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Medicaid: Cost Versus Need

The Flexibility Factor: Finding The Right Balance

Abstract

 
Medicaid is financed with federal and state dollars and administered by states subject to certain federal rules. This design has strengths and weaknesses, and inherent tensions. Rising costs, state fiscal pressures, and new federal waiver policies have prompted some states to seek authority to use Medicaid dollars in ways that do not conform to current federal standards. These changes could have a sizable impact on the program and its beneficiaries. As federal and state roles and responsibilities are discussed, a range of options, including some that extend beyond Medicaid, will need to be considered to address the cost and resource issues that lie beneath much of the current debate.

The tension between federal standards and state flexibility is an inevitable consequence of Medicaid’s financing and programmatic structure. Medicaid was created at the same time that Medicare was established, but unlike Medicare, Medicaid is jointly financed by states and the federal government, and states administer the program subject to certain federal rules.

The federal government’s interest in Medicaid is substantial. Assuring Americans access to health care coverage is a matter of long-standing national concern. The federal government invests substantial funds in Medicaid: on average, 57 percent of the cost, amounting to $146 billion in 2002.¹ Federal law requires states that take advantage of these funds to follow certain rules. These rules create a national coverage floor for some groups of low-income Americans, set a minimum core of benefits, and limit the charges that can be imposed on beneficiaries. Poor children, for example, are guaranteed coverage and a comprehensive set of benefits whether they live in Alabama or Wyoming. The federal government oversees its interest through functions such as state plan approvals and fiscal audits, which it has performed with varying degrees of intensity and effectiveness over the years.

States also have a strong interest and investment in Medicaid, and, in recognition of their interest and investment, the law grants states considerable—but not unlimited—flexibility to design and administer their programs. States can expand coverage to residents with incomes above federal minimums, and they have broad discretion to shape the Medicaid benefit package for adults, set provider payment rates, establish delivery systems, and design their administrative processes. Open-ended (that is, uncapped) federal financing permits states to take advantage of available options and helps them finance a broad array of services through Medicaid, including some they would otherwise have paid for with state or local dollars. Nationwide, nearly two-thirds of all spending in Medicaid is at state option (Exhibit 1).² It is not surprising, therefore, that Medicaid looks very different in different states.

View larger version (16K): [in this window] [in a new window]   EXHIBIT 1 Medicaid Spending, By Eligibility Group And Type Of Service, 1998

Forces behind the current debate. Three factors have converged to prompt calls for a reexamination of state and federal roles and responsibilities under Medicaid. First is the cost of health care services and its effect on states. Following a period of slow growth, Medicaid spending is again on the rise, mirroring the sharp increase in health care costs in the private sector. Rising costs are hitting states at a particularly difficult time. State revenues are falling at rates not seen in at least a decade. The mismatch between higher costs and lower state tax collections is leading to budget cuts—and the call for Medicaid reform—in virtually every state.

A second and closely related factor is the growing cost of providing nursing home care to elderly and disabled Americans. Medicaid is the single largest payer of nursing home services, and looming not too far in the future is an aging population and a growing demand for the costly long-term care services financed by Medicaid. Even now, the cost of covering elderly and disabled people is driving most of the growth in Medicaid spending, accounting for 57 percent of the increase in federal Medicaid costs between 2000 and 2001.³

A third factor pushing the issue of state flexibility to the forefront is the Bush administration’s interest in encouraging Section 1115 waivers. These waivers permit states to receive Medicaid financing for expenditures that do not conform to Medicaid rules.⁴ In August 2001 President Bush announced new Medicaid waiver policies, the Health Insurance Flexibility and Accountability (HIFA) initiative, to encourage coverage expansions within the confines of existing Medicaid and State Children’s Health Insurance Program (SCHIP) resources.⁵ The guidance invites states to finance expansions by redirecting SCHIP or disproportionate-share hospital (DSH) funds or by reducing benefits, charging higher premiums and cost sharing, and freezing enrollment for current beneficiaries. A few states have followed the general approach outlined in the guidance, but fiscal pressures are driving some to look to the new policies primarily for ways to reduce spending.

Waivers are not new to Medicaid, but state budget pressures and the federal government’s promotion of waiver policies that step beyond lines that have been drawn in the past suggest that many of the basic elements of Medicaid could be reshaped through waivers. Waiver activity has spurred debate about what federal standards should continue to be attached to federal Medicaid funds and whether, if the federal standards are to be revisited, changes should be made by Congress rather than through negotiations between state and federal agency staff.⁶

Framing the questions. While often missing from the conversation, Medicaid’s beneficiaries are central to the debate. Medicaid provides health care and long-term care services to more than forty-four million people, including the very young and the very old, the healthy, as well as those with extraordinary medical needs (Exhibit 2). Most people who rely on Medicaid would have no source of coverage and no ability to pay for care without Medicaid. As federal and state responsibilities for Medicaid undergo reexamination, Medicaid’s current coverage responsibilities and the need to address persistent coverage gaps will have to be weighed against the need to contain costs and the challenge of finding adequate financing for the growing cost of health care and long-term care.

View larger version (12K): [in this window] [in a new window]   EXHIBIT 2 Medicaid Coverage, By Eligibility Group, 2001

Details matter. It is not sufficient to debate, in the abstract, whether more or less state flexibility is desirable. The purpose of current federal standards and the continued validity of those standards must be considered along with the scope of states’ discretion under current rules and the purpose and consequences of broadening or narrowing that discretion.

Medicaid Eligibility

Top Medicaid Eligibility Medicaid Benefits Discussion NOTES

 
Two key "flexibility" issues arise in the area of Medicaid eligibility. The first is that despite federal standards and state options, not all poor people qualify for Medicaid coverage. Childless adults, parents, and immigrants are most disadvantaged. The second relates to the entitlement nature of the program. Under federal law, states must cover all eligible people, but some states have sought authority to close enrollment and create waiting lists based on budget pressures. Related to these issues is the question of what coverage might be lost if federal eligibility standards are weakened or eliminated.⁷

Federal eligibility standards and options. In exchange for federal funding, states must cover people falling into each of the three major Medicaid eligibility categories: children and their families (including pregnant women), the elderly, and people with disabilities. For each group, minimum income standards apply, but states may expand beyond these minimums. The combination of the strength (or weakness) of the federal standards and the fiscal and political incentives that lead states to expand coverage for some groups beyond federal minimum standards have resulted in very uneven coverage across population groups.

Young children and pregnant women enjoy the greatest benefit from federal coverage requirements (Exhibit 3). In 2000 Medicaid covered 41 percent of all low-income children, including more than half of all poor children. (Low income is defined as having income below 200 percent of the federal poverty level, or $30,040 for a family of three in 2002.) Federal requirements have been responsible for much of this coverage. In 1998 eight out of ten children enrolled in Medicaid were eligible under federal minimum standards.⁸

Disabled and elderly people are subject to weaker federal standards than children are, but states have picked up many of the federal coverage options, particularly for the elderly. In 1998 more than half of all elderly beneficiaries and more than one of five disabled beneficiaries in Medicaid were covered at state option. States have picked up these options even though the elderly are a particularly costly group to cover. Close to three-fourths (73 percent) of all spending in 1998 on elderly Medicaid beneficiaries was for elders who were covered at state option.⁹

Among the groups states must cover under Medicaid, parents are helped the least by federal standards, and only a relatively small number of states have expanded coverage for parents beyond federal minimum standards. There is no uniform national coverage standard for parents, and the state-based minimum standards are very low: 40 percent of poverty in the median state. In addition, enhanced federal financing has not been generally available to states to expand coverage to low-income parents (in contrast to children).¹⁰ As a result of low minimum standards and little pickup of state options, in July 2002 parents with poverty-level earnings had too much money to qualify for Medicaid in all but eighteen states.¹¹

Childless adults who are not elderly, disabled, or pregnant cannot be covered by Medicaid regardless of their level of income or their need for coverage. This omission can be traced back to the origins of the Medicaid program. When Medicaid was enacted in 1965, it covered people eligible for federally supported cash assistance—families with dependent children, and aged, blind, and disabled people. While the rules have been changed over the years to break the link to cash assistance for each of these groups, states have never been required or permitted, without a waiver, to cover childless adults. A few states cover these adults through waivers, but waiver financing can require states to make difficult trade-offs because of federal budget-neutrality rules.¹² The lack of Medicaid coverage among childless adults is partly why they account for so many of the uninsured. In 2000 two of three nonelderly, low-income, uninsured people were childless adults.¹³

The other group excluded from Medicaid (beyond emergency services) is certain legal immigrants (children and adults). This federal exclusion came about relatively recently. Although some states cover some legal immigrants with state funds, fiscal pressures are making that coverage difficult for states to sustain.¹⁴

This patchwork method of providing coverage works well for some groups but leaves many gaps in coverage, even among some of the poorest people. Particularly for those whose political influence with state policymakers is limited, it is unlikely that these gaps will be filled without some combination of stronger federal standards and a higher federal contribution toward the cost of coverage.

The entitlement to coverage. In exchange for open-ended federal financing, federal Medicaid rules require states to serve all eligible people. This aspect of federal law is referred to as the individual entitlement or guarantee of coverage. States do not have the flexibility, at least not without a waiver, to impose waiting lists or enrollment caps in Medicaid. In this way, Medicaid operates like Medicare. The federal government cannot cap enrollment or impose waiting lists in Medicare in response to budgetary concerns.

Some have seen the entitlement as a fiscal straitjacket requiring states to sustain growing costs that they can ill afford, since the entitlement prevents a state from shutting down enrollment. It does not, however, interfere with other avenues for exercising fiscal control. States can drop, trim back, or even eliminate optional coverage, and, as discussed below, they can limit benefits for adults. States also have broad discretion to set their provider payment rates, having gained new authority over payments to nursing homes and hospitals in 1997.

Despite these avenues of reducing costs, interest in enrollment caps in Medicaid is growing. Two of the first three Section 1115 waivers granted after the HIFA guidelines were released—Arizona and Utah—allow enrollment caps in Medicaid.¹⁵ As the need for caps is evaluated, it is instructive to compare Wisconsin’s approach. When Wisconsin expanded family coverage (for children and parents), it set spending targets and specified in state law that eligibility levels could be rolled back (without having to terminate coverage for current beneficiaries) if these targets were exceeded.¹⁶ Wisconsin can rein in its enrollment costs without capping enrollment and creating waiting lists.

There is little experience in Medicaid with enrollment caps. A key concern over caps is that they limit coverage on a first-come, first-served basis, rather than by ensuring that the lowest-income people are covered. Eligibility rollbacks also limit coverage but target resources on those least able to afford medical care.

There may also be important fiscal implications for states and beneficiaries if the entitlement nature of the program were eliminated. The entitlement is often thought of as the quid pro quo for uncapped federal financing: States are obliged to take all comers, and open-ended federal funding helps states to finance that obligation. When need rises, such as during an economic downturn, Medicaid enrollment will grow to accommodate the rising number of eligible people entitled to coverage. Open-ended federal financing assures that federal financing will also automatically grow at the same pace to help pay for the new costs.

Had they been passed, the Medicaid block grant proposals in 1995 and 1996 would have ended the individual entitlement and open-ended federal financing. SCHIP is financed through a block grant with capped financing, and it does not create an individual entitlement for children. Indeed, there does not appear to be any program where federal financing is open-ended and yet the state’s obligation to serve people can be constrained by the state, regardless of federal eligibility standards. Any debate over changing the nature of the entitlement is, therefore, likely to be closely tied to a debate over whether the federal government will continue to offer open-ended federal financing.

Medicaid Benefits

Top Medicaid Eligibility Medicaid Benefits Discussion NOTES

 
Recent waiver activity shows that some states are looking to restrict benefits to either lower overall costs or stretch existing resources to cover more people. In addition, a number of benefit-related issues arise in the context of covering elderly and disabled people who are eligible for both Medicaid and Medicare (the so-called dually eligible).

Benefits that must be covered. Under federal rules, certain services, such as hospital and physician care, must be covered as a condition of receiving federal payments. Others can be offered at state option. Medicaid is sometimes described as having a particularly rich benefit package, yet most of the benefits that states must provide under Medicaid (the "mandatory" benefits) are typically covered in commercial insurance products as well (Exhibit 4). In addition, even mandatory benefits may be restricted if provided to adults. For example, some states limit the number of covered hospital days, even though hospital services are a mandatory benefit.¹⁷

In contrast to EPSDT, nursing home care, another mandatory Medicaid benefit, is quite costly. It accounted for more than 40 percent of all Medicaid spending in 21 states.²⁰ However, a large portion of these costs are those the states have "chosen" to undertake through Medicaid options. Two-thirds of all long-term care spending is for optional groups.²¹ In reality, states may have little choice but to cover these optional groups. Most people cannot afford the cost of long-term care, long-term care services are not covered under Medicare, the long-term care insurance market is quite limited, and the families of those who need nursing home care and their providers are often a powerful force at the state level.

Benefit flexibility issues. For all groups other than children, states have considerable flexibility to select which optional benefits, if any, they will cover. As with mandatory benefits, states may also limit the scope of optional benefits. In 2000 twelve of forty-four states surveyed had adopted limits on the number of drugs covered, and thirty-six states required prior authorization for some drugs.²² Many more states have adopted these kinds of limits since 2000.²³

States, however, often have a strong interest in covering Medicaid optional benefits to provide their residents with more comprehensive coverage and to draw down federal funds for services that they might otherwise have financed with state and local dollars. In addition, some optional services help reduce the cost of other mandatory services. Use of prescription drugs, for example, can reduce in-patient hospital care.

Utah’s waiver is perhaps the starkest example of a waiver altering the federal benefit standards. It expands coverage to poor and near-poor adults but limits that coverage to primary care physician services, some prescription drugs, and emergency hospital care. Other services, including mandatory services such as hospital care, mental health care, and other specialty physician services, are not covered.

The limited scope of coverage under Utah’s waiver raises a number of difficult questions. There is concern that the people eligible under the new plan will have no means to get access to the services that have been excluded, and some have questioned whether the waiver essentially leaves "covered" people uninsured in the commonly understood sense of the word. On the other hand, some of the newly eligible people had no coverage before the waiver (some were covered under a somewhat more generous state-funded program). The debate over whether some coverage is better than none is complicated by the waiver’s cost-sharing requirements and its financing. Many of the lowest-income people covered by the waiver may not be able to afford to enroll and use the limited services covered (the cost-sharing issues are discussed below). In addition, the new coverage was financed primarily through new cost-sharing requirements for lower-income parents who were eligible for Medicaid before the waiver. It remains to be seen how these new costs will affect their use of services.

Beyond adequacy of coverage is an important set of benefit issues having to do with the interaction between Medicaid and Medicare. State Medicaid programs must cover some of the fastest-growing costs for very-low- income Medicare beneficiaries, including prescription drugs and long-term care services, but states have no authority to manage the care and the costs of the benefits financed through Medicare. In addition, states reap little savings if broader and better-managed prescription drug coverage lowers the cost of hospital care or other services that are paid for largely through Medicare. Therefore, they have little financial incentive to invest in these initiatives. Some targeted waiver activity has attempted to promote better coordination between Medicaid and Medicare in a few states, but more needs to be done to offer states new care coordination and cost-control tools in this area.

Cost Sharing In Medicaid Both public and private purchasers of health coverage are relying more and more on higher premiums and other forms of cost sharing to address higher costs. Many reasons are given for charging premiums and cost sharing in Medicaid. Some believe that even very-low-income people should bear some portion of the cost of coverage and services to make them more cost-conscious and avoid unnecessary care. Broadened use of cost sharing in the private sector is also a factor promoting its use in Medicaid, and some see cost sharing for lower-income families as encouraging personal responsibility and helping to mainstream Medicaid. Several states have also looked to cost sharing as a way of encouraging Medicaid beneficiaries to rely more on generic drugs. Because most Medicaid beneficiaries have very low incomes and many are in poorer health than is true for the general population (Exhibit 5), the interest in cost sharing needs to be balanced against the impact that particular cost-sharing changes could have on people’s ability to enroll and use the services they need.

View larger version (10K): [in this window] [in a new window]   EXHIBIT 5 Health Status By Insurance Coverage, 1997

In 1997, when SCHIP was enacted, Congress reaffirmed that there should be no cost sharing for Medicaid-eligible children and only nominal cost sharing for children with family incomes below 150 percent of poverty. States with a separate SCHIP program were given more flexibility to impose charges on children with higher family incomes as long as total costs did not exceed 5 percent of income.²⁶ In its HIFA waiver guidelines, HHS generally retained these rules but signaled its willingness to allow states broad authority through waivers to impose charges on adults covered at state option.²⁷ Utah’s waiver includes a $50 enrollment fee for some parents and childless adults with very limited incomes, and Oregon’s waiver authorizes a $250 hospital admission charge for poor and near-poor adults.

Flexibility issues. Medicaid rules on premiums and cost sharing could benefit from some reexamination. On the one hand, they may be too restrictive when applied to people in higher-income groups who are covered under Medicaid expansions in some states. A state can expand coverage to families with incomes up to or even higher than 200 percent of poverty without a waiver, but it needs a waiver if it wants to charge these higher-income families even a small enrollment fee.

In some circumstances, the rules may allow for unaffordable cost sharing. Maximum coinsurance charges are based on the cost of services, and costs have risen steeply in the twenty years since the federal rules were first developed. Prompted by budget pressures, for example, Montana is now charging adults 5 percent of the cost of most services.

The other flexibility issue that has gathered considerable attention as states have sought to impose higher cost sharing in Medicaid is whether people who cannot pay the cost at the point of service can be denied the service. Under federal rules, providers cannot refuse to serve someone who cannot afford to pay a Medicaid fee, although the person is still liable for the charge. With cost sharing becoming more prevalent in Medicaid, some providers have criticized this rule, saying that it forces them to absorb the cost of unpaid charges. More cost sharing could exacerbate existing problems with provider participation in Medicaid. One response, with troubling consequences, particularly if cost-sharing requirements are set too high, is to waive the rule and allow providers to not serve people who cannot afford the copayments or other fees. Oregon’s waiver takes this approach.

In establishing cost-sharing rules, the difficult issues to resolve are at what income level charges will deter eligible people from enrolling in Medicaid and keep people who are enrolled from getting the care they need, and whether these decisions should be made state by state. Premiums and cost sharing are an accepted part of the cost of coverage for most people, but premiums will keep lower-income people from enrolling.²⁸ Research also has shown that for people with limited incomes, copayments create barriers to needed care and can lead to poorer health outcomes.²⁹ An updated but balanced federal policy is needed to address the fact that people with somewhat higher incomes are now covered under Medicaid while ensuring that the very issue that drives most people to rely on Medicaid—unaffordable health care costs—does not prevent intended beneficiaries from being able to take advantage of the program and the services it offers.

Discussion

Top Medicaid Eligibility Medicaid Benefits Discussion NOTES

 
During Medicaid’s forty-year history, Medicaid has changed in big and little ways. It has evolved from being a program that provided coverage almost exclusively to people receiving welfare to become the nation’s largest publicly funded coverage program, serving nearly forty-five million people. As the analysis presented here suggests, further changes in program rules may be in order. If changes are to be made, however, we ought to first have a clear idea about where we are heading and why, and how we are going there.

A basic, threshold question is whether policies that increase rather than decrease variations in coverage among low-income people across the nation ought to be pursued. While there are obvious merits to having states be able to design key aspects of their Medicaid programs, it is difficult to justify, on policy grounds, why a parent working at a minimum-wage job with no health insurance is eligible for Medicaid in Connecticut or Ohio, but not in Louisiana or Colorado. A recent Urban Institute study shows that much of the differences across states can be traced to differences in rates of employer-sponsored coverage, but among low-income nonelderly adults and children, state policy decisions—most notably, the breadth of a state’s Medicaid program—are a key variable.³⁰ It is hard to identify a sound policy basis for allowing these differences to persist or for making program changes that would make these differences even more stark.

If there is a national interest in having a somewhat consistent, sensible set of minimum coverage rules in place throughout the country, then the question that logically follows is how the costs of the system will be managed. In many ways, the current debate over federal standards and state flexibility masks more difficult questions about resources. New flexibility is largely being sought to reduce state costs at a time when states are facing severe budget shortfalls. New flexibility in Medicaid could help states reduce costs and, in some cases, use state and federal dollars more wisely. However, without new resources and new ways of providing and coordinating care, more flexibility and fewer federal standards are almost certain to weaken the system of publicly funded health coverage.

To the extent that fiscal issues are driving the current debate, then a range of options including some that reach beyond the four corners of the Medicaid program should be on the table. Measures that could help slow the rate of growth in drug costs, put new resources into publicly funded coverage, and relieve states of at least some of their obligation to fill in gaps in the Medicare benefit package (for example, by adding a Medicare drug benefit) will need to be part of the mix. These approaches are all under consideration by federal and state policymakers, but achieving political consensus on these matters has proved to be particularly challenging. Partly as a result, there is a risk that the call for more flexibility in Medicaid will serve as the default option and the path of least resistance, particularly when new flexibility can so easily be granted through waivers outside the glare of the lawmaking process.

This raises a third threshold issue: Who should decide whether program changes ought to be made and what those changes should be? The U.S. General Accounting Office has criticized the federal Medicaid waiver process for its lack of transparency. The waiver process could be made more open, but it is, inevitably and inherently, an undemocratic process operating outside of the normal system for making federal laws and regulations.

There are no established criteria for granting or denying waivers, in part because waivers were intended to be discrete demonstrations and pilot plans to be researched and evaluated. The research and demonstration aspect of the waiver authority has for some time been all but read out of the statute. Waivers are decided state by state, capturing little attention beyond a state’s borders, sometimes leaving even in-state providers and beneficiary groups surprised by the final results. The impact of a particular waiver, however, reaches well beyond a particular state; waivers set precedents that spread across the nation and eventually recalibrate the standards that have been set by Congress. This is particularly the case when the federal government is actively promoting certain types of waiver initiatives. While some have argued that this pushes change forward, it does so somewhat by stealth, leaving many interests unattended and unrepresented. It is a questionable way to go about making major policy changes.

Any reexamination of state and federal roles and responsibilities in Medicaid is necessarily a complicated undertaking in light of the potentially far-ranging consequences for beneficiaries, states, providers, and the broader health care system. Medicaid’s unique combination of federal standards, state options, and open-ended federal financing is responsible for its resiliency and success as well its most bruising battles. Despite major changes in the health care marketplace and federal-state relationships over the nearly four decades since Medicaid was created, Medicaid has endured, grown, and in many ways matured from a welfare program benefit to an important, stand-alone source of health care coverage for a broad and diverse group of people. It may be time for change, but it is also a time for careful reflection. Much is at stake.

Editor's Notes

 
Cindy Mann is a research professor at the Georgetown University Institute for Health Care Research and Policy in Washington, D.C. She was director of the Family and Children’s Health Program Group for the Center for Medicaid and State Operations, Centers for Medicare and Medicaid Services, from 1999 to 2001.

This paper was written primarily when the author was a senior fellow at the Kaiser Commission on Medicaid and the Uninsured. The author thanks Diane Rowland, executive director of the commission and executive vice-president of the Henry J. Kaiser Family Foundation, for her support, insights, and helpful comments. The author also appreciates the contributions of others at the Kaiser Commission, most notably Barbara Lyons, Samantha Gill, and Rachel Garfield, and the assistance with manuscript preparation provided by Theresa Jordan at Georgetown University, Institute for Health Care Research and Policy.

NOTES

Top Medicaid Eligibility Medicaid Benefits Discussion NOTES

 

1. Congressional Budget Office March 2002 Baseline.
2. Kaiser Commission on Medicaid and the Uninsured, "Medicaid ‘Mandatory’ and ‘Optional’ Eligibility and Benefits" (Washington: Kaiser Commission, July 2001).
3. Kaiser Commission, "State Budgets under Stress: How Are States Planning to Reduce the Growth in Medicaid Costs?" (Washington: Kaiser Commission, 30 July 2002).
4. Several provisions in federal law provide the Secretary of the Department of Health and Human Services (HHS) the authority to "waive" federal Medicaid standards. The broadest source of waiver authority is Section 1115 of the Social Security Act, which applies to many of the programs created by the act, not just Medicaid.
5. For a description of the HIFA initiative, see U.S. Department of Health and Human Services, "HHS to Give States New Options for Expanding Health Coverage," Press Release, 4 August 2002, www.hhs.gov/news/press/2001pres/20010804.html (16 September 2002.)
6. U.S. General Accounting Office, Medicaid and SCHIP, Recent HHS Approvals of Demonstration Waiver Projects Raise Concerns, Pub. no. GAO-02-817 (Washington: GAO, July 2002).
7. Other issues relating to Medicaid eligibility also deserve attention. For example, over the years a multitude of Medicaid eligibility "categories" have been created by federal law. Some are obsolete, and some overlap others. It may be possible to simplify program rules by collapsing eligibility categories without greatly expanding or contracting minimum coverage standards and state coverage options.
8. Kaiser Commission, "Medicaid ‘Mandatory’ and ‘Optional’ Eligibility and Benefits."
9. Ibid.
10. Under policy released in July 2000, states have been permitted to use Section 1115 waivers to use SCHIP dollars (with an enhanced federal matching rate) to cover parents, either through Medicaid or in a separate SCHIP program. Not all states, however, have available SCHIP funds that they do not need to cover children.
11. Kaiser Commission, "Low-Income Parents’ Access to Medicaid Five Years after Welfare Reform" (Washington: Kaiser Commission, June 2002).
12. Waivers must be "budget-neutral" to the federal government, meaning that federal costs cannot be more than they would have been without the waiver. Thus, for a state to cover childless adults through a waiver, it must either redirect SCHIP or Medicaid DSH funds or reduce Medicaid spending for current beneficiaries to offset the new federal costs.
13. Urban Institute analysis of March 2001 Current Population Survey data.
14. HHS has said that the secretary does not have the legal authority to allow states to cover excluded immigrants under waivers. DHHS, "Report on the Health Insurance Flexibility and Accountability (HIFA) Initiative: State Accessibility to Funding for Coverage Expansions" (Washington: DHHS, 4 October 2001).
15. Utah’s waiver follows the HIFA approach, but it is not considered to be a HIFA waiver because it does not meet all of the HIFA guidelines.
16. This is part of Wisconsin’s BadgerCare waiver, although this kind of an approach can generally be adopted without a waiver. (Wisconsin Section 1115 demonstration terms and conditions, 22 January 1999.)
17. Federal rules provide that each service must be "sufficient in amount, duration and scope to reasonably achieve its purpose." U.S. Code of Federal Regulations, Volume 42, section 440.230(b).
18. G.T. Ray et al., "Comparing the Medical Expenses of Children with Medicaid and Commercial Insurance in an HMO," American Journal of Managed Care (July 2000): 753–760.
19. GAO, Medicaid and SCHIP: States’ Enrollment and Payment Policies Can Affect Children’s Access to Care, Pub. no. GAO-01-883 (Washington: GAO, September 2001); and H. Fox et al., "Plan and Benefit Options under the State Children’s Health Insurance Program," Issue Brief no. 2 (Washington: Maternal and Child Health Policy Research Center, January 1998).
20. Kaiser Commission, "Medicaid ‘Mandatory’ and ‘Optional’ Eligibility and Benefits.".
21. Ibid.
22. R. Schwalberg et al., "Medicaid Outpatient Prescription Drug Benefits: Findings from a National Survey and Selected Case Study Highlights" (Washington: Kaiser Commission, October 2001).
23. Kaiser Commission, "State Budgets under Stress."
24. Congress also limited HHS’s authority to grant cost-sharing waivers [see section 1916(f) of Title XIX of the Social Security Act], although over the years the secretary has interpreted this restriction narrowly.
25. 42 CFR, sec. 447.54.
26. Title XXI of the Social Security Act, sec. 2103(x).
27. CMS, "Guidelines for States Interested in Applying for a HIFA Demonstration," 23 May 2002, www.cms.gov/hifa/hifagde.asp (23 October 2002).
28. L. Ku and T. Coughlin, "Sliding-Scale Premium Health Insurance Programs: Four States’ Experiences," Inquiry (Winter 1999/2000): 471–480.
29. J. Newhouse, Free for All? Lessons from the RAND Health Insurance Experiment (Washington: RAND, 1996); B. Stuart and C. Zacker, "Who Bears the Burden of Medicaid Drug Copayment Policies?" Health Affairs (Mar/Apr 1999): 201–212; and R. Tamblyn et al., "Adverse Events Associated with Prescription Drug Cost Sharing among Poor and Elderly Persons," Journal of the American Medical Association 285, no. 4 (2001): 421–429.[Abstract/Free Full Text]
30. J. Holahan, "Variations among States in Health Insurance Coverage Expenditures," Assessing the New Federalism Discussion Paper no. 02–07 (Washington: Urban Institute, June 2002).

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