By Katherine Hayes

Background 

Medicaid provides health insurance to the poorest and most medically vulnerable populations. Low-income pregnant women, children, and very poor parents of minor children are the majority of beneficiaries; Medicaid also provides coverage for children and adults with severe disabilities, as well as “wrap-around” coverage for low-income Medicare beneficiaries who cannot pay for services and cost-sharing that Medicare does not cover, particularly institutional and home- and community-based long-term care.^[1] Medicaid is jointly funded by states and the federal government and administered by states under broad federal standards.

Traditional coverage rules: Children and adults eligible for Medicaid are entitled to “medical assistance” consisting of both “mandatory” services (which states are required to cover)^[2] and “optional” services (which states may cover). Many Medicaid services resemble those offered under private health insurance, while others, such as long-term care, reflect beneficiaries’ heightened health needs. States must also satisfy federal “statewideness” and “comparability” requirements, which protect beneficiaries against discrimination based on where they live or personal characteristics unrelated to the need for care.^[3]

Section 1115 demonstrations: Section 1115 of the Social Security Act gives the Secretary of Health and Human Services (HHS) the power to waive federal medical assistance requirements to permit states to expand or limit coverage for certain classes of beneficiaries that are not otherwise permissible under Medicaid.^[4] Section 1115 demonstrations allow states to extend Medicaid to populations who otherwise would be excluded (such as medically indigent adults without minor children) and modify traditional Medicaid benefit rules.

Benchmark and benchmark equivalent coverage: The Deficit Reduction Act of 2005 gave states the flexibility to modify and narrow Medicaid coverage for certain populations without having to seek a Section 1115 demonstration waiver. Under the DRA, states may limit coverage to one of several named “benchmarks” such as coverage available to federal employees, state government employees, the best selling group health plan product in a state or any plan approved by the Secretary.^[5] Benchmark coverage may not be mandated for certain vulnerable populations.^[6] Children under 21 covered through benchmark plans must continue to receive all benefits to which children are entitled under Medicaid. States that elect benchmark coverage also must cover non-emergency transportation services.

Premium assistance: In addition to offering coverage directly under their Medicaid plans, states have the option to provide premium assistance subsidies so that beneficiaries who do have access to employer coverage can afford their coverage. In these arrangements, much like Medicare, Medicaid would “wrap around” the benefits available under an employer plan. Federal rules set standards for state premium assistance programs: the employer plan must meet certain federal coverage requirements, must comply with federal group health plan coverage standards under the Public Health Service Act, and the employer must pay at least 40 percent of the premium.^[7]

Changes Made by the Affordable Care Act (P.L. 111- 148, §§ 2001, 2003, 2301, 4106, 4107)

The Affordable Care Act (ACA) further restructures federal Medicaid benefit rules (a separate Implementation Brief will examine special changes affecting beneficiaries who need long-term care).

Benchmark Benefits for “Newly Eligible” Medicaid Beneficiaries: Effective January 1, 2014, states will be required to cover low-income individuals with incomes below 138 percent of the federal poverty level (FPL)^[8] and not otherwise eligible for Medicaid. States have the option of covering individuals with incomes up to 133 percent of FPL effective October 1, 2010, in advance of the mandatory date. For this newly eligible population (except for those exempt from receiving benchmark benefits), the definition of medical assistance equates to the 2006 benchmark benefit, but with important modifications reflecting other changes in the ACA.

• The ACA revises the definition of benchmark and benchmark-equivalent benefits by requiring that these benefit packages must at least provide essential health benefits described in section 1302(b) of the ACA.^[9]
• The ACA further specifies that benchmark or benchmark equivalent benefit packages (excluding those offered by Medicaid managed care organizations) that provide medical and surgical benefits, including treatment of mental health and substance abuse disorders, must comply with federal law relating to mental health and substance abuse parity, and must offer family planning services and supplies.
• The ACA also requires that benchmark-equivalent packages include coverage of prescription drugs and mental health services and that both benchmark and benchmark-equivalent packages cover family planning services and supplies.

Premium Assistance for Employer-Sponsored Coverage: Beginning January 1, 2014, states will be required to make premium assistance subsidies available to Medicaid-eligible individuals to purchase insurance through their employers.^[10]

Coverage of Free-Standing Birth Center Services: The ACA adds required coverage of free-standing birth centers,^[11] defined as a health facility licensed by the state to provide prenatal labor and delivery or postpartum care, as well as other related services. The amendment thus expands coverage for maternity care to explicitly include these birthing centers, whose coverage was in doubt.^[12]

Clarification relating to Hospice Care for Terminally Ill Children: The ACA clarifies that children receiving hospice care remain entitled to the full range of Medicaid or CHIP benefits while in hospice, including EPSDT in the case of Medicaid eligible children and preventive and primary care benefits in the case of children receiving separately administered CHIP benefits.^[13]

Family Planning and Related Services: The ACA establishes a new optional category of eligibility for women under Medicaid for coverage of family planning services and supplies . This new categorically eligible population will not be eligible for the full range of Medicaid benefits.

Preventive Services for Adults: The ACA establishes a new state option to cover preventive services to Medicaid beneficiaries.^[14] This permits states to offer clinical preventive services identified by the U.S. Preventive Services Task Force and assigned a grade of A or B. States may also offer adult vaccines recommended by the Advisory Committee on Immunization Practices. These changes offer new options for adults, since EPSDT requires coverage of preventive services for children. States that opt to cover preventive services and vaccines will receive a 1 percentage point increase in federal matching funds.

Coverage of Tobacco Cessation for Pregnant Women: Requires states to provide coverage of counseling and prescription and non-prescription tobacco cessation agents for pregnant women, and prohibits cost-sharing. Treatment must be supervised by a physician or other health professional authorized to furnish services and eligible for reimbursement under Medicaid.^[15]

Implementation

Agency 

The HHS Centers for Medicare and Medicaid Services (CMS), Center for Medicaid, CHIP and Survey & Certification, will implement this program as part of its authority over the Medicaid program.

Key Dates

Effective dates of provisions are as follows:

March 23, 2010: Coverage of free-standing birth centers, clarification of pediatric hospice services, optional coverage of family planning services for individuals not otherwise eligible for Medicaid, requirement of mental health and substance abuse parity, and coverage of family planning services and supplies, mental health services and prescription drugs in benchmark packages.

October 1, 2010: States must cover tobacco cessation service for pregnant women.

January 1, 2013: States may begin offering preventive services and immunizations for adults.

January 1, 2014: Premium subsidies for employer-sponsored coverage, and benchmark and benchmark equivalent coverage for newly eligible groups.^[16]

Process

The health reform law does not provide specific direction to the Secretary regarding the administrative process used to implement the law. The agency therefore has the discretion to use a range of tools to implement the statute, such as publishing regulations in the Federal Register with a public notice and comment period or using other types of approaches such as posted policy instructions, announcements of funding availability announcements (where applicable), official letters to affected entities (such as letters to state Medicaid agencies) and posted rulings and notices. Agency websites can be regularly checked for updates.

Key Issues

According to the Center on Budget and Policy Priorities, 44 states and the District of Columbia project budget shortfalls for FY 2012, which begins in most states on July 1, 2011.^[17] Because, the ACA limits states’ ability to reduce eligibility between date of enactment and the date that exchanges are operational,^[18] states will seek other means to lower Medicaid costs, including eliminating or reducing coverage of optional Medicaid benefits, reducing provider payments, or taking other action in the short-term. In a letter to Governors, Secretary Sebelius indicated that she would continue to explore her authority, if any, to waive the maintenance of effort requirement in the ACA.^[19] In addition, her letter included a document outlining existing flexibility that states have under current law to reduce Medicaid costs.^[20] In light of the fact that the Secretary’s letter highlighted benefit reductions and cost sharing increases as potential cost-saving options, several questions arise:

• How will states change coverage for existing Medicaid populations?
• If benefit reductions are considered, which are most likely to be cut or reduced?
• To what extent will states move to increase cost-sharing?
• Will states seek to reduce costs by enrolling more beneficiaries in benchmark benefit packages in the short-term?
• In light of changes to the benchmark benefit package (i.e., required coverage of essential benefits beginning in 2014), will states seek to enroll a higher percentage of enrollees in benchmark plans?
• Rather than limiting cost-containment efforts to cutting categories of optional services, what additional tools are available to states to reduce benefits costs? Reports from states indicate that states are considering placing dollar caps on mandatory benefits such as hospitalization, and limit the number of Medicaid-reimbursed visits to other providers and services such as X-ray services and physicians’ office visits.
• Will states see new options to cover preventive services and immunizations for adults, as well as smoking cessation for pregnant women as an investment that will reduce long-term Medicaid costs and adopt these new options, despite budget problems? Will 1 percentage point in state matching funds provide additional incentive to states to adopt?

Agency and Related Action

On July 2, 2010, the Director for the CMS Center for Medicaid, CHIP and Survey & Certification issued a letter to State Medicaid Directors providing guidance on section 2303, the state eligibility option for family planning services. In the guidance, the agency clarified which services would be considered direct family planning services, eligible for the 90 percent Medicaid match rate (FMAP) and those services that are considered family planning-related services, for which states will be reimbursed at the states’ regular FMAP. The letter provided guidance to states that were covering this category of eligibility under Section 1115 waivers on how to convert the waivers over to state plan options. In addition, the guidance address the new ACA provisions related to benchmark plans that were effective on March 23, 2010.

Authorized Funding Levels

This change addresses individual entitlements and thus does not specify an aggregate amount of spending.