On March 16, 2012, the Center on Medicare and Medicaid Services of the Department of Health and Human Services released its final rule on eligibility changes for Medicaid that will take effect under the Affordable Care Act (ACA) on January 1, 2014. A notice of proposed rulemaking (NPRM) had been published on August 17, 2011, and I analyzed the proposed rule on Health Affairs Blog. The final rule includes a number of changes from the proposed rule, most of which are technical but some of which are significant. Several changes are significant enough that they are being published as interim-final rules with an opportunity for further comment.
This post will provide an overview of the rule and commentary on a few significant features. A section-by-section side-by-side analysis of the final and proposed rule is available here.
Completing the delinking of Medicaid from cash assistance. The Medicaid eligibility rule addresses four major issues. First, on January 1, 2014, the nature of Medicaid eligibility changes. Medicaid was created in 1965 as an adjunct to the cash assistance programs established under the 1935 Social Security Act. Medicaid offered medical coverage to persons who fit into the categories of needy persons deemed worthy of public assistance at that time: the elderly, disabled, blind, and families with dependent children.
Medicaid eligibility has expanded gradually and continuously over the years. In the process, it has become largely unlinked from cash assistance eligibility and defined rather in terms of simple need. The ACA completes this evolution, expanding eligibility to all Americans under the age of 65 with household incomes at or below 133 percent of the federal poverty level (actually 138 percent because all income is subject to a five percentage point income disregard). The Congressional Budget Office has recently estimated that the number of Americans receiving Medicaid will expand by 15 to 17 million. The first purpose of this rule is to describe the newly defined categories of persons eligible for Medicaid as of 2014.
The most significant new category is the expansion population: all Americans under the age of 65 with incomes below 133 percent of poverty. The rule also recognizes three categories of eligible persons: parents and caretaker relatives (including, at the state’s option, domestic partners); pregnant women; and children to whom states can continue to offer coverage at income levels above 133 percent of poverty. Parents or caretaker relatives living with dependent children cannot receive Medicaid unless their children are enrolled in Medicaid, CHIP, or other minimal essential coverage. Pregnant women with income above a certain level may only receive pregnancy-related services.
States also have the option of offering coverage to individuals under the age of 65 with income above 133 (138) percent of poverty with federal approval, as long as they have first covered lower-income populations. There will be no resource test for calculating eligibility for these recipients.
Calculating and using MAGI. Medicaid financial eligibility for these categories of persons will be based under the ACA on “modified adjusted gross income”—MAGI. A second purpose of this rule is to define how and at what point in time MAGI will be calculated. Since eligibility is determined based on household MAGI, the final rule also defines how the composition of Medicaid households will be defined.
The provisions here are technical but on the whole intuitive. Grants for educational expenses are not counted as income, for example, nor is child support unless it is actually received and more than nominal. Under the Three Percent Withholding Tax Repeal and Job Creation Act, Social Security benefits will be treated as income even though they are not taxable. Insofar as it is possible, the Medicaid income rules align with those that the exchanges will use for calculating premium tax credit eligibility, which is also based on MAGI.
The income rules do not align perfectly, however. Eligibility for Medicaid, for example, is based on current monthly income whereas eligibility for the tax credits is based on annual income. But the final rule repeatedly promises that no-one will fall through the cracks. For example, Medicaid programs can rely on annual income where necessary to prevent gaps, and a person who loses Medicaid but is eligible for premium tax credits can enroll in an exchange qualified health plan effective the first of the next month, even if it is the next day.
Several categories of Medicaid recipients will continue to have eligibility calculated using traditional income and resources tests, including recipients over the age of 65; the disabled and blind; Supplemental Security Income recipients; persons receiving long-term care; participants in Medicare savings programs; and the medically needy. The NPRM proposed that adults under the age of 65 be granted expansion category eligibility without determination that they were eligible for another category of eligibility (like disability) if they were eligible based on MAGI.
Many commenters objected to this proposal because the expansion population will receive a less generous level of benefits than persons in other categories now receive. Under the final rule, persons can apply for Medicaid benefits under other categories (for example, as persons who are disabled or need long term care), with the full range of services available to this population, but can receive expansion population coverage while their eligibility is being determined.
Processing Medicaid eligibility requests. Third, the rule establishes how applications for Medicaid will be handled, and eligibility requirements — including income, household composition, and residency — verified. In this we see the final completion of a gradual, but radical, transformation of the Medicaid program over the past several decades from its roots as a traditional “welfare” program. I remember forty years ago as a young welfare caseworker having to make home visits to enforce the humiliating “man-in-the-home” rule. No more. Applications will normally be handled online. Face-to-face interviews cannot be required.
Attestation by the applicant will suffice for most purposes (except for proof of citizenship or immigration status), but where verification of eligibility information is necessary, it will be done in most instances from electronic databases. In particular, states will have access to a federal data hub, which HHS expects will be available to the states for free. Information not needed for eligibility cannot be required, and documentation cannot be required on paper if electronic information is available. Residency will continue to be required for Medicaid eligibility, but a fixed address is not.
The regulation requires that applications be processed within a maximum of 90 days for disability applications, 45 days for all others, but the norm, which will be monitored by performance standards, should be real-time processing with minimal delay. Redeterminations will be done annually, but the redetermination form will normally be prepopulated to minimize the burden on the recipient.
Coordinating Medicaid eligibility with eligibility for CHIP and premium tax credits. Fourth, the rule describes how Medicaid eligibility determinations are to be coordinated with other “insurance affordability programs,” including the new premium tax credits and the Children’s Health Insurance Program—CHIP. Applicants with MAGI between the Medicaid eligibility level and 400 percent of poverty will be eligible for premium tax credits, with eligibility determined by the exchanges, while the CHIP program will continue to cover children from households with incomes above the Medicaid eligibility level. Coordinating eligibility among these programs seamlessly, as the ACA requires, will be a difficult task. The new regulation establishes the ground rules for this undertaking.
It is in this area that the most radical change between the proposed and final rule is found — the change most troubling to consumer advocates. A state Medicaid program can, of course, determine eligibility for any applicant who comes to the Medicaid program. Many applicants, however, will go initially to the exchange. An individual is not eligible for advance premium tax credits if he or she is eligible for Medicaid, thus the exchange must assess Medicaid eligibility before determining eligibility for advance premium tax credits. A state may allow the exchange to make Medicaid eligibility determinations, or it can allow the exchange to assess Medicaid eligibility and refer applicants who seem to be eligible to the Medicaid agency. If this route is taken, the Medicaid agency cannot require an applicant to establish all over again eligibility requirements determined by the exchange, and the hand-off must be seamless.
But here is the problem. Exchanges need not be government entities, but may be nonprofits. Moreover, any exchange may contract with a private entity to perform eligibility functions. Determining eligibility for Medicaid has traditionally been considered an inherently governmental function that cannot be performed by a private entity. The NPRM proposed that Medicaid agencies co-locate state employees at the exchanges to determine eligibility. The final rule allows exchanges or their contractors to make Medicaid eligibility decisions, but only subject to strict oversight by the state and with protections such as a conflict of interest prohibition. Nevertheless, this is a significant change that leaves consumer advocates nervous. This is an interim final provision, subject to further comment.
Determining the level of federal assistance for each enrollee. The NPRM addressed a fifth issue–how the Federal Medical Assistance Percentage would be determined under Medicaid. Historically, the federal government has financed between 50 percent and roughly 80 percent of a state’s Medicaid program, depending on the wealth of the state. This percentage will continue to apply for traditional Medicaid categories, but for 2014, 2015, and 2016, the federal government will pay 100 percent of the cost of the Medicaid expansion population, with FMAP phased down to 90 percent by 2020. It is necessary to determine, therefore, which Medicaid recipients are part of the traditional and which are part of the expansion population — hopefully without having to determine eligibility twice for each recipient applying the old and then the new rules. The proposed rule put forth several alternative approaches to this problem, but the final rule puts off for the time resolving how this will be handled.
With the Medicaid and Reinsurance, Risk Adjustment, and Risk Corridor (3R) rules out, only the IRS premium tax credit final rule remains outstanding among the exchange-related regulations. We can expect over the coming months, however, a continued flow of guidance and additional proposed rules as we move toward the full implementation of the ACA in 2014.