicaid coverage status may be more expensive than Medicaid benchmark or benchmark equivalent coverage status, states may benefit financially from delays and/or lack of effective communication with beneficiaries.  CMS oversight of state policies and procedures will also be critical in this respect.

            B.        LTC Providers

            Because the package of benefits required for the newly Medicaid eligibles does not include nursing facility services or institutional care for the developmental­ly disabled, it does not appear that LTC providers will necessarily see an increase in the number of first-day eligible Medicaid patients.  To the degree that individuals in that class require institutional LTC (or other Medicaid services not in the benefits package), they will – as in the past – have to spend down resources until they reach traditional Medicaid eligibility categories that include such services as benefits.  So, in that regard, it appears to signal no significant change in the status quo for providers as to the payor source of their patient censuses.

            Nonetheless, the expansion of Medicaid eligibility – and its financial repercussions for states – may still have troublesome or adverse effects on LTC providers.  For example, the expansion is likely to accelerate the trend toward more Medicaid managed care even for the traditional Medicaid population.  In the same vein and for these reasons and the reasons outlined in our memo­randum on home and community-based services (“HCBS”), states will probably put increased emphasis on HCBS as a means of achieving cost containment. 

            Finally, additional financial pressures on state Medicaid programs may translate into state efforts to constrain, control, and perhaps even curtail Medicaid rates to providers, including LTC providers, which account for a substantial percentage of state Medi­caid expenditures.  With the current uncertainty as to whether there are viable means for providers to mount legal challenges to Medicaid rate-setting, this will place an even greater premium (if that is possible) on LTC providers and their associations having good and effective governmental relations with state Medicaid agencies, state legislatures, and state executive branch officials.

*       *      *      *      *

            If you have any questions on this memorandum, please do not hesitate to contact us.

 



[1] The Health Care and Education Reconciliation Act of 2010.  HCERA was passed the U.S. House on March 21, 2010, and the Senate on March 25, 2010. HCERA was signed by the President on March 30, 2010. HCERA combines revised portions of the PPACA with the Student Aid and Fiscal Responsibility Act (SAFRA), which amends the Higher Education Act of 1965 (HEA).  

[2] In 2009, 133% of the FPL was $14,404 annually for individuals and $29,327 annually for a family of four.

[3] 42 U.S.C. § 1396a(k)(1).

[4] Federal subsidies will also be available through state-based exchanges for individuals above 133% but below 400% of the FPL.  These individuals will not be Medicaid recipients, however.

[5] Section 2004 of PPACA also requires that, effective January 1, 2014, state Medicaid programs must cover individuals between ages 19 and 26 who were previously in state foster care, and were covered either by a state Medicaid plan or a waiver at the time that they reached the age of 18.  These individuals must receive full Medicaid benefits.

[6] It should be noted that federal subsidies will also be available through state-based exchanges for individuals above 133% but below 400% of the FPL.  These individuals will not be Medicaid recipients, however.

[7] See generally, “Expanding Medicaid Under Health Reform: A Look At Adults At Or Below 133% Of Poverty,” Kaiser Family Foundation (April 2010); “Explaining Health Care Reform: Questions About Medicaid’s Role,” Kaiser Family Foundation (April 2010); “Medicaid: A Primer – Key Information On Our Nation’s Health Coverage Program For Low-Income People,” Kaiser Family Foundation (June 2010).

[8] 42 U.S.C. § 1396a(k)(1).

[9] Generally, the full range of state Medicaid benefits available to most Medicaid beneficiaries will include the federally “mandatory services” and whatever “optional services” the state has chosen to offer under its Medicaid plan.  Nursing facility services for individuals 21 or older are included within those mandatory services.  Optional services include nursing facility services for individuals under age 21 and services in intermediate care facilities for the mentally retarded.

[10] There are 12 expansion jurisdictions (Arizona, Delaware, District of Columbia, Hawaii, Maine, Massachusetts, Minnesota, New York, Pennsylvania, Vermont, Washington, and Wisconsin).  The other 39 states are non-expansion states.  Braddus, Matt and Angeles, January, “Medicaid Expansion In Health Reform Not Likely To Crowd Out Private Insurance,” June 22, 2010 (Center on Budget and Policy Priorities) at n.6.

[11] Political subdivisions are local units of government such as counties or municipalities.  CMS does not define the term and, although states have considerable discretion on this point, they must use the same definitions under Medicaid as they do for other purposes under state law.  See CMS, “American Recovery and Reinvestment Act of 2009 Frequently Asked Questions from States” at Question 34d.

.