On Good Friday, March 29, 2013, the Department of Health and Human Services released a final rule regarding increased federal Medicaid percentage changes under the Affordable Care Act for covering adults who are newly eligible under the ACA’s Medicaid expansions.  HHS published the original proposed rule on this topic in August of 2011 as part of a larger rule on the ACA’s Medicaid changes.  Other parts of this rule dealing with Medicaid eligibility were finalized in March of 2012, but the parts of the proposed rule dealing with federal financial assistance were not included at that time.  Because the final rule contains significantly more detail than the proposed rule, HHS is publishing the rule as final, but soliciting further comment on parts of the rule. HHS also released on March 29, 2013, a series of Frequently Asked Questions,  explaining its approach to the expansion of Medicaid through the use of Medicaid funds to purchase private insurance for Medicaid recipients in the exchange, the approach that Arkansas and possibly other states are proposing.   This FAQ is discussed at the end of this post.

Enhanced federal funding for the adult Medicaid expansion

As is well known, the ACA expands eligibility of the Medicaid program in several respects, most importantly by covering all adults with household incomes below 133 percent of the poverty level (actually 138 percent because the first five percentage points of income are disregarded in calculating eligibility).  While the ACA makes this expansion mandatory, the Supreme Court in its 2012 ACA decision made it state option.  As of March 2013, about half the states seem likely to expand, although the list is changing daily.

The ACA provides 100 percent federal matching funding for covering newly eligible Medicaid recipients in states that choose to expand for 2014, 2015, and 2016.  For later years the federal match decreases until it reaches 90 percent for 2020 and subsequent years.   The issue addressed by the final regulation is that many Americans who sign up for Medicaid in 2014 will be new Medicaid recipients, but will be eligible under existing state Medicaid program rules—not in fact “newly eligible.”  These recipients will be covered by the traditional federal match; somewhere between 50 and 73 percent depending on the state.  The final regulation tries to sort out which of the new Medicaid recipients will be “newly eligible,” and thus qualify for the enhanced federal match and which will not be.  It also implements provisions in the ACA providing enhanced federal matching funds for states that had already expanded Medicaid eligibility to cover all or part of the “expansion population” before the ACA was adopted into law.

“Newly eligible” Medicaid recipients are defined as parents and non-pregnant childless adults under the age of 65 but above age 19 (or a higher age elected by the state) who would not have been eligible for full Medicaid benefits (or benchmark or benchmark-equivalent coverage) under a state’s plan or waiver as of December 1, 2009, or who would have been eligible as of that date but not enrolled (or on a waiting list) because eligibility was capped or limited.  The enhanced match applies only in the 50 states and the District of Columbia, not in the territories.  The enhanced federal funding only applies to newly eligible adults who meet this definition and not to other individuals who will begin receiving Medicaid in 2014, including adults up to age 26 who have aged out of foster care or children with household incomes between 100 and 138 percent of poverty (although the latter group may be covered by an enhanced CHIP match in some states).

The proposed rule had outlined three different methodologies for determining which adults newly covered by Medicaid will be considered “newly eligible” for purposes of applying the enhanced federal match:  an approach based on extrapolating from statistical sampling; an approach that would apply proportions developed by HHS using reliable data sources; and a “threshold methodology,” which HHS in fact adopted.

HHS settled on the threshold methodology as the most accurate and the easiest to apply of the three alternatives. HHS also concluded that it would be the least burdensome for states and beneficiaries.  Under the threshold methodology, states will begin by converting their income eligibility standards for adults under the age of 65 as they existed on December 1, 2009 under the then-applicable state plan, waivers, and demonstrations taking into account applicable disregards and adjustments, to modified adjusted gross income (MAGI) standards.  The MAGI conversion process is already underway based on guidance released late in 2012. When a state that chooses to expand Medicaid determines that an individual adult is eligible for Medicaid based on the 2014 standards (133 percent of poverty), the state will also determine, using the same income information used to determine current eligibility, whether the individual would have been eligible for Medicaid based on the 2009 MAGI-based income “threshold.”  If an individual is income-eligible under the 133 percent standard but would not have been under the 2009 standard, the individual will generally be eligible as a newly eligible recipient for whom 100 percent federal matching funds are available.

Qualifications on the threshold methodology

This threshold determination is subject, however, to several caveats.  First, individuals who would have been eligible under a state’s 2009 eligibility standards as disabled–either because they receive Supplemental Security Income or were eligible under more stringent state “209(b)” standards or under an optional, higher-income, disability category—are not subject to the threshold methodology and do not qualify as newly-eligible.   This rule only applies, however, to individuals who are actually determined to be disabled.  Until an applicant is actually determined to be disabled, the medical expenses of an individual who would otherwise be considered newly eligible under the threshold method will be eligible for the enhanced federal match.  Moreover, the expenses of a disabled individual who is eligible under the 133 percent adult eligibility standard but would not have been income eligible for any 2009 state disability category are also eligible for the enhanced federal match.

Second, states can decide whether to consider the application of 2009 resource eligibility tests in determining whether applicants are newly eligible.  As of January 1, 2014, states may no longer consider, or even ask about, resources in determining eligibility for adults who are part of the expansion group.  In many states, however, adults who would have been eligible on the basis of income on December 1, 2009 could have been found ineligible because of their resources.  Adults who fall into this category are newly eligible and their expenses qualify for the enhanced federal match.  States can decide whether or not to consider this factor.  States that decide to do so can determine the percentage of otherwise-eligible adult Medicaid applicants who would have been denied eligibility in 2009.   This “resource proxy” determination can be made on the basis of existing state data on resource-based denials or by conducting a one-time statistically valid sampling of the resources of new eligibles.  This sampling must be made after an individual’s application is otherwise completed and applicants must be given notice that the information is not required for determining eligibility. The resource proxy is then used to determine the percentage of applicants who are in fact newly eligible.  For example, if a state determines that 5 percent of adults who would otherwise have been eligible for Medicaid on the basis of income would have been denied on the basis of resources using the resource proxy tests, it may claim enhanced federal matching funds for 5 percent of those adults who would otherwise not be newly eligible under the threshold test.

Third, states that offered full Medicaid benefits or benchmark or benchmark equivalent benefits under a section 1115 waiver demonstration project in effect on December 1, 2009 that covered adults who would otherwise be determined to be newly eligible under the threshold test, but applied an enrollment cap, limit, or waiting list, can take this into account in determining their eligibility for enhanced federal funding.  They can claim the increased federal match based on the proportion of the number of individuals who would have been covered by the demonstration subject to the enrollment cap to the total number of persons eligible under the new adult eligibility group.  For example, if 4000 childless adults are eligible under the 133 percent standard and all of them would have been eligible for the demonstration project in 2009, except that it was capped at 1000 enrollees, 3000 of the 4000 would be newly eligible for purposes of the 100 percent federal match and 1000 would not be considered to be newly eligible.

Fourth, a state should consider only the income level of adults who might have been eligible for coverage as medically needy or under 209(b) standards after the application of a spend down in determining whether they are newly eligible.  An individual whose income exceeds 2009 standards will be determined newly eligible for purposes of the enhanced federal match whether or not the individual could have spent down to 2009 eligibility levels.

Finally, HHS will work with states that face special circumstances to develop appropriate methodologies for taking these into account.  This might involve, for example, eligibility criteria applied in 2009 under an 1115 demonstration project that are not otherwise accounted for.

Federal funding for states that have already expanded Medicaid

Although the primary focus of this rule is on when 100 percent federal matching will be available for covering newly eligible adult Medicaid recipients, the rule also implements two other ACA enhanced federal match provisions.  First, the ACA provides an additional 2.2 percentage point match only for the years of 2014 and 2015 for expenditures for all Medicaid recipients for states that had expanded Medicaid eligibility to cover all adults with incomes at or below 133 percent of the federal poverty level as of December 2009, and that meet certain other requirements.  At least two states will probably fit this category, Massachusetts and Vermont.

The rule also provides enhanced federal matching funds for the cost of covering non-pregnant childless adults in states that had covered parents and non-pregnant childless adults at eligibility levels above 100 percent of the federal poverty level as of December 1, 2009, so-called “expansion states.”  These states will only receive 100 percent federal matching funds for newly-eligible adults with incomes above the expansion state’s 2009 eligibility levels.  Additionally, however, they will receive enhanced federal matching rates for coverage of non-pregnant childless adults that will phase in for these states until  2020 when they receive the same 90 percent federal matching funds as the expansion states.   Although as many as twelve states may qualify as “expansion states,” seven of these are likely to meet other requirements that must be met for the phased-in enhanced federal match.

The premium assistance FAQ

The FAQ also released on March 29, 2013, clears up several mysteries about the premium assistance approach to Medicaid expansion that is being considered by Arkansas, and possibly other states.  Arkansas has proposed using Medicaid funds to purchase private health insurance for the Medicaid expansion population through the exchange.  Medicaid funds (which would initially consist of 100 percent federal funding for newly eligible adults) would be used to pay the premiums for this private coverage.

The FAQ clarifies that premium assistance has long been available under the Medicaid statute as a state option without a waiver for making health care available to recipients.  Premium assistance programs must be “cost-effective,” provide full Medicaid benefits including wrap-around benefits if a private plan does not cover all Medicaid services (such as EPSDT services), and allow recipients the alternative of choosing traditional Medicaid rather than a private plan.

The FAQ clarifies that HHS may also approve a limited number of state premium assistance programs on a demonstration basis under an 1115 waiver for states that do not fully meet these statutory requirements, but whose proposal contains at least the following elements:

  • The plan arguably meets cost-effectiveness (and budget neutrality) requirements because of factors like reduced churning between Medicaid and premium tax credit assistance or increased marketplace competition,
  • Recipients have a choice of at least two private plans,
  • Qualified health plans provide all required Medicaid benefits and cost-sharing at reduced Medicaid levels,
  • Enrollment is limited to recipients whose benefits are closely aligned with those otherwise available in the exchange (such as newly eligible adults, but not the medically frail), and
  • The demonstration will only last until the end of 2016, at which time a state can apply for a state innovation waiver.

A state that applies for a premium assistance demonstration must expand coverage for all adults up to 133 percent of poverty, but can limit the demonstration to adults with incomes between 100 and 133 percent of poverty.

A personal note

I will be out of the country on vacation for most of April, with limited access to the internet.   I expect that several regulations may be released during that time, including a proposed regulation on navigators in the federal exchange and final regulations on Medicaid eligibility and possibly on wellness programs.  I will attempt to post as these are issued, but posts may be delayed, perhaps until I return.