Order Code RL32771
CRS Report for Congress
Received through the CRS Web
Medicaid and SCHIP:
The President’s FY2006 Budget Proposals
Updated April 1, 2005
April Grady, Jean Hearne, Elicia Herz, Christine Scott,
Julie Stone-Axelrad, and Karen Tritz
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

Medicaid and SCHIP:
The President’s FY2006 Budget Proposals
Summary
The President’s FY2006 budget contains a number of proposals that would
impact Medicaid or the State Children’s Health Insurance Program (SCHIP). While
some proposals are expansions of the current Medicaid program, or a re-authorization
of SCHIP, other proposals are designed to reduce federal spending for one or both
programs. The Medicaid related proposals are contained within four broad
categories:
! Medicaid and SCHIP Modernization — to provide more flexibility
for states to expand Medicaid coverage for low-income families and
individuals without creating additional cost to the federal
government.
! New Freedom Initiative Proposals — to increase the ability of
individuals with a disability to live in a home or community-based
setting instead of an institution.
! Other Medicaid Legislative Proposals — to create expansions of the
current program including the Vaccines for Children program,
temporary medical assistance and Medicare premium assistance. In
addition there are proposals designed to reduce federal spending on
Medicaid.
! Other Legislative Proposals with a Medicaid Impact — to make
changes in other federal programs including a Social Security
Administration management proposal to establish a standard for
Supplemental Security Income (SSI) disability awards, and an
outreach program for children eligible, but not enrolled, in Medicaid
or SCHIP.
In addition to these four categories of Medicaid related proposals, the proposal
for re-authorization of the SCHIP program will have an impact on Medicaid.
For each proposal in these four categories, and for the SCHIP re-authorization
proposal, this report: (1) describes the proposal and provides an estimate of the cost
or savings based on publicly available information; (2) provides a brief background
for the proposal; and (3) provides a listing of current Congressional Research Service
(CRS) reports related to the proposal. In addition, this report contains a listing of
CRS staff contacts by topic for the Medicaid and SCHIP programs. This report also
contains information on recent legislative developments impacting Medicaid,
including the budget resolutions (S.Con.Res. 18 and H.Con.Res. 95), and will be
updated as warranted by legislative activity.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Medicaid and SCHIP Modernization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
New Freedom Initiative Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Money Follows the Person Demonstration . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Community Alternative to Children’s Residential Treatment Facilities . . . . 3
Respite for Caregivers of Disabled Adults . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Respite for Caregivers of Children with a Substantial Disability . . . . . . . . . 4
Spousal Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Presumptive Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Other Medicaid Legislative Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Transitional Medical Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Long-Term Care Insurance Partnership Program . . . . . . . . . . . . . . . . . . . . . 7
Medicare Premium Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Vaccines for Children Expansion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Payment for Net Provider Expenditures Only (Restricting
Intergovernmental Transfers) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Limiting Government Provider Payment to Actual Costs
(Restricting Upper Payment Limits) . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Phase-down of Limitation on Provider Taxes . . . . . . . . . . . . . . . . . . . . . . . 11
Managed Care and Provider Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Cost-Shifting for Targeted Case Management and Other Services . . . . . . . 12
Matching Rate for Targeted Case Management . . . . . . . . . . . . . . . . . . . . . . 12
Codifying Medicaid “Free Care” Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Asset Transfers for Long-Term Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Allotment for State Administrative Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Medicaid and SCHIP Financial Management . . . . . . . . . . . . . . . . . . . . . . . 16
Amending the Medicaid Drug Rebate Formula . . . . . . . . . . . . . . . . . . . . . . 16
Restructure Pharmacy Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Health Insurance Portability and Accountability Act Proposals . . . . . . . . . 17
Other Legislative Proposals with a Medicaid Impact . . . . . . . . . . . . . . . . . . . . . 18
Child Support Enforcement Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Refugee Exemption Extension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Social Security Administration Initial State Disability Review . . . . . . . . . . 19
“Cover the Kids” Outreach Campaign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SCHIP Reauthorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Recent Legislative Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

List of Tables
Table 1. Cost (Savings) For Each Medicaid/SCHIP Proposal in the
President’s FY2006 Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Table 2. Congressional Research Service (CRS) Staff Contacts by
Topic for the Medicaid and SCHIP Programs . . . . . . . . . . . . . . . . . . . . . . . 25

Medicaid and SCHIP:
The President’s FY2006 Budget Proposals
Introduction
The President’s FY2006 budget contains a number of proposals that would
impact the Medicaid and State Children’s Health Insurance (SCHIP) program. While
some proposals are expansions of the current Medicaid program, others are designed
to reduce current or future federal spending for the program.
The Medicaid related proposals, as detailed by the Department of Health and
Human Services (HHS),1 are contained within four broad categories: (1) Medicaid
and SCHIP modernization; (2) New Freedom Initiative proposals; (3) other Medicaid
legislative proposals; and (4) other legislative proposals with a Medicaid impact. In
addition to these four categories for Medicaid related proposals, the re-authorization
of SCHIP will have an impact on Medicaid.
For each proposal related to the Medicaid and SCHIP programs, this report
! describes the proposal based on publicly available information;
! provides relevant background for the proposal; and
! provides a listing of Congressional Research Service (CRS) reports
for additional background or analysis related to the proposal.
The description for each proposal also contains the HHS estimate of the cost or
savings from the proposal for FY2006, and for the FY2006-FY2010 period. All of
the estimates are from HHS,2 and the methodology used to develop each estimate has
not been reviewed by CRS. Table 1, at the end of this report, provides the cost
estimate for each proposal in the order presented in this report.
Table 2, at the end of this report, provides a listing of CRS staff members and
contact information by topic for the Medicaid and SCHIP programs.
In addition, this report contains a summary of recent legislative developments
impacting Medicaid.
1 U.S. Department of Health and Human Services, Budget in Brief, Fiscal Year 2006, Feb.
2006, available at [http://www.hhs.gov/budget/06budget/FY2006BudgetinBrief.pdf].
2 Ibid.

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Medicaid and SCHIP Modernization
Proposal. The President’s FY2006 budget proposes to provide more
flexibility for states to expand Medicaid coverage for low-income families and
individuals through the Medicaid and SCHIP programs. The proposal would allow
eligibility and benefit changes to be accomplished without the research and
demonstration waiver approvals that are required under current law. While specifics
on the proposal are not available, HHS states that the proposal will build on the
SCHIP success in providing acute care to families and current efforts (through a
number of means including the use of public health programs such as Medicaid and
SCHIP, and tax credits) to decrease the number of uninsured individuals. HHS did
not include a cost estimate for this proposal, although the HHS description of the
proposal states that no additional federal funds would be required.
Background. One of the federal requirements for state Medicaid programs
is that generally all services must be provided to all enrollees in the program. For
example for many enrollees, a state cannot differentiate between the services
provided based on class of eligibility or geography. To reduce or expand certain
benefits, a state must obtain a waiver, approved by the Centers for Medicare and
Medicaid Services (CMS), limiting the impact of one or more of the federal
requirements related to comparability, benefits or eligibility. A waiver may be for
part, or all, of the state Medicaid population.
Report. For more information on current waiver programs, see CRS Report
RS21054, Medicaid and SCHIP Section 1115 Research and Demonstration Waivers,
by Evelyne P. Baumrucker.
New Freedom Initiative Proposals
The President’s New Freedom Initiative is a group of initiatives to increase the
ability of individuals with a disability to live in a home or community-based setting
instead of an institution.3 The President’s FY2006 budget proposes several
demonstrations and legislative changes to advance this policy goal.
Money Follows the Person Demonstration
Proposal. The President’s FY2006 budget proposes a five-year demonstration
project to be financed with 100% federal funds for one year of home and community-
based waiver services under Section 1915(c) of the Social Security Act for
individuals who move from certain institutions (e.g., nursing homes) into at-home
3 For additional information, CRS has released a series of reports that provide detailed
information on state long-term care systems and efforts to provide home and community-
based services. Reports are available for the following states: Arizona, CRS Report
RL32065; Florida, CRS Report RL32054; Illinois, CRS Report RL32010; Indiana, CRS
Report RL32295; Maine, CRS Report RL32166; Oregon, CRS Report RL32132;
Pennsylvania, CRS Report RL31850; and Texas, CRS Report RL31968.

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care. HHS estimates that the proposal would have no cost impact in FY2006, and
cost $500 million over the FY2006-FY2010 period.
Background. Currently all states except Arizona have Medicaid home and
community-based waivers under Section 1915(c) of the Social Security Act. These
waivers allow states to provide a broad range of home and community-based services
to individuals who would otherwise be in certain types of institutions (e.g., a nursing
facility). For example, services could include personal assistance, respite, and home
modifications. As part of the waiver, states can define what services will be offered
and can limit the number of individuals who can participate. Many states have
waiting lists for these services.
Though it varies by state, on average the federal government covers 57% of the
cost of Medicaid home and community-based services; states cover the remaining
expenditures. This proposal intends to offer states a financial incentive to expand the
number of individuals who can receive home and community-based services by
covering 100% of the service expenditures for one year for individuals who are
relocating from an institution into the community.
Report. For additional information on home and community-based waivers,
see CRS Report RL31163, Long-Term Care: A Profile of Medicaid 1915(c) Home
and Community-Based Services Waivers
, by Carol O’Shaughnessy and Rachel Kelly.
Community Alternative to Children’s Residential Treatment
Facilities

Proposal. The President’s FY2006 budget proposes a 10-year demonstration
project that would allow states to offer home and community-based services to
children who would otherwise be in a psychiatric residential treatment facility.
While conducting the demonstration HHS would evaluate the cost of providing these
services outside of institutions. While there are no separate cost estimates for the
three demonstration proposals (children’s residential treatment, and respite for
caregivers of adults with disabilities, and respite for caregivers of children with
substantial disabilities), HHS estimates that the total cost for all three demonstrations
in the New Freedom Initiative would be $13 million in FY2006, and $256 million
over the FY2006-FY2010 period.
Background. As described earlier, states can request a Section 1915(c)
waiver to cover a broad range of home and community-based services to individuals
who would otherwise be in certain types of institutions including a hospital, nursing
facility, or intermediate care facility for individuals with mental retardation. Under
current law, Section 1915(c) waivers can not be developed for children who would
otherwise be in a psychiatric residential treatment facilities. As a result, states have
limited ability to cover Medicaid home and community-based waiver services for
children with serious mental illness compared to children with other types of
disabilities (e.g., developmental disabilities).
Reports. For additional information, see CRS Report RL32362, Key Benefits
Under Medicaid and the State Children’s Health Insurance Program (SCHIP) for

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Children With Mental Health and Substance Abuse Problems, by Elicia Herz; and
CRS Report RL31163, Long-Term Care: A Profile of Medicaid 1915(c) Home and
Community-Based Services Waivers
, by Carol O’Shaughnessy and Rachel Kelly.
Respite for Caregivers of Disabled Adults
Proposal. The President’s FY2006 budget proposes a demonstration to
increase the availability of respite services under the Medicaid program for
caregivers of adults with disabilities. While there are no separate cost estimates for
the three demonstration proposals (children’s residential treatment, and respite for
caregivers of adults with disabilities, and respite for caregivers of children with
substantial disabilities), HHS estimates that the total cost for all three demonstrations
in the New Freedom Initiative would be $13 million in FY2006, and $256 million
over the FY2006-FY2010 period.
Background. Respite care is temporary relief for caregivers from their
caregiving responsibilities. Providing care to an individual with a significant
disability can be time-intensive and highly stressful. Respite care reduces primary
caregiver “burn-out” that can lead to the institutionalization of the individual with the
disability. Medicaid law currently limits respite care to Medicaid Section 1915(c)
home and community-based waiver programs which may have significant waiting
lists for services.
Report. For additional information, see CRS Report RL31163, Long-Term
Care: A Profile of Medicaid 1915(c) Home and Community-Based Services Waivers,
by Carol O’Shaughnessy and Rachel Kelly.
Respite for Caregivers of Children
with a Substantial Disability

Proposal. The President’s FY2006 budget proposes a demonstration that will
increase the availability of respite services to caregivers of children with substantial
disabilities. While there are no separate cost estimates for the three demonstration
proposals (children’s residential treatment, and respite for caregivers of adults with
disabilities, and respite for caregivers of children with substantial disabilities), HHS
estimates that the total cost for all three demonstrations in the New Freedom
Initiative would be $13 million in FY2006, and $256 million over the FY2006-
FY2010 period.
Background. Most children with substantial disabilities live in a home or
community-based setting. Providing care for these children can be time-intensive
and highly stressful. Occasional periods of respite care can reduce some of this stress
in the family and enhance the ability to keep the child at home and in the community.
Medicaid law currently limits respite care to Medicaid Section 1915(c) home and
community-based waiver programs which can have significant waiting lists.
Report. For additional information, see CRS Report RL31163, Long-Term
Care: A Profile of Medicaid 1915(c) Home and Community-Based Services Waivers,
by Carol O’Shaughnessy and Rachel Kelly.

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Spousal Exemption
Proposal. The President’s FY2006 budget proposes to continue the Medicaid
eligibility of an individual who is married to an individual who has a disability and
who is participating in a work incentive program under Section 1619(b) of the Social
Security Act. HHS estimates that the proposal would cost $17 million in FY2006,
and cost $102 million over the FY2006-FY2010 period.
Background. Under current law, Section 1619(b) of the Social Security Act
provides continued Medicaid coverage for recipients of the Supplemental Security
Income (SSI) program when their earnings become too high to allow for an SSI cash
payment. However, the continued eligibility for Medicaid does not extend to a
person’s spouse. Since a spouse’s earnings are considered in determining eligibility
for Medicaid, an individual could lose eligibility for Medicaid due to the earnings of
his or her spouse. This proposal would extend the Medicaid eligibility for both the
individual with a disability and his or her spouse.
Report. For additional information, see CRS Report RL31413, Medicaid:
Eligibility for the Aged and Disabled, by Julie Stone-Axelrad.
Presumptive Eligibility
Proposal. The President’s FY2006 budget would allow states to provide
presumptive eligibility for individuals who are discharged from hospitals and who
would be eligible for care in a nursing home but who could also be served in the
community with home care and other services. HHS estimates that the proposal
would have no cost impact in FY2006 or over the FY2006-FY2010 period.
Background. Current law allows presumptive eligibility for certain groups
of children and women. The federal and state governments share the cost of care
provided to those persons found ineligible for Medicaid. As one means of decreasing
nursing home admissions and improving access to home and community-based
services, many policy-makers, state officials, constituency groups, and provider
organizations have suggested that there is a need to improve and expedite the way in
which Medicaid’s financial eligibility is determined. Currently, almost half of
Medicaid’s nursing home residents are admitted directly after discharge from a
hospital.4 Once they apply, Medicaid rules require states to make financial eligibility
determinations within 45 days of the Medicaid application date and within 90 days
for persons needing a disability determination. Once residing in a nursing home,
individuals often find it difficult to reestablish residency in a home and community-
based setting.
In general, nursing homes are likely to admit individuals discharged from
hospitals while their Medicaid applications are pending. For persons enrolled in
Medicare, this initial stay is often covered by Medicare. (Medicare requires a prior-
4 David Stevenson, Joanne McDonald, and Brian Burwell, “Presumptive Eligibility for
Individuals with Long Term Care Needs: An Analysis of a Potential State Option,” prepared
for CMS, CMSO, DEHPG by the Medstat Group, Inc., Aug. 23, 2002.

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hospitalization of at least three days as the first condition of eligibility for its nursing
home benefit.) Once residing in a nursing home, staff generally conduct financial
assessments of the resident to evaluate the ability to pay privately or a need to apply
to Medicaid for coverage of the continuing long-term care needs. In addition, for
persons determined to be Medicaid eligible, federal rules allow nursing homes to bill
Medicaid retroactively for costs incurred between the application date and the date
of enrollment in the program. For persons determined to be ineligible, nursing
homes may charge residents for these services. Either the resident or family would
be expected to pay.
Home and community-based service providers, on the other hand, may not be
willing to take the financial risk that a person they serve will ultimately be ineligible
for Medicaid. In addition to an eligibility determination, Medicaid payment for home
and community-based services is also dependent on an individual’s enrollment in a
home and community-based waiver program (established under Section 1915(c) of
the Social Security Act5) and many states have enrollment caps and waiting lists for
these programs. Uncertainty about Medicaid eligibility and waiver enrollment often
leads home and community-based providers to refuse referrals for individuals with
pending Medicaid applications. Allowing for presumptive eligibility for persons
discharged from hospitals who wish to go into home and community-based services
may make it easier for these providers to accept such referrals. This might improve
access to home and community-based services and reduce reliance on nursing homes.
Reports. Currently, no other CRS reports address this topic.
Other Medicaid Legislative Proposals
The President’s FY2006 budget proposals for Medicaid include expansions to
the Vaccines for Children (VFC) program, temporary medical assistance and
Medicare premium assistance. In addition, there are proposals to reduce the federal
spending on Medicaid through changes related to provider taxes imposed by states,
claiming of administrative expenses by states, and additional reviews of state
Medicaid and SCHIP programs.
Transitional Medical Assistance
Proposal. The President’s FY2006 budget proposal would extend transitional
medical assistance (TMA) through September of 2006 (presumably the end of the
month, but the exact date is not specified). In addition, it would simplify eligibility
5 Medicaid’s home and community-based services waiver program, authorized under Section
1915(c) of the Social Security Act, is the major way the federal government finances home
and community-based long-term care services for persons with disabilities. Section 1915(c)
of the Medicaid statute allows the Secretary of the Department of Health and Human
Services (DHHS) to waive certain requirements to allow states to cover a wide range of
home and community-based services to persons who otherwise would need institutional
care. Enacted in 1981, it was designed to alter the bias in the Medicaid program that
favored institutional care over care in home-based settings.

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for TMA benefits by giving states the option to offer 12 months of continuous TMA
coverage to eligible participants; to waive income reporting requirements for
beneficiaries; and to allow states that offer Medicaid to children and families up to
185% of poverty to waive the TMA requirements altogether. HHS estimates that this
proposal would cost $560 million in FY2006 only.
Background. States are required to offer TMA to certain individuals
receiving Medicaid under Section 1931 of the Social Security Act. The law
permanently requires four months of TMA for families losing Medicaid eligibility
due to increased child or spousal support collections. It also permanently requires
four months of TMA for families losing Medicaid eligibility due to an increase in
earned income or hours of employment. In 1988, Congress expanded TMA so that
states must continue providing Medicaid for six months to families that were
receiving Medicaid under Section 1931 in at least three of the last six months. The
extended TMA coverage is available to individuals and their families who would
otherwise have lost such assistance due to increased work hours, increased earnings
of the caretaker relative, or the loss of one of the time-limited earned income
disregards. In addition, states are required to extend Medicaid coverage for a second
six months to families that were covered during the entire first six-month TMA
period, and whose earnings are below 185% of poverty. The provision authorizing
TMA receipt for up to 12 months is due to sunset at the end of March 2005, although
this date has been repeatedly extended. If the provision authorizing 12-month TMA
is not extended beyond March 2005, states will still be required to provide four
months of TMA to families that lose Medicaid eligibility due to an increase in earned
income, hours of employment, or child or spousal support.
Report. For more information on TMA, see CRS Report RL31698,
Transitional Medical Assistance (TMA) Under Medicaid, by April Grady.
Long-Term Care Insurance Partnership Program
Proposal. The President’s FY2006 budget proposes to promote the purchase
of long-term care (LTC) insurance by eliminating the federal legislative ban on new
long-term care partnership programs to allow any state in the nation the option of
implementing a LTC insurance partnership program. HHS estimates that the
proposal would have no cost impact in FY2006 or over the FY2006-FY2010 period.
Background. Under Medicaid’s LTC insurance partnership program, persons
who have exhausted (or used at least some of) the benefits of a private long-term care
insurance policy may access Medicaid without having to meet the same means-
testing requirements as other groups of Medicaid eligibles. Medicaid law allows four
states (California, Connecticut, Indiana, and New York) to operate partnership
programs. These states disregard some or all the assets of applicants who apply to
Medicaid after using their private LTC insurance benefits and exempt these assets
from estate recovery after the beneficiary has died. There are no federal requirements
concerning the operation of these programs.
Through the promise of Medicaid asset protection, the partnership program is
designed to encourage people to purchase private LTC insurance when they might
not otherwise do so. It is also intended to result in savings both to Medicaid, by

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delaying or preventing spend-down to Medicaid eligibility, and to individuals, by
having them rely on insurance policies to cover LTC expenditures that would
otherwise be paid by personal income or savings. Only limited empirical data exists
to demonstrate whether the asset protection promised under the partnership program
is a sufficient and necessary incentive to encourage the purchase of policies by
persons who would not otherwise purchase them. Based on the available data, it is
reasonable to conclude that for some the promise of Medicaid asset protection plays
a significant role in the decision to purchase a partnership policy, while for others it
plays a smaller role. Regardless, the partnership program allows for asset protection
for persons who eventually seek Medicaid (after exhausting their private LTC
insurance benefits), and these assets are not available to defray Medicaid
expenditures. Owning a LTC insurance policy likely prevents spend-down to
Medicaid eligibility for some persons who live long enough to actually use long-term
care services; it likely delays eligibility for others; and probably has little impact on
still others.
Report. For more information on the LTC insurance partnership, including
data on participation and policies sold, see CRS Report RL32610, Medicaid’s Long-
Term Care Insurance Partnership Program
, by Julie Stone-Axelrad.
Medicare Premium Assistance
Proposal. The President’s FY2006 budget proposes to extend Medicare
premium assistance for one year, through the end of FY2006, for Medicare
beneficiaries whose income is between 120% and 135% of the federal poverty level.
This group is referred to as “Qualified Individuals (QI).” HHS estimates that the
proposal would cost $230 million in FY2006 only.
Background. Under the QI program, Medicaid pays the Medicare Part B
premiums ($78.20 per month in 2005) for Medicare beneficiaries with incomes
between 120 and 135% of poverty. This group was originally established in the
Balanced Budget Act of 1997 (P.L. 105-33) and was originally due to expire at the
end of FY2002. Since then Congress has passed temporary extensions that continued
coverage for this group. The most recently enacted legislation (P.L. 108-448)
extended coverage for this group through September 30, 2005.
Report. For additional information, see CRS Report RL32582, Medicare: Part
B Premiums, by Jennifer O’Sullivan.
Vaccines for Children Expansion
Proposal. The President’s FY2006 budget proposes to improve vaccine access
by allowing underinsured children to receive Vaccines for Children (VFC) vaccines
at state and local health clinics, rather than only at federally qualified health centers
(FQHCs) and rural health clinics. HHS estimates that the proposal would cost $140
million in FY2006, and cost $700 million over the FY2006-FY2010 period.
Background. The VFC program is funded entirely by federal Medicaid
appropriations and administered by the Centers for Disease Control and Prevention

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(CDC). Under Section 1928 of the Social Security Act, children who are (1)
Medicaid recipients, (2) uninsured, (3) American Indians or Alaska Natives, or (4)
“underinsured” because their health insurance does not cover qualified pediatric
immunizations are entitled to receive VFC vaccines free of charge. Currently,
children in the first three categories may receive VFC vaccines from any program-
registered provider (as defined in Section 1928(c) of the Social Security Act), while
underinsured children may receive VFC vaccines at FQHCs or federally designated
rural health clinics only.
In 2002, there were approximately 42,000 active VFC provider sites (30,000
private and 12,000 public).6 In 2000, an estimated 57% of children receiving VFC
vaccines were eligible because they were Medicaid recipients. Another 36%
receiving VFC vaccines were uninsured, while 5% were underinsured and 2% were
American Indians or Alaska Natives.7
Report. For general information on FQHCs and rural health clinics, see CRS
Report RL32046, Federal Health Centers Program, by Sharon Kearney Coleman.
Payment for Net Provider Expenditures Only
(Restricting Intergovernmental Transfers)

Proposal. The President’s FY2006 budget proposes to provide federal
matching funds to states only for those benefit payments that Medicaid providers
keep. That is, for payments in excess of the usual Medicaid payment rate, the federal
government proposes to stop matching any portion that providers are required to
return to the state. HHS estimates that the proposal would have no cost impact in
FY2006, and save $4.6 billion over the FY2006-FY2010 period.
Background. Under Medicaid law, the federal and state governments share
in the cost of Medicaid. The state-specific matching rate for benefits is determined
by a formula set in law that establishes higher matching rates for states with low per
capita income levels compared to the national average (and vice versa for states with
high per capita income levels). The federal government pays at least 50% of
Medicaid costs, and the federal share can be as high as 83% (statutory upper
boundary). States can finance up to 60% of the state share of Medicaid costs with
local government funds. Also, the state share cannot be comprised of any federal
dollars. In some cases, through what are called intergovernmental transfers (IGTs),
states have required local government providers (e.g., county-run nursing homes or
municipal hospitals) to transfer back to the state some or all of the federal Medicaid
funds originally paid to those providers that exceed the usual Medicaid payment rate.
States may use these transferred funds for Medicaid or for other purposes such as to
fill state budget gaps for other programs or to draw down additional federal Medicaid
dollars. The 108th Congress held hearings on this issue, and both GAO and the OIG
6 Centers for Disease Control and Prevention, VFC Program Data, available at
[http://www.cdc.gov/nip/vfc/st_immz_proj/data/data.htm].
7 Institute of Medicine, Calling the Shots: Immunization Finance Policies and Practices
(Washington: National Academy Press, 2000), pp. 77-85.

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have recommended that these state practices be halted. (See below for a related
discussion on upper payment limits.)
Reports. Intergovernmental transfers are discussed in various contexts in
several CRS reports, including CRS Report RL31021, Medicaid Upper Payment
Limits and Intergovernmental Transfers: Current Issues and Recent Regulatory and
Legislative Action
, by Elicia Herz; CRS Report 97-483, Medicaid Disproportionate
Share Payments
, by Jean Hearne; and CRS Report RL31773, Medicaid and the
Current State Fiscal Crisis
, by Christine Scott.
Limiting Government Provider Payment to Actual Costs
(Restricting Upper Payment Limits)

Proposal. The President’s FY2006 budget proposes to change the permissible
upper payment limit for services delivered by local government providers (e.g.,
county-run nursing homes or municipal hospitals) from the Medicare payment rate
to no more than the cost of providing services. The FY2006 budget documents do
not provide a specific definition for “cost of providing services.” HHS estimates that
the proposal would have no cost impact in FY2006, and save $1.2 billion over the
FY2006-FY2010 period.
Background. Aggregate Medicaid payments to specific groups of providers
(e.g., hospitals and nursing facilities) cannot exceed a reasonable estimate of what
would have been paid under Medicare payment principles. This is called the
Medicaid upper payment limit (UPL) rule. In many states, Medicare payment rates
for hospital and nursing home care are higher than corresponding Medicaid payment
rates. The UPL based on Medicare payment principles has enabled some states to
draw down additional federal dollars that exceed what they would have received
based on Medicaid payment rates. These additional funds are paid to government
providers which are sometimes required by states to transfer all or a portion of the
extra payments received (i.e., some or all of the difference between the Medicare and
Medicaid payment rates) back to the state through an intergovernmental transfer (see
above). Instead of financing more or improved Medicaid services, in some cases
states have used the additional federal dollars for non-health services, or to make up
part of the state share of Medicaid costs to draw down another round of federal
dollars. During 2000-2002, Congress and the Clinton and Bush Administrations
revised UPL rules by changing permissible accounting methods used to claim federal
matching payments. These changes significantly reduced the excess federal dollars
states received under approved UPL plans that involved IGTs. However, these
reforms did not eliminate all such excess payments because no changes were made
to the Medicaid UPL standard which remains tied to the Medicare payment rate, nor
to federal statute or regulations governing IGTs.
Report. See CRS Report RL31021, Medicaid Upper Payment Limits and
Intergovernmental Transfers: Current Issues and Recent Regulatory and Legislative
Action
, by Elicia Herz.

CRS-11
Phase-down of Limitation on Provider Taxes
Proposal. The President’s FY2006 budget proposes to phase the current safe-
harbor of 6% for provider taxes down to 3%. HHS estimates that the proposal would
save $231 million in FY2006, and $2.8 billion over the FY2006-FY2010 period.
Background. Under federal law and regulations, a state’s ability to use
provider-specific taxes to fund their state share of Medicaid expenditures is limited.
If states establish provider-specific taxes, those taxes cannot generally exceed 25%
of the state (or non-federal) share of Medicaid expenditures, and the state cannot
provide a guarantee to the providers that the taxes will be returned to them.
However, there is a safe harbor. If the taxes returned to a provider are less than 6%
of the provider’s revenues, the prohibition on guaranteeing the return of tax funds
is not violated. As a result, a state could impose a provider tax of 6% of revenues,
return those revenues right back to those providers in the form of a Medicaid
“payment” and receive a federal match for those amounts. In effect, the state has
temporarily borrowed funds from the provider to receive additional federal funds.
Report. For a review of the history of provider donations and taxes, and the
restrictions imposed, see CRS Report 97-483, Medicaid Disproportionate Share
Payments
, by Jean Hearne.
Managed Care and Provider Taxes
Proposal. The President’s FY2006 budget proposes to treat managed care
organizations (MCO) like other providers for purposes of broad-based provider taxes.
HHS estimates that the proposal would have no cost impact in FY2006, and save
$399 million over the FY2006-FY2010 period.
Background. Under current law and regulations, states that establish health
care provider taxes must ensure that they are broad-based. One of the tests, as
established in Medicaid law, to determine if a provider tax is broad-based is whether
the tax is applied to all similar providers or services within its “class.” Classes are
defined in statute. Medicaid managed care organizations are considered a separate
class of providers with respect to broad-based provider taxes. As a result, a state may
tax Medicaid MCOs under a broad-based provider tax to fund the state Medicaid
program, and can receive the full federal match for the taxes returned to providers as
Medicaid payments. The proposal would expand the provider class to all MCOs, so
a broad-based provider tax would have to apply to both Medicaid and non-Medicaid
MCOs.
Report. For a review of the history of provider donations and taxes, and the
limitations, see CRS Report 97-483, Medicaid Disproportionate Share Payments, by
Jean Hearne.

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Cost-Shifting for Targeted Case Management
and Other Services

Proposal. The President’s FY2006 budget proposes to clarify which services
may be claimed as Medicaid targeted case management costs. HHS estimates that
the proposal would have no cost impact in FY2006, and save $2.0 billion over the
FY2006-FY2010 period.
Background. Under current Medicaid law, case management is a benefit that
includes services to assist an individual eligible under the state Medicaid plan in
gaining access to needed medical, social, educational and other services. The term
“targeted case management” refers to situations in which these services are not
provided statewide to all Medicaid beneficiaries but rather are provided only to
specific classes of individuals (e.g., those with AIDS, tuberculosis, chronic physical
or mental illness, developmental disabilities, or children in foster care) or persons
who reside in a specific area. Since case management is not an administrative
activity, the federal government matches payments for such services at the rate
applicable to benefits. This rate ranges from 50% to 83% (statutory upper boundary)
depending on the state. The Administration has stated that states are shifting costs
into Medicaid that are the obligations of other programs, and are, in addition, using
expanded definitions of allowable services. Based on recent findings, the
Department of Health and Human Services, Office of the Inspector General (OIG)
recommended that CMS review the use of targeted case management specifically for
foster care children across states to ensure that such care is consistent with CMS’s
requirements. CMS concurred with this recommendation. Other OIG studies have
reported “excessive” payments for targeted case management in school settings.8
Reports. Currently, no other CRS reports address this topic.
Matching Rate for Targeted Case Management
Proposal. The President’s FY2006 budget proposes to change the
reimbursement level for targeted case management to the 50% matching rate that
states currently receive for most Medicaid administrative costs. HHS estimates that
the proposal would save $129 million in FY2006, and save $1.0 billion over the
FY2006-FY2010 period.
Background. Under current Medicaid law, case management is a benefit that
includes services to assist an individual eligible under the state Medicaid plan in
gaining access to needed medical, social, educational and other services. The term
“targeted case management” refers to situations in which these services are not
provided statewide to all Medicaid beneficiaries but rather are provided only to
specific classes of individuals (e.g., those with AIDS, tuberculosis, chronic physical
or mental illness, developmental disabilities, or children in foster care) or persons
who reside in a specific area. Since case management is not an administrative
8 The HHS, OIG Reports referenced above can be found at [http://oig.hhs.gov/oei/
reports/oei-02-00-00363.pdf], [http://oig.hhs.gov/oas/reports/region2/20101024.pdf], and
[http://oig.hhs.gov/oas/reports/region1/10300004.pdf].

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activity, the federal government matches payments for such services at the rate
applicable to benefits. This rate ranges from 50% to 83% (statutory upper boundary)
depending on the state. This proposal will not affect states for which the matching
rate for benefits is 50% (e.g., 12 states in FY2006).
Reports. Currently, no other CRS reports address this topic.
Codifying Medicaid “Free Care” Policy
Proposal. The President’s FY2006 budget proposes to codify through
regulation the Medicaid “free care” policy. HHS estimates that this regulatory
change will have no budget impact.
Background. Generally, the “free care” principle applies in school settings,
and is described in guidance issued by the Administration to education agencies in
1997 and 2003.9 Under the free care principle, Medicaid will not pay for the costs
of Medicaid-coverable services (and related administrative activities) which are
generally available to all students without charge, and for which no other sources of
reimbursement are pursued. For example, Medicaid will not reimburse schools for
routine school-based vision and hearing screens, or other primary or preventive
services, such as school nurse and school psychologist services, provided free of
charge to all students. There are specific exceptions to the free care principle: (1)
for services provided to Medicaid eligible children that are included in an
Individualized Education Program (IEP) or Individualized Family Service Plan
(IFSP) under the Individuals with Disabilities Education Act (IDEA); (2) for services
provided under the Women, Infants and Children (WIC) program; and (3) for
services provided by Title V (Maternal and Child Health Block Grant) grantees.
Services and related administrative activities would not be considered to be free, and
thus potentially eligible for Medicaid reimbursement, if schools: (1) establish a fee
scale; (2) determine whether every individual serviced by the school has any third-
party coverage; and (3) bill the beneficiary or third parties for the services.
Report. For additional information on IDEA and Medicaid, see CRS Report
RL31722, Individuals with Disabilities Education Act (IDEA) and Medicaid, by
Richard Apling and Elicia Herz.
Asset Transfers for Long-Term Care
Proposal. The President’s FY2006 budget proposes to amend Medicaid law
on transfer of assets to limit the circumstances under which persons may transfer
assets without incurring a penalty denying eligibility. No detail is provided on
specific changes. HHS estimates that the proposal would save $99 million in
FY2006, and save $1.5 billion over the FY2006-FY2010 period.
9 Centers for Medicare & Medicaid Services, Medicaid and School Health: A Technical
Assistance Guide
, Aug. 1997; and Medicaid School-Based Administrative Claiming Guide,
May, 2003.

CRS-14
Background.10 Medicaid estate planning is a means by which elderly people
shelter their assets to qualify for Medicaid’s coverage of long-term care services
sooner than they otherwise would. Such practices include (1) converting “countable
assets” into “exempt assets,” (2) sheltering assets in trusts, annuities, and other
financial instruments that are deemed “not available” to the Medicaid applicant, or
(3) transferring assets through joint bank accounts. Medicaid law includes provisions
establishing penalties to discourage this behavior for individuals who transfer assets
for less than fair market value. Specifically, Medicaid law requires states to delay
Medicaid eligibility for persons needing institutional coverage (including nursing
home care) and certain home and community-based services who transfer assets on
or before a “look-back date.” For most assets, this date is 36 months (three years)
prior to Medicaid application. For irrevocable trusts, this date is 60 months (five
years). The law also prohibits the spouses of these applicants from transferring assets
during this period. Certain transfers are permitted to spouses, minor or disabled
children, or trusts if they are intended solely for the benefit of disabled persons under
65.
The length of the period of ineligibility (or delay in eligibility) for Medicaid
applicants is determined by dividing the total cumulative uncompensated value of all
assets transferred on or before the look-back date by the average monthly cost to a
private patient of a nursing facility in the state (or, at the option of the state, in the
community in which the individual is institutionalized) at the time of application.
For example, a transferred asset worth $60,000, divided by a $5,000 average monthly
private-pay rate, results in a 12-month penalty period. There is no limit to the length
of the penalty period. This period of ineligibility begins with the first month during
which the assets were transferred. A recent study showed that asset transfers do
increase with the self-assessed probability of nursing home entry within five years,11
but this and a 1997 GAO study indicate that the incidence of transfers may be
relatively low.12 The GAO study found that from 13 to 22% of people who applied
for nursing home and other long-term care benefits in Massachusetts and Minnesota
had transferred assets. Both studies suggest that the amount of assets transferred per
person varies and can sometimes be less than the cost of a single month of nursing
home care.13 GAO noted that it is unclear what impact these transfers have on
Medicaid spending.
10 In general, for the elderly and persons with disabilities, Medicaid eligibility requires
limited assets. To qualify, such persons may retain countable assets up to a $2,000 limit for
an individual and up to $3,000 for a couple. Countable assets do not, however, include all
assets that an individual may own. They exclude a home of any value, as long as it is used
as the applicant’s principal place of residence, up to $2,000 of household goods and
personal effects, an automobile with a market value of $4,500 or less, among others.
11 William Basset, Medicaid’s Nursing Home Coverage and Asset Transfers, Board of
Governors of the Federal Reserve System, Mar. 26, 2004.
12 William Basset, Medicaid’s Nursing Home Coverage and Asset Transfers, Board of
Governors of the Federal Reserve System, Mar. 26, 2004; U.S. General Accounting Office,
GAO/HEHS-97-185R, Medicaid Divestiture of Assets.
13 Ibid.

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Reports. For more information on Medicaid eligibility see CRS Report
RL31413, Medicaid: Eligibility for the Aged and Disabled, by Julie Stone, and CRS
Report RL32277, How Medicaid Works: Program Basics.
Allotment for State Administrative Costs
Proposal. The President’s FY2006 budget proposes to establish individual
state allotments for Medicaid administrative costs. HHS estimates that the proposal
would have no cost impact in FY2006, and save $1.1 billion over the FY2006-
FY2010 period.
Background. The federal government pays a share of every state’s spending
on Medicaid services and program administration. For Medicaid services, this share
is called the federal medical assistance percentage (FMAP). The FMAP is based on
a formula that provides higher reimbursement to states with lower per capita incomes
(and vice versa); it has a statutory minimum of 50% and maximum of 83%. All
states receive a 90% match for providing family planning services and supplies. The
federal match for administrative expenditures does not vary by state and is generally
50%, but certain administrative functions receive a higher federal match. Those
receiving a 75% match include
! compensation or training of skilled professional medical personnel
(and staff directly supporting such personnel) of the state Medicaid
or other public agency;
! preadmission screening and resident review activities for mentally
ill and mentally retarded individuals who are admitted to nursing
facilities;
! survey and certification of nursing facilities;
! operation of an approved Medicaid Management Information
System (MMIS) for claims processing and information retrieval;
! performance of medical and utilization review or external
independent review of managed care activities; and
! operation of a state Medicaid fraud control unit (MFCU).
In the case of MMISs and MFCUs, the federal match is 90% for startup
expenses. There is a 100% match for the implementation and operation of
immigration status verification systems. Section 1903(a)(7) of the Social Security
Act specifies that a 50% match will be provided for remaining expenditures that are
found necessary by the Secretary of Health and Human Services for the proper and
efficient administration of the state Medicaid plan.
While states are not currently limited in the amount they can claim, CMS has
the authority to review and deny claims for excessive administrative expenditures.
In recent years, expenditures for program administration have grown at about the
same rate as expenditures for Medicaid services, and as a result administrative costs
have remained a relatively constant share of total Medicaid expenditures.
Reports. Currently, no other CRS reports address this topic.

CRS-16
Medicaid and SCHIP Financial Management
Proposal. The President’s FY2006 budget proposes to allocate additional
funds ($20 million from the Health Care Fraud and Abuse Account and $5 million
from discretionary funds) to CMS to be used to continue efforts to find erroneous and
fraudulent uses of Medicaid and SCHIP funding and provide an increase in audits
and evaluations of state Medicaid programs. HHS estimates that the proposal would
have no cost impact in FY2006 or over the FY2006-FY2010 period.
Background. The Health Insurance Portability and Accountability Act of
1996 (HIPAA, P.L. 104-191) established the Health Care Fraud and Abuse Control
(HCFAC) account within the federal Hospital Insurance Trust Fund. Funds are
appropriated for HCFAC for transfer to federal agencies involved in controlling fraud
and abuse in health plans: the Department of Justice and HHS. Within HHS, funds
are transferred to the Office of the Inspector General (OIG), Office of the General
Counsel, and CMS (for Medicaid/SCHIP program integrity and other efforts). In
FY2005, $17 million is to be transferred from the HCFAC to CMS.
Reports. Currently, no other CRS reports address this topic.
Amending the Medicaid Drug Rebate Formula
Proposal. The President’s FY2006 budget proposes to replace the “best price”
formula for calculating Medicaid prescription drug rebates with a “budget neutral”
flat rebate amount. No detail was provided on the calculation of the “budget neutral”
flat rebate amount. The purpose of the provision, according to HHS budget
explanatory material, is to allow private purchasers the ability to negotiate lower
payment rates than Medicaid programs. The provision is intended to be budget
neutral; thus HHS estimates that the proposal would have no cost impact in FY2006
or over the FY2006-FY2010 period.
Background. Pharmaceutical manufacturers that participate in the Medicaid
program are required to enter into rebate agreements with the Secretary of HHS on
behalf of states. The rebate agreements require manufacturers to pay states rebates
for pharmaceutical products used by Medicaid beneficiaries. The rebates are
calculated based on a formula that is intended to assure that the Medicaid program
pays the best available price in the market, although there are certain exceptions to
this best price policy for certain government-purchased pharmaceuticals.
Reports. For more information Medicaid prescription drug prices and rebates,
see CRS Report RL30726, Prescription Drug Coverage Under Medicaid, by Jean
Hearne and April Grady, and CRS Report RL32440, Implications of the Medicare
Prescription Drug Benefit for State Budgets
, by April Grady and Christine Scott.
Restructure Pharmacy Reimbursement
Proposal. The President’s FY2006 budget proposes to change Medicaid
reimbursement for prescription drugs so that payments for Medicaid prescription
products are more closely aligned with pharmacy acquisition costs. Specifically, the

CRS-17
proposal would require states to reimburse the average sales price (ASP) of a drug
plus a 6% fee for storage, dispensing, and counseling. ASP is the weighted average
of all non-federal sales from manufacturers. Reimbursements set at ASP plus 6% is
consistent with Medicare reimbursement for Part B covered drugs as established by
the Medicare Modernization Act. HHS estimates that the proposal would save $542
million in FY2006, and $5.4 billion over the FY2006-FY2010 period.
Background. The prices that state Medicaid agencies pay for prescription
drugs — before rebates are applied — are subject to a federal upper payment limit.
The upper limits for multiple source drugs are equal to 150% of the published price
for the least costly therapeutic equivalent. The published prices that CMS uses as a
basis for calculating upper payment limits are the lowest of the “average wholesale
prices” for each group of drug equivalents. Average wholesale prices (AWPs) are
published annually in compendia by the pharmaceutical industry. Over a number of
recent years, reports have been produced by the Inspector General of HHS and
lawsuits have been concluded finding that AWPs as published by the industry have
been inflated, significantly overstating the prices that pharmacies pay for drugs. The
purpose of those inflated AWPs has ostensibly been to obtain higher Medicare and
Medicaid prices as well as improve market share for retailers selling drugs with
inflated AWPs. In 2004, the Medicare Modernization Act included a provision that
changed the basis for Medicare Part B drugs from AWP to ASP plus 6%.
Reports. For more information on Medicaid prescription drug prices and
rebates, see CRS Report RL30726, Prescription Drug Coverage Under Medicaid,
by Jean Hearne and April Grady; and CRS Report RL32440, Implications of the
Medicare Prescription Drug Benefit for State Budgets
, by April Grady and Christine
Scott.
Health Insurance Portability and
Accountability Act Proposals

Proposal. The President’s FY2006 budget proposal includes two provisions
relating to the Health Insurance Portability and Accountability Act of 1996 (HIPAA,
P.L. 104-191). HIPAA established a number of rules for employer-based health
insurance plans to improve access to and portability of those plans. The first would
define a determination of Medicaid or SCHIP eligibility as a qualifying event
allowing for a special enrollment period into employer-based health insurance plans.
This provision is intended to improve Medicaid and SCHIP programs’ ability to
coordinate coverage with private employer-offered coverage. In addition, a second
proposal would require SCHIP programs to issues certificates of creditable coverage.
This provision is intended to improve the reach of HIPAA’s portability provisions
by recognizing SCHIP coverage as prior creditable coverage. Both of these
interpretations have previously been promulgated in a final regulation implementing
HIPAA’s portability for group health plan provisions.14 HHS estimates that the
proposal would have no cost impact in FY2006 or over the FY2006-FY2010 period.
14 69 FR 78720, Final Regulations for Health Coverage Portability for Group Health Plans
and Group Health Insurance Issuers Under HIPAA Titles I & IV
, Dec. 30, 2004.

CRS-18
Background. Under current HIPAA law, pre-existing condition exclusions
are limited based on a person’s length of prior creditable coverage. Prior creditable
coverage is verified using certificates issued by insurers at the end of each year.
Because HIPAA was created in law before SCHIP was established, SCHIP was not
included as qualified creditable coverage.
Report. For general information on HIPAA, see CRS Report RL31634, The
Health Insurance Portability and Accountability Act (HIPAA) of 1996: Overview and
Guidance on Frequently Asked Questions
, by Hinda Chaikind, Jean Hearne, Bob
Lyke, and Stephen Redhead.
Other Legislative Proposals with a Medicaid Impact
The President’s FY2006 budget proposals for some other programs will have
a Medicaid impact. Included in these proposals are a one-year extension of the
refugee and asylee exemption, a Social Security Administration management
proposal to establish a standard for Supplemental Security Income (SSI) disability
awards, an outreach program for children eligible, but not enrolled, in Medicaid or
SCHIP, a mandatory review of child support orders in Temporary Assistance for
Needy Families (TANF) cases every three years, and a medical child support
proposal that requires states to consider both parents’ access to health insurance
coverage when establishing child support orders.
Child Support Enforcement Proposals
Proposal. The President’s FY2006 budget includes two modifications to the
Child Support Enforcement programs that are estimated to have a budgetary impact
on the Medicaid program. The first change would allow states to seek medical child
support for children from both custodial as well as non-custodial parents. The second
change would require states to review child support orders for families receiving
assistance under the Temporary Assistance for Needy Families (TANF) program
every three years. The two changes are expected to reduce the number of Medicaid-
eligible children by improving their access to private employment-based health
insurance. HHS estimates that the proposal would have no cost impact in FY2006,
and save $45 million over the FY2006-FY2010 period.
Background. The Child Support Enforcement Program, within the
Administration for Children and Families, provides assistance in obtaining support
(both financial and medical) to children through locating parents, establishing
paternity and support obligations, and enforcing those obligations. The activities of
the program are authorized and defined by statute, Title IV-D of the Social Security
Act. The federal government has a major role in determining the main components
of state programs, funding, monitoring, and providing technical assistance, but the
basic responsibility of administering the Child Support Enforcement Program is left
to the states. State Child Support Enforcement agencies review child support orders
every three years if instructed to do so by the custodial parent or at the state’s own
discretion.

CRS-19
Provisions for health insurance coverage, called medical support, are required
to be included in support orders. Under current law, medical support may be sought
but only from the non-custodial parent (NCP). Sometimes, however, custodial
parents may have access to employer-based health insurance that could be made
available to the child or children.
Report. For general information on medical support, see CRS Report
RL32135, A Review of Medical Child Support: Background, Policy, and Issues, by
Carmen Solomon-Fears.
Refugee Exemption Extension
Proposal. The President’s FY2006 budget proposes extending the exemption
from the first seven years they reside in the United States to the first eight years they
reside in the United States to allow refugees and asylees during this period to
participate in SSI (and thus, SSI-related Medicaid). The proposal would allow
refugees and asylees additional time to complete the citizenship process. HHS
estimates that the proposal would cost $40 million to Medicaid in FY2006 and $145
million over the FY2006-FY2010 period.
Background. Under current law, most legal immigrants who entered the
country on or after August 22, 1996, and some who entered prior to that date are not
eligible for SSI, and thereby SSI-related Medicaid, until they have resided in the
country for five years or have obtained citizenship. Refugees and asylees on SSI are
currently exempted from this ban for the first seven years they reside in the United
States.
Reports. For general background information see CRS Report RL31269,
Refugee Admissions and Resettlement Policy, by Andorra Bruno; CRS Report
RL31630, Federal Funding for Unauthorized Aliens’ Emergency Medical Expenses,
by Alison M. Siskin; and CRS Report RL31114, Noncitizen Eligibility for Major
Federal Public Assistance Programs: Policies and Legislation
, by Ruth Wasem.
Social Security Administration Initial State Disability Review
Proposal. The President’s FY2006 budget proposes to establish a standard for
review of Supplemental Security Income (SSI) disability awards that is identical to
the one that applies to the Social Security Disability Insurance Program, for the stated
purpose of ensuring that only individuals who are disabled will receive SSI disability
benefits and related Medicaid coverage. HHS estimates that the proposal would save
$2 million in FY2006, and save $113 million over the FY2006-FY2010 period.
Background. SSI is a federal program that provides monthly cash payments
to people with limited income and resources who are age 65 or older, blind, or
disabled. For adults, disability is defined as the inability to engage in substantial
gainful activity (SGA) by reason of a medically determinable physical or mental
impairment expected to result in death or last at least 12 months. Generally, the
person must be unable to do any kind of work that exists in the national economy,
taking into account age, education, and work experience. A child under age 18 may

CRS-20
qualify as disabled if he or she has an impairment that results in “marked and severe”
functional limitations. Individuals who receive SSI automatically qualify for
Medicaid coverage in all but 11 states (referred to as “209(b)” states) that may elect
to use more restrictive Medicaid eligibility criteria for SSI recipients.
Social Security Disability Insurance (SSDI) is a federal program that provides
monthly cash payments to disabled workers under the full retirement age (and their
spouses, surviving disabled spouses, and children) in amounts related to their former
earnings in covered employment. SSI and SSDI have similar application and
disability determination processes, and although they are federal programs, state
agencies determine under both programs whether an individual meets the level of
blindness or disability needed to qualify for benefits. Local Social Security
Administration (SSA) field offices, which are federal, determine whether an
individual meets the other criteria for SSI and SSDI eligibility. Under Section
221(c)(3) of the Social Security Act, SSA must review at least 50% of favorable
SSDI disability and blindness determinations made by state agencies, plus an
additional amount to the extent necessary to assure a high level of accuracy in such
decisions. No such requirement currently exists for SSI determinations.
Reports. For more information, see CRS Report RL32279, Primer on
Disability Benefits: Social Security Disability Insurance and Supplemental Security
Income
, by Laura Haltzel; and CRS Report RL31413, Medicaid: Eligibility for the
Aged and Disabled
, by Julie Stone.
“Cover the Kids” Outreach Campaign
Proposal. The President’s FY2006 budget proposes a grant to provide $1.0
billion over two years ($500 million in FY2006) to states, schools, and community
organizations to enroll Medicaid- and SCHIP-eligible children into these two
programs. The grant is not part of the Medicaid or SCHIP budget proposals, but
rather is a component of the State Grants and Demonstrations budget proposal under
CMS’ jurisdiction. Since the purpose of the grant is to enroll new children in
Medicaid and SCHIP, HHS estimates that this new outreach will cost Medicaid $389
million in FY2006, and $4.1 billion for the FY2006-FY2010 period. Likewise,
SCHIP costs are estimated at $129 million in FY2006, and $535 million over the
FY2006-FY2010 period.
Background. According to the latest available official statistics, in FY2003,
the number of children ever enrolled in SCHIP reached 5.9 million. In FY2002, the
number of children ever enrolled in Medicaid during that year reached 25.4 million.
There have been ongoing concerns about participation among children who meet
eligibility standards but are not covered by these two programs. Estimates of the
number of children eligible but not enrolled in Medicaid or SCHIP have varied
considerably over time. By 2002, national survey data showed that 2.8 million

CRS-21
children under age 19 were uninsured but eligible for SCHIP, and an additional 3.4
million were uninsured but eligible for Medicaid.15
Outreach can also be financed under the Medicaid and SCHIP programs. Under
Medicaid, the federal matching rate for administrative expenses, which include
outreach activities, is set at 50% for all states. There is a limit on federal spending
for SCHIP administrative expenses, which also include outreach. For federal
matching purposes, a 10% cap applies to state administrative expenses. This cap is
tied to the dollar amount that a state draws down from its annual SCHIP allotment
to cover benefits, as opposed to 10% of a state’s total annual allotment. (States that
were unable to fully expend their FY1998 allotments by the three-year time limit on
availability were permitted to use up to 10% of the portion of unspent funds they
were allowed to retain through FY2004 for outreach activities. This outreach
allowance was over and above spending for such activities under the general
administrative cap under SCHIP. All FY1998 funds have now expired.)
Reports. Currently, no other CRS reports address this topic.
SCHIP Reauthorization
Description. Prior to the end of the current period of authorization (through
FY2007), the President’s FY2006 budget proposes to reauthorize the State Children’s
Health Insurance Program (SCHIP) at current law levels. The stated goal of early
reauthorization is to better target SCHIP funds in a more timely manner. The period
for the new reauthorization and the appropriation amounts by year are not specified.
The proposal includes $670 million in FY2006 for redistribution among states, and
$457 for the FY2006-FY2010 period. The HHS document16 is silent on the source
of these figures.
Background. The Balanced Budget Act of 1997 established SCHIP. In
general, this program allows states to cover targeted low-income children with no
health insurance in families with income that is above Medicaid eligibility levels.
States may choose among three benefit options when designing their SCHIP
programs. They may enroll targeted low-income children in Medicaid, create a
separate state program, or devise a combination of both approaches. All states, the
District of Columbia, and five territories have SCHIP programs. The original
enactment appropriated nearly $40 billion for SCHIP for the ten-year period FY1998
through FY2007. The authorized appropriation for FY2006 is $4.05 billion (rising
to $5.0 billion in FY2007). Annual allotments among the states are determined by
a formula that is based on a combination of the number of low-income children, and
low-income uninsured children in the state, and includes a cost factor that represents
the average health service industry wages in the state compared to the national
15 Statistics taken from T. Selden, J. Hudson, and J. Banthin, “Tracking Changes in
Eligibility and Coverage Among Children, 1996-2000,” Health Affairs, vol. 23, no. 5, pp.
39-50.
16 Budget in Brief, Fiscal Year 2006

CRS-22
average. States have three years to spend each annual allotment (e.g., states have
until the end of FY2005 to spend their FY2003 allotments). At the end of the
applicable three-year period, unspent funds are redistributed among states based on
year-specific rules.
Report. For more information, see CRS Report RL30473, State Children’s
Health Insurance Program (SCHIP): A Brief Overview, by Elicia Herz and Peter
Kraut.
Recent Legislative Developments
On March 17, 2005, the House passed H.Con.Res. 95, the House budget
resolution. The reconciliation instructions in the budget resolution direct certain
committees to submit to the House Budget Committee, by September15, 2005, their
recommendations for slowing the growth of mandatory spending programs within
their jurisdiction. These recommendations would be part of the reconciliation bill
reported to the floor by the House Budget Committee. The reconciliation instructions
direct the House Energy and Commerce Committee to reduce mandatory spending
for programs under its jurisdiction by $630 million in FY2006, and by $20 billion for
the FY2006-FY2010 period. While the budget resolution does not direct the
committee on where to achieve the savings, the largest mandatory spending program
under the committee’s jurisdiction is Medicaid.
On the same day, the Senate passed S.Con.Res.18, the Senate budget resolution.
As introduced for floor debate, the reconciliation instructions directed the Senate
Finance Committee to submit to the Senate Budget Committee by June 6, 2005,
recommendations to reduce mandatory spending under it’s jurisdiction by $1.8
billion in FY2006, and by $15 billion for the FY2006-FY2010 period. Medicaid is
one of the largest mandatory spending programs under the committee’s jurisdiction.
However, the resolution also contained a sense of the Senate that the committee
should not make cuts that would undermine Medicaid’s role in the U.S. health care
system, cap federal spending, or otherwise shift costs to the states, or undermine the
guarantee of coverage. During debate, one amendment (S.Amend. 204, proposed by
Senator Bingaman for Senator Smith) that addressed Medicaid spending passed the
Senate. The amendment eliminated the reconciliation instructions to the Senate
Finance Committee to reduce mandatory spending for programs under its
jurisdiction, and created a reserve fund of $1.5 million to establish a 23-member
bipartisan commission on Medicaid. The commission would have one year to review
and make recommendations on the Medicaid program, including its effectiveness and
financial stability.

CRS-23
Table 1. Cost (Savings) For Each Medicaid/SCHIP Proposal
in the President’s FY2006 Budget
Cost (savings) for
Cost (savings)
the FY2006-FY2010
Proposal
for FY2006
period
Medicaid and SCHIP modernization
*
*
Money follows the person demonstration
$0
$500 million
Community alternative to children’s
residential treatment facilities
Respite for caregivers of disabled adults
$13 million
$256 million
Respite for caregivers of children with a
substantial disability
Spousal exemption
$17 million
$102 million
Presumptive eligibility
$0
$0
$560 million
Transitional medical assistance
$560 million
(proposal is for
FY2006 only)
Long-term care insurance partnership
$0
$0
program
$230 million
Medicare premium assistance
$230 million
(proposal is for
FY2006 only)
Vaccines for Children expansion
$140 million
$700 million
Payment for net provider expenditures
$0
($4.6 billion)
only
Limiting government provider payment to
$0
($1.2 billion)
actual costs
Phase-down limitation on provider taxes
($231 million)
($2.8 billion)
Managed care and provider taxes
$0
($399 million)
Cost shifting for targeted case
$0
($2.0 billion)
management and other services
Matching rate for targeted case
($129 million)
($1.0 billion)
management
Codifying Medicaid “free care” policy
$0
$0
Asset transfers for long-term care
($99 million)
($1.5 billion)
Allotment for state administrative costs
$0
($1.1 billion)

CRS-24
Cost (savings) for
Cost (savings)
the FY2006-FY2010
Proposal
for FY2006
period
Medicaid and SCHIP financial
$0
$0
management
Amending the drug rebate formula
$0
$0
Restructure pharmacy reimbursement
($542 million)
($5.4 billion)
Health Insurance Portability and
$0
$0
Accountability Act
Child support enforcement
$0
($45 million)
Refugee exemption extension
$40 million
$145 million
Social Security Administration initial
($2 million)
($113 million)
disability review
Medicaid —
Medicaid — $4.1
$389 million
billion
“Cover the Kids” outreach campaign
SCHIP — $129
SCHIP — $535
million
million
budget includes
$670 million for
$457 million
SCHIP reauthorization
redistribution
(source not
among states in
specified)
FY2006
Source: Table prepared by the Congressional Research Service (CRS) using information provided
in Department of Health and Human Services, Budget in Brief, Fiscal Year 2006, Feb. 2006.
* No cost estimate is provided although the item’s description states that there would be no additional
federal cost.

CRS-25
Table 2. Congressional Research Service (CRS) Staff
Contacts by Topic for the Medicaid and SCHIP Programs
Medicaid Topic
Staff Member
Phone
Administration
April Grady
7-9578
Benefits and eligibility
Aged
Julie Stone-Axelrad
7-1386
Children, Families, Immigrants,
Evelyne Baumrucker
7-8913
Other non-disabled adults
Jean Hearne
7-7362
Elicia Herz
7-1377
Individuals with Disabilities
Julie Stone-Axelrad
7-1386
Medically needy
Karen Tritz
7-4898
Consumer-directed care
Karen Tritz
7-4898
Expenditure data
April Grady
7-9578
Karen Tritz
7-4898
Dual-eligibles
Karen Tritz
7-4898
Financing
Disproportionate share
Jean Hearne
7-7362
FMAP
Christine Scott
7-7366
General issues
Jean Hearne
7-7362
Elicia Herz
7-1377
Christine Scott
7-7366
Intergovernmental transfers
Jean Hearne
7-7362
Elicia Herz
7-1377
Christine Scott
7-7366
State and local
Christine Scott
7-7366
Upper payment limits
Elicia Herz
7-1377
Long-term care
Carol O’Shaughnessy
7-7329
Julie Stone-Axelrad
7-1386
Karen Tritz
7-4898
Managed care
Elicia Herz
7-1377
Karen Tritz
7-4898
Prescription drugs
Jean Hearne
7-7362
Provider payment issues
Jean Hearne
7-7362
Karen Tritz
7-4898

CRS-26
Medicaid Topic
Staff Member
Phone
SCHIP
Evelyne Baumrucker
7-8913
Bernadette Fernandez
7-0322
Elicia Herz
7-1377
Chris Peterson
7-4681
Territories
Evelyne Baumrucker
7-8913
Jean Hearne
7-7362
Elicia Herz
7-1377
Waivers
Section 1115
Evelyne Baumrucker
7-8913
Elicia Herz
7-1377
Section 1915(c)
Karen Tritz
7-4898