Individuals with Disabilities Education Act (IDEA) and Medicaid

Individuals with Disabilities Education Act (IDEA) and Medicaid

Order Code RL31722
Report for Congress
Received through the CRS Web
Individuals with Disabilities Education Act
(IDEA) and Medicaid
January 31, 2003
Richard N. Apling and Elicia J. Herz
Specialists in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

Individuals with Disabilities Education Act
(IDEA) and Medicaid
Summary
The Individuals with Disabilities Education Act (IDEA) — the centerpiece of
federal legislation on educating children with disabilities — is an unusual statute
because it not only provides funds to states and school districts but it also guarantees
the rights of children with disabilities to a free appropriate public education (FAPE).
IDEA requires that children with disabilities be provided with special education and
related services so that they can benefit from their guaranteed public education. For
some children, benefitting from, or even attending, school depends on health-related
services. For example, a child dependent on a ventilator for life support could
require in-school staff to ensure the proper operation of the equipment in order to
attend school. For such a child, IDEA requires that necessary staff and services be
provided.
While IDEA mandates special education and related services, it is not intended
to pay for the total cost of this education and these services. One approach Congress
has taken to ease the burden on states and school districts of fulfilling the
requirements of IDEA is to allow the use of funds available under Medicaid, a
federal-state entitlement program providing medical assistance to certain low-income
individuals, to finance health services delivered to special education students who are
enrolled in Medicaid. However, for various possible reasons, Medicaid funds appear
to account for only a small proportion of expenditures for special education and
related services. These reasons include: most IDEA children are not enrolled in
Medicaid; federal privacy requirements may hinder identifying which IDEA children
are participating in Medicaid; in-school health services may often be of relatively low
cost; Medicaid financial requirements may reduce reimbursement to schools; and
Medicaid’s complexities may make many school districts unwilling or unable to
access this funding source.
Relatively little is known about the interrelationship between IDEA and
Medicaid. Thus a state-by-state study might be useful to Congress in determining
whether to take legislative action. Depending on the outcome of such a study,
various changes to Medicaid could be considered. To the extent that problems arise
because of program complexity, improving technical assistance and outreach might
be useful. To the extent that problems are related to Medicaid eligibility, expanding
Medicaid eligibility to cover more children with disabilities could be examined. And
to the extent that the problem is one of Medicaid financing, changing some of the
rules that may adversely impact local educational agencies (LEAs) could be
contemplated. Since some might oppose any changes to Medicaid that would result
in increased state costs, other alternatives might be considered. For example,
creating a funding relationship between IDEA and the State Children’s Health
Insurance Program (SCHIP) could be examined. In addition, federal privacy
requirements might be amended to facilitate the identification of children with
disabilities served under IDEA who are also enrolled in Medicaid. Finally, IDEA
amendments could be considered, such as targeting some funding for children with
disabilities who require expensive health-related services in order to attend school.

Contents
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Overview of IDEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
IDEA and Related Medical and Health Services . . . . . . . . . . . . . . . . . . . . . . 3
IDEA and Medicaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Overview of Medicaid Eligibility and Services . . . . . . . . . . . . . . . . . . . . . . . 7
Relevance of Medicaid Benefits for IDEA Children . . . . . . . . . . . . . . . 7
Medicaid’s Eligibility Rules for Children . . . . . . . . . . . . . . . . . . . . . . . 8
Possible Reasons Why Medicaid Appears to Cover Relatively Little
of IDEA Health-Related Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Many Children with Disabilities May Not Be Eligible for Medicaid . 16
LEAs May Not Be Identifying All IDEA Children Who Are Enrolled
in Medicaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Many Medicaid In-School Services May Be Low Cost . . . . . . . . . . . . 19
Medicaid Financing Issues May Reduce LEA Reimbursements . . . . . 20
Challenges for Schools Participating in Medicaid . . . . . . . . . . . . . . . . 22
Selected Legislative Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Changes to Medicaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Changes to SCHIP and IDEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
FERPA Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
IDEA Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
List of Tables
Table 1. Major Medicaid Eligibility Groups for School-Age Children and
Available Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Table 2. Standard Mandatory Medicaid Services for Categorically and
Medically Needy Groups That Are Available to Persons Under Age 21 . . 13
Table 3. Standard Optional Medicaid Services for Categorically and
Medically Needy Groups That Are Available to Persons Under Age 21 . . 14

Individuals with Disabilities Education Act
(IDEA) and Medicaid
Overview
The Individuals with Disabilities Education Act (IDEA) — the centerpiece of
federal legislation on educating children with disabilities — defines how states and
local educational agencies (LEAs) are to meet their obligations to serve these
children and authorizes federal grants to states to help fund those obligations.
Congress has been concerned about the financial burden that children with
disabilities can impose on state and local systems of public education. Because
IDEA requires that certain medical and health services be provided if they are
necessary for a child with a disability to participate in and benefit from public
education, one approach Congress has taken to ease the financial burden of serving
children with disabilities is to allow use of funds available under Medicaid, a federal-
state entitlement program providing medical assistance to certain low-income
individuals, to finance health services to special education students who are covered
by Medicaid.
This report begins with an overview of IDEA. It then discusses the distinction
made in IDEA between medical services and health services. The report then
summarizes the provisions in law that link Medicaid funding to IDEA. Next the
report provides an overview of the complexities of Medicaid eligibility and covered
services. Following that discussion, the report analyzes possible reasons why
Medicaid appears to cover relatively little of IDEA health-related costs. Finally the
report outlines possible legislative approaches with respect to Medicaid and IDEA.
Overview of IDEA. IDEA (P.L. 105-17) is an unusual, if not unique, federal
statute in that it is both a civil rights statute and a grants statute. In addition to
authorizing funding to provide special education1 and related services for children
with disabilities, IDEA requires that states accepting IDEA funds — and all currently
do — must ensure certain procedures, rights, and services for children with
disabilities and their parents. In general terms, these include:
! Identifying, locating, and evaluating all children with disabilities,
regardless of the severity of their disability, to determine which
children are eligible for special education and related services;
! Making available a free appropriate public education (FAPE) to
all children with disabilities, generally between the ages of 3 and 21;
1 The Act defines “special education” as “specially designed instruction ... to meet unique
needs of a child with a disability” (Section 602(25)).

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! Ensuring that each child receiving services has an individual
education program (IEP) spelling out the specific special
education and related services to be provided to meet his or her
needs; the parent must be a partner in planning and overseeing the
child’s special education and related services as a member of the
IEP team;
! Educating children with disabilities, “to the maximum extent
appropriate,” with children who are not disabled; and
! Providing procedural safeguards to children with disabilities and
their parents, including a right to a due process hearing, the right to
appeal to federal district court and, in some cases, the right to
receive attorneys’ fees.2
In general, IDEA defines a ‘child with a disability’ as one who needs special
education and related services because of a specified disability or disabilities. In its
definition, the Act lists a series of disabilities, including mental retardation; hearing,
visual, or speech impairments; autism; specific learning disabilities; and other health
impairments (Section 602 (3)).
During the 1999-2000 school year, there were approximately 5.7 million school-
age children (ages 6-21) served under the IDEA program across the 50 states, the
District of Columbia (DC), and Puerto Rico. These children had a wide range of
mild to severe disabling conditions that qualified them for IDEA. Children identified
with specific learning disabilities were, by far, the largest single category of IDEA
children, representing 50.5% of the total population. Another 19.2% had speech and
language impairments. Nearly 11% were mentally retarded, and an additional 8.3%
had emotional disturbances. The remainder of the IDEA population (about 11%)
were classified as having hearing, orthopedic or visual impairments; developmental
delay; autism; deaf-blindness; traumatic brain injury; other health impairments; or
multiple disabilities.3
Although services for children with disabilities can be quite expensive, IDEA
formulas do not distribute grants to states based on cost.4 Instead most IDEA funds
are distributed by formulas based on numbers of children with disabilities, total
population in the age range served, and number of children from poor families in the
2 The various types of procedures include an opportunity for parents of a child with a
disability to examine records and participate in meetings and obtain an independent
educational evaluation of the child; prior written notice of a change or refusal to change a
placement; an opportunity for mediation; and an opportunity to present complaints. For an
overview of these and other IDEA provisions, see CRS Report RL31259, Individuals with
Disabilities Education Act: Statutory Provisions and Selected Issues, by Nancy Lee Jones
and Richard N. Apling.
3 U.S. Department of Education (ED), To Assure the Free Appropriate Public Education for
All Children with Disabilities. The Twenty-Third Annual Report to Congress on the
Implementation of the Individuals with Disabilities Education Act, 2001, Table AA2.
(Hereafter cited as ED, The Twenty-Third Annual Report).
4 Some states distribute state funds based on estimates of the varying costs for serving
children with disabilities.

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age range serviced. In addition, while IDEA provides for certain procedural rights
and services, it is a discretionary program (its funding is subject to appropriations),
not a mandatory program like Medicaid. Thus by saying that a service is required
under IDEA, does not mean that IDEA funds necessarily pay for that service. Rather
it means that the state and the school district must provide the service and pay for the
service by whatever means available — be it IDEA funds from the federal
government, state special education funds, local funds, or other federal programs,
such as Medicaid.
IDEA and Related Medical and Health Services
As noted above, a basic tenet of the IDEA is that, as a condition of accepting
IDEA funds, states and LEAs must provide free appropriate public education (FAPE)
to children with disabilities. Guaranteeing FAPE involves the provision of special
education — which must be specifically tailored to the needs of the individual child
— and related services. The latter includes services necessary for children with
disabilities to participate in and benefit from special education and public education
in general and might involve, depending on the disability or disabilities,
transportation, speech therapy, psychological services, physical therapy, interpretive
services (for example, for hearing or visually impaired students), and health-related
services.
IDEA law and regulations together with court interpretations make an important
distinction between medical services, which — under IDEA — are those that only
can be provided by a licensed physician, and health services, which are services
provided by other health care providers, such as a school nurse or a physical
therapist.5 Under the FAPE requirement, the state and school districts must only
provide medical services to the extent that such services deal with the diagnosis and
evaluation of a child’s disability. Other services provided by a physician need not be
paid for by the state or the school district. On the other hand, health services that
are necessary for the child to participate in and benefit from public education must
be provided by the state or the school district.
The Supreme Court has upheld the distinction between medical and health
services. Most recently the court held in Cedar Rapids Community School District
v. Garret F.6 that the school district, as part of its obligation to provide FAPE under
IDEA, must provide ongoing school health services to Garret F., who is dependent
on a ventilator for life support. Because maintenance of the ventilator and other
health services were not dependent on a licensed physician but could be provided by
a “responsible person,” such as a school nurse, the Court, by a 7 to 2 majority, ruled
5 The Act specifically limits the definition of medical services to those with “diagnostic and
evaluative purposes only.” (Section 602(22)) ED regulations for IDEA elaborate on this
definition: “Medical services means services provided by a licensed physician to determine
a child’s medically related disability that results in the child’s need for special education and
related services.” (34 C.F.R. §300.24(b)(4)) The regulations add “school health services”
to the definition of “related services” and define these services as those “provided by a
qualified school nurse or other qualified person.” (34 C.F.R. §300.24(b)(12))
6 Cedar Rapids Community School District v. Garret F., 526 U.S. 66 (1999).

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that the services were covered by the definition of related services and must be
provided in order that Garret F. could benefit from FAPE.7
Students like Garret F. can pose substantial financial burdens on school districts.
Justice Thomas, in his dissenting opinion in Garret F., noted that the school district
would have to hire an additional employee to provide the one-to-one care Garret F.
requires, which “will cost a minimum of $18,000 per year.”8 Unfortunately there are
no current data on the overall amount LEAs spend on providing medical and health
services to children with disabilities under IDEA. Expenditures for related services,
of which medical and health services presumably account for a significant share, are
substantial. For example, expenditures for staff providing related services for school-
age children with disabilities under IDEA are estimated at about $7.5 billion.9
Currently there are no good data on the types of health service needs of school-
aged children served under IDEA.10 However, some studies do provide a glimpse
into the health service needs of children with disabilities. Unfortunately varying
definitions of what constitutes a disability make it difficult to apply the findings
directly to the IDEA population. Elaine Maag, in a study of the supportive health
services needs of children with disabilities, provides some useful data on the nature
of these needs. Rather than the categorical definition of a child with a disability
under IDEA, her definition was based on limitations in functioning in one or more
of the following areas: mobility, self-care, communication, and learning. In
addition, although she included children with mild, moderate, and severe limitations
in mobility and self-care, she excluded children with mild communication or learning
limitations. Based on this definition, she presented data representing an estimated
population of nearly 4 million children with disabilities ages 5 to 17. Maag points
out that supportive health services tend to be ongoing services and also “tend to be
7 For further information, see CRS Report RS20104, Cedar Rapids Community School
District v. Garret F.: the Individuals with Disabilities Education Act and Related Services,
by Nancy Lee Jones.
8 Cedar Rapids Community School District v. Garret F., 526 U.S. 66, 85 (1999) (Thomas
dissenting). This is more than three times recent estimates of the national average additional
expenditure for serving children with disabilities in public schools and apparently only
accounts for the salary of a health-care attendant, not for additional special education and
related services that Garret F. might require to ensure he receives FAPE. For the most
recent data on the costs of special education, see Special Education Expenditure Project
(SEEP), What Are We Spending on Special Education Services in the United States, 1999-
2000?, Advance Report #1, March 2002. The report is available at [http://www.seep.org/].
(Hereafter cited as SEEP, What Are We Spending?)
9 See SEEP, What Are We Spending?, Table B-1.
10 ED in its most recent annual report to Congress on IDEA does provide national data on
services provided under Part C of IDEA to infants and toddlers with disabilities and their
families. Many of these services appear to be health related. For example, 14% of these
infants and toddlers received audiology services,7% received nursing services, 39% received
occupational therapy, and 38% received physical therapy. In addition many service
providers are obviously health-care professionals and para-professionals, such as nurses,
occupational therapists, and physical therapy assistant. (ED, The Twenty-Third Annual
Report, Table III-13 and Table III-15).

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unique to children with disabilities” as opposed to more traditional health services,
such as “prescription drugs, annual doctor visits, or emergency care.”11
Based on a population of children with disabilities ages 5 to 17 that excludes
some more mildly disabled individuals, Maag estimated that about 40% of this
population receives some type of supportive health service. Most prevalent among
these services are communication services, such as speech therapy (received by an
estimated 1.5 million). Next most prevalent are therapeutic services, such as physical
and occupational therapy (about 850,000 recipients), followed by family services, for
example, respite care (about 700,000) daily living services, perhaps provided by a
personal care attendant (about 500,000) and medical services,12 such as nursing
services (about 200,000).
Many of these supportive health services are provided in the school, as well as
at home and elsewhere, otherwise a child with a disability could not attend school
and could not benefit from public education. For example, a paraplegic child, in
order to attend school, might need a personal attendant to cope with daily living
requirements, such as personal hygiene and biological functions. Under the FAPE
requirement of IDEA, the school would be required to provide such support.
IDEA and Medicaid
Congress has been concerned about the financial burden that children with
disabilities can impose on state and local systems of public education. One approach
Congress has used to attempt to ease this burden is to authorize the use of funds
under Medicaid, a federal-state entitlement program providing medical assistance to
certain low-income individuals, to finance health services delivered to special
education students who are eligible for Medicaid coverage.13 Prior to 1988, Medicaid
did not pay for coverable services that were listed in a child’s IEP since special
education funds were available to pay for these services, and because generally (with
a few explicit exceptions) Medicaid is always the payer of last resort. Congress
changed this connection between IDEA and Medicaid in 1988. Section 411(k)(13)
of the Medicare Catastrophic Coverage Act of 1988 (P.L. 100-360) amended
Medicaid (Title XIX of the Social Security Act) at Section 1903 as follows:
c) Nothing in this title shall be construed as prohibiting or restricting, or
authorizing the Secretary to prohibit or restrict, payment under subsection (a) for
medical assistance for covered services furnished to a child with a disability
11 Elaine Maag, “Supportive Health Services Needs of Children with Disabilities,” p. 2.
Obtained from [http://aspe.hhs.gov/daltcp/reports/suphsnd.htm]. (Hereafter cited as Maag,
Health Services Needs.) This study was based on data from the 1994 and 1995 waves of the
National Health Interview Survey (NHIS).
12 Recall that under IDEA medical services has a special meaning, i.e., services provided by
a licensed physician. This limited definition of medical services can cause confusion in a
broader discussion of health care financing, in which medical services might be provided
by other professionals or even by para-professionals.
13 For further information on Medicaid, see CRS Report RS20245, Medicaid: A Fact Sheet,
by Jean Hearne.

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because such services are included in the child’s individualized education
program established pursuant to part B of the Individuals with Disabilities
Education Act or furnished to an infant or toddler with a disability because such
services are included in the child’s individualized family service plan adopted
pursuant to part H of such Act.14
Officials from the Centers for Medicare and Medicaid Services (CMS),15 the
federal agency that administers the Medicaid program,16 have interpreted this
provision to allow, but not require, state Medicaid agencies to pay for such services.
According to these officials, most states have elected to do so.
IDEA requires states to establish interagency agreements to ensure that IDEA-
eligible students receive the services to which they are entitled:
Such agreement or mechanism shall include the following:
(i) AGENCY FINANCIAL RESPONSIBILITY- An identification of, or a
method for defining, the financial responsibility of each agency for providing
services described in subparagraph (B)(i) to ensure a free appropriate public
education to children with disabilities, provided that the financial responsibility
of each public agency described in subparagraph (B), including the State
Medicaid agency and other public insurers of children with disabilities, shall
precede the financial responsibility of the local educational agency (or the State
agency responsible for developing the child’s IEP).17
Thus, for a disabled child who is enrolled in both IDEA and Medicaid, when
necessary services are covered by a state Medicaid program, “the financial
responsibility of ... the State Medicaid agency and other public insurers of children
with disabilities, must precede the financial responsibility of the [school district] (or
the State agency responsible for developing the child’s IEP).”18 Given CMS’s
interpretation of the 1988 amendment to Medicaid law, this IDEA requirement that
14 The 1997 IDEA Amendments redesignated Part H as Part C, the Infants and Toddlers with
Disabilities program.
15 Personal communication with Centers for Medicare and Medicaid Services officials,
November 14, 2002.
16 Prior to the current Bush Administration, this agency was called the Health Care
Financing Administration or HCFA. In this report, we use both abbreviations (CMS and
HCFA) as appropriate.
17 Section 612(a)(12)(A). The committee reports accompanying the 1997 IDEA
amendments (P.L. 105-17) elaborated on the relationship between Medicaid and IDEA:
The committee places particular emphasis in the bill on the relationship between
schools and the State Medicaid Agency in order to clarify that health services
provided to children with disabilities who are Medicaid-eligible and meet the
standards applicable to Medicaid, are not disqualified for reimbursement by
Medicaid agencies because they are provided services in a school context in
accordance with the child’s IEP. S.Rept. 105-17, p. 12; H.Rept. 105-95, p. 92.
18 34 CFR §300.142(a)(1).

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Medicaid be the first payer would apply only to those states that have elected to pay
for services listed in IEPs.
Recent evidence suggests that Medicaid currently pays a small proportion of the
overall excess cost of providing special education and related services to children
with disabilities (i.e., those expenditures over and above the costs for educating
children without disabilities). A recent national study for school year 1999-2000
indicated that Medicaid provided about $648 million for services to children with
disabilities, representing about 1.8% of the estimated additional expenditure of $36
billion to provide special education and related services for such children.19
Overview of Medicaid Eligibility and Services
In order to explore the interrelationship between IDEA and Medicaid and to
assess why Medicaid appears to pay for a relatively small proportion of the cost of
servicing IDEA children, it is first necessary to discuss some of the complexities of
Medicaid with respect to eligibility and services for children.
Relevance of Medicaid Benefits for IDEA Children. Although (as noted
above) there are some data on health-related services provided to children with
disabilities, no studies have been published describing the medical and support
service needs of school-age IDEA children. In order to understand Medicaid’s
potential role in supporting eligible IDEA children in school, one must make a best
guess of their service needs, defined from a Medicaid perspective, based on what is
known about their disabling conditions, and what is known about the services used
by disabled children in general.
Generally Medicaid finances a comprehensive array of both mandatory and
optional, medical and health-related services. But it does not cover all the supportive
services that many IDEA children may need while in school. Most notably, Medicaid
probably has little to offer those children with learning disabilities who represent
about one-half of the IDEA population. Medicaid does not cover the kinds of special
educational services that many of these children require during the school day.
On the other hand, Medicaid does cover health services that are necessary for
other children with disabilities to benefit from a free appropriate public education.
For the purposes of IDEA, the most relevant Medicaid benefit is the Early and
Periodic Screening, Diagnosis, and Treatment (EPSDT) Program. This program
provides screening and preventive care to nearly all groups of Medicaid beneficiaries
under the age of 21, as well as services necessary to correct health problems
19 See SEEP, What Are We Spending?, Table B-1. The estimates in this study are based on
a stratified random sample designed to generalize to all students with disabilities in the 50
states and the District of Columbia. About 40% of the responding LEAs reported recovering
any payments from Medicaid. This amount also represents a small proportion of Medicaid
funding for school-age children (ages 6-18) in general, which is about $18 billion,
according to the most recent data (FY1999). Thus Medicaid funding for school-based
medical and health services for children with disabilities may represent less than 4% of all
funding for eligible school-age children.

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identified through screening. That is (with the exception to eligibility discussed
below), states are required to provide all federally-allowed treatment to correct
identified problems, even if the specific treatment needed is not otherwise covered
under the state’s Medicaid plan. For example, according to a HCFA guide “if the
state does not cover an optional service under its [Medicaid] state plan, such as
occupational therapy, the State would have to make medical assistance available for
the service when furnished to a child eligible for EPSDT if occupational therapy is
medically necessary.”20
In addition to EPSDT, Medicaid covers a number of other services relevant to
IDEA children with a wide range of disabilities. Durable medical equipment such
as wheelchairs, ventilators, and prosthetic devices are also available through
Medicaid. Medicaid covers the therapy services that may be needed by children with
orthopedic impairments and speech disorders. It also covers vision-related screening
and diagnostic services, and will pay for eyeglasses for children with visual
impairments. Children with hearing disorders may receive audiology services and
hearing aides. For IDEA children with developmental disabilities, emotional
disturbances and those who are mentally retarded, certain non-medical supportive
services, such as psychosocial rehabilitation and personal care services (e.g.,
assistance with daily activities and some medical services, when appropriate,
provided by a professional attendant) may be covered under special Medicaid waiver
programs. Other relevant services include psychologist and social worker services,
prescribed drugs, and transportation.
Medicaid’s Eligibility Rules for Children. Although Medicaid may pay
for coverable medical, health, and support services that children with disabilities
need to attend and benefit from school, IDEA children must meet specific financial21
and non-financial eligibility rules, which vary widely from state to state, in order to
receive these services. In addition, there are alternative routes for determining
Medicaid eligibility, which influence the health services that are available. The
complexity of Medicaid’s eligibility rules, together with the difficulty educational
agencies experience in navigating these rules, are likely to be primary reasons why
Medicaid covers only a portion of IDEA-related costs for school-age children. In
addition, as discussed below, some studies suggest that only about one-fourth of
IDEA children are enrolled in Medicaid, most likely due in large part to Medicaid’s
financial restrictions.
Eligibility For Standard Medicaid Services. In analyzing the eligibility
pathways into Medicaid for children who qualify for IDEA services, it is important
to consider Medicaid eligibility groups that specifically target the disabled living in
20 HCFA Medicaid Guide, p. 10.
21 With respect to financial eligibility criteria for Medicaid, both earned and unearned
income are considered. For some eligibility categories, assets (e.g., savings accounts,
savings bonds) may also be taken into account. States may base eligibility on gross income
and assets, but in most cases, they apply what are known as income (and asset) disregards.
That is, for certain categories of income, specific amounts may be disregarded or ignored
in determining financial eligibility. The effect of these counting methods is to allow
individuals with gross income and assets above the stated standards to qualify for Medicaid.

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the community (rather than those who are institutionalized), as well as eligibility
groups that target children in general, regardless of disability status as defined under
Medicaid. Table 1 provides a summary of the major Medicaid eligibility groups for
school-age children. In brief, these are: the categorically needy — dependent
children who qualify based on some measure of financial need or poverty status; the
medically needy — dependent children who qualify based on modified measures of
financial need plus medical costs; and two additional categories relevant to children
with severe disabilities — the Katie Beckett option and the home and community-
based waiver program. States are required to serve some of these groups under
Medicaid (the mandatory groups in Table 1), and have the option to cover other
groups (the optional groups in Table 1). In addition, the financial standards for each
specific pathway vary widely across states. Finally, available services vary from
category to category.
Categorically Needy. First, many children qualify for Medicaid via welfare-
related pathways.22 The income standards for this coverage category are typically
well below the federal poverty level or FPL23 — the median level nationwide is about
44% — but states can increase these standards. In FY1999, of the roughly 22.7
million Medicaid enrollees under age 21, nearly one-third (7.3 million) were eligible
through welfare-related pathways. Second, states generally must cover blind and
disabled recipients of Supplemental Security Income (SSI).24
22 In the mid-1990s, the Aid to Families with Dependent Children (AFDC) program was
replaced by the Temporary Assistance for Needy Families (TANF) program. Unlike AFDC,
TANF eligibility does not confer automatic Medicaid eligibility. However, Medicaid
entitlement remains for families who meet the requirements of the former AFDC program
as in effect on July 16, 1996. The old AFDC-related income standards are typically well
below the federal poverty level (FPL) (the median level nationwide is about 44%), but states
can modify them. Other mandatory and optional groups for which eligibility is tied to these
old AFDC rules include children in welfare-to-work families who can qualify for up to 12
months of transitional Medicaid, and some foster care and adoption assistance children.
23 In 2002, the poverty guideline in the 48 contiguous states and the District of Columbia for
an individual is $8,860 and for a family of four is $18,100.
24 States may use more restrictive eligibility standards for Medicaid than those used for SSI,
if they were using those standards on January 1, 1972 (before implementation of SSI). In
2000, 11 states used more restrictive standards for Medicaid. For further information on
SSI, see CRS Report 94-486, Supplemental Security Income (SSI): A Fact Sheet, by Carmen
Solomon-Fears.

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Table 1. Major Medicaid Eligibility Groups for School-Age Childrena and Available Benefits
Other financial
eligibility criteria
Available benefits
Standard
Parents’
Medical
Institutional
Subset of
plus
income
expenses
level of care
Standard
standard
waiver
Eligibility group
Upper income standard
considered
deducted
required
servicesb
servicesc
servicesd
Categorically needy groups
Mandatory welfare-
44% FPL (median level)
X
—
—
X
—
—
related groups
Mandatory SSI-related
74% FPL
X
—
—
X
—
—
groups
Mandatory poverty-
133% FPL for < age 6;
related groups (only if
100% FPL for ages 6-19
X
—
—
X
—
—
ineligible for two groups
above)
Optional medicaid
200% FPL (or 50 percentage
expansions under SCHIP
points above the applicable
X
—
—
X
—
—
Medicaid level that exceeds
200% FPL)

CRS-11
Other financial
eligibility criteria
Available benefits
Standard
Parents’
Medical
Institutional
Subset of
plus
income
expenses
level of care
Standard
standard
waiver
Eligibility group
Upper income standard
considered
deducted
required
servicesb
servicesc
servicesd
Medically needy group
Optional medically needy
55% FPL (median level)e
X
X
—
—
Xf
—
group
Other eligibility groups
Optional Katie Beckett
Typically 221% FPLg or the
—
—
X
X
—
—
group
medically needy standard
Optional HCB waiver
Typically 221% FPL or the
—
—
X
—
—
X
group
medically needy standard
a States can also add new coverage groups to their Medicaid programs via waivers of program rules (under Section 1115 of the Social Security Act), or extend
coverage under existing eligibility categories by modifying income and resource standards for these groups (not shown). These options permit states to cover
individuals at higher income levels, for example.
b see Tables 2 and 3.
c see Tables 2 and 3.
d see examples under Other Eligibility Groups, below.
e The actual income criterion for this coverage group is 133 and one-third percent of AFDC payment standard on July 16, 1996 (as subsequently modified, if
applicable). When this standard is expressed as a percentage of the federal poverty level, the median value nationwide is 55%.
f States may offer a subset of standard mandatory and optional services to the medically needy, but may choose to give this group access to the same set of benefits
as other coverage groups (known as the “categorically needy”).
g The actual income criterion for this coverage group is 300% of the SSI payment standard, known as the “300% rule.” When this criterion is expressed as a
percentage of the federal poverty level, it is equivalent to 221% FPL.

CRS-12
Nationwide, the upper income limit for this SSI-related pathway into Medicaid
is 74% of the FPL. Such persons must also have countable assets valued at less than
$2,000. For a child to qualify for SSI, and in most cases also Medicaid, he/she must
be under 18 and have a medically determinable physical or mental impairment which
results in marked and severe functional limitations, and which can be expected to
result in death or which has lasted (or can be expected to last) for a continuous period
of not less than 12 months. Official counts of such Medicaid children are not
available; however, in FY2001, there were approximately 865,700 children receiving
SSI payments, all of whom were likely to be enrolled in Medicaid.25
Third, for children who do not qualify for Medicaid coverage via welfare-related
or SSI-related pathways, there are additional poverty-related pathways into Medicaid
for which the upper income standard is higher and varies by age. States must provide
Medicaid to such children who are under 6 years of age living in families with
income up to 133% FPL, and those ages 6 to 19 in families with income up to 100%
of the FPL. In FY1999, roughly 8.7 million children representing 38% of Medicaid
beneficiaries under age 21 were covered under these poverty-related groups.26
In addition, states may cover children in families with income up to 200% FPL
(or 50 percentage points above the applicable Medicaid level that is at or greater than
200% FPL) through a Medicaid option under the State Children’s Health Insurance
Program (SCHIP). As of FY2001, 34 states and the District of Columbia had
implemented this SCHIP option, covering 1.2 million children. To be eligible for
this SCHIP option, children must be otherwise ineligible for Medicaid or other group
health plans.
Children qualifying through the categorical needy groups have access to the
mandatory services listed in the first column of Table 2. At the option of the state,
they may also have access to all or a subset of services listed in Table 3.
Medically Needy. States may also offer “medically needy” coverage under
Medicaid. The income standard for medically needy coverage can be up to one-third
higher than the income standard for the applicable welfare- or SSI-related group in
a given state. By in large, in those states that offer medically needy coverage (34
states including the District of Columbia as of November 2000), the income
standards rarely exceed the poverty level. The median income level nationwide is
55% FPL. In FY1999, roughly 1.6 million children (about 7% of Medicaid
beneficiaries under age 21) qualified for Medicaid as medically needy. Unlike all
other eligibility categories under Medicaid, medical expenses can be considered in
determining financial eligibility for this group. Children can meet the financial
25 See CRS Report RL31413, Medicaid: Eligibility for the Aged and Disabled, by Julie
Lynn Stone for additional details.
26 There is a hierarchical relationship among these three eligibility categories. That is, if a
child qualifies for Medicaid under either a welfare-related group or an SSI-related group,
that child must be enrolled in Medicaid under that category. Only those children who do not
meet the financial and non-financial standards for the welfare-related or SSI-related groups
and who do meet the age and financial standards for a poverty-related group can be enrolled
in the applicable poverty-related group.

CRS-13
criteria for this coverage group by incurring medical expenses that when subtracted
from income, result in an amount that is lower than the medically needy income
standard. This eligibility category may be relevant to IDEA children with very large
medical expenses who might otherwise not qualify for Medicaid.
Table 2. Standard Mandatory Medicaid Services for
Categorically and Medically Needy Groups
That Are Available to Persons Under Age 21
Categorically needy
Medically needy
- Inpatient hospital services
- Prenatal and delivery services
- Outpatient hospital services
- Ambulatory services (for persons under
- Rural health clinic services
age 18 and persons under 21 entitled to
- federally qualified health center services
nursing facility care)
- Other laboratory/x-ray services
- Home health services for persons
- Home health services
entitled to nursing facility care
- EPSDT
- In states covering the medically needy
- Family planning services
in intermediate care facilities for the
- Physician services
mentally retarded (ICF/MRs) or
- Medical and surgical services of a
institutions for mental diseases (IMDs),
dentist
broader requirements apply.a
- Nurse midwife services
- Certified pediatric and family nurse
practitioner services
- Pregnancy-related services and services
for conditions that complicate pregnancy
a If a state covers IMD and ICF/MR services, it must cover for the medically needy either the same
services as those which are mandatory for the categorically needy (except certified nurse
practitioner services) or any seven of the categories of care and services in Medicaid law
defining covered benefits.
Unlike all other coverage groups described here, the medically needy may have
access to a more limited set of both mandatory (see Table 2, column 2) and optional
benefits under Medicaid (see Table 3). Most notably, EPSDT is not a mandatory
benefit for the medically needy, although states may choose to make this benefit
available to this group. Thus, for IDEA children who qualify for Medicaid via the
medically needy pathway, all or only some of the services outlined in their IEPs may
be covered. Moreover, EPSDT may not be available to insure access to otherwise
coverable Medicaid services.
Other Eligibility Groups. In addition to the medically needy option, there
are two other optional pathways into Medicaid with more generous financial
standards that may be particularly relevant to severely disabled children living in the
community such as Garrett F. One is called the Katie Beckett option (so named after
the ventilator-dependent child that was the impetus for the creation of this coverage
group in the early 1980s) and the other is the home and community-based waiver
program described below.

CRS-14
Table 3. Standard Optional Medicaid Services for
Categorically and Medically Needy Groups
That Are Available to Persons Under Age 21
- Other practitioners’ services (e.g.,
- Inpatient psychiatric hospital services
psychologists, social workers,
- Services in a religious non-medical
optometrists)
health care institution
- Private duty nursing
- Nursing facility services
- Other clinic services
- Emergency hospital services
- Other dental services
- Personal care services
- Physical therapy
- Transportation services
- Occupational therapy
- Tuberculosis-related services
- Speech, hearing and language disorder
- Hospice services
services
- Respiratory care services for ventilator
- Prescribed drugs
dependent persons
- Dentures
- Primary care case management
- Prosthetic devices
- Home and community based care
- Eyeglasses
(1915(c) waiver programs)
- Other diagnostic, screening, preventive
- Other services approved by the
and rehabilitative services
Secretary of Health and Human Services
- Intermediate care facilities for the
mentally retarded (ICF/MR) services
Note: States may offer an optional service to the categorically needy only, or to both the categorically
needy and medically needy.
Under the Katie Beckett option, states may extend Medicaid to certain disabled
children under 18 who are living at home and who would be eligible via the SSI
pathway if they were institutionalized27 for 30 or more days, as long as the cost of
care at home is no more than institutional care. The law allows states to consider
only the child’s income and resources when determining eligibility for this group.
In the majority of these cases, the children meeting these criteria literally have no
income of their own. They will be eligible for Medicaid via the Katie Beckett option
even if their parents are in the upper-income category. For the subset of these
children who have their own income, the applicable income standard is that which
the state uses for determining Medicaid eligibility for institutional care — typically
either what is known as the “300% rule” (i.e., 300% of the SSI payment standard,
equivalent to 221% FPL), or the medically needy income standard (under which
medical expenses can be taken into consideration). The Katie Beckett option may
be applicable to severely disabled IDEA children from middle to upper-income
families who might otherwise be ineligible for Medicaid. As of May, 2000, 20 states
covered this optional eligibility category. There are no official counts of these
children available. Katie Beckett children have access to all mandatory and optional
Medicaid services covered in a state, including EPSDT.
27 Institutionalized means in a hospital, nursing facility or intermediate care facility for the
mentally retarded.

CRS-15
States also have the option to cover persons needing home and community-
based services (HCBS), if those individuals would otherwise require institutional
care covered by Medicaid. These services are provided under special waiver
programs authorized under Section 1915(c) of Medicaid law. Unlike the Katie
Beckett option which requires that all such disabled children within a state be
covered, HCBS waiver programs may be limited to specific geographic areas, and/or
may target specific disabled groups and/or specific individuals within a group.
Enrollment may be capped at a certain total number of participants.
As of 2000, 49 states and the District of Columbia had at least one HCBS
waiver program in place. (Arizona provides similar benefits through separate waiver
authority.) Many have multiple programs, some of which specifically target disabled
children. Official counts of children participating in these waiver programs are
unavailable. In 1997 (the most recent available data), over three-quarters of spending
under HCBS waivers was for persons with mental retardation or developmental
disabilities.28
The financial standards for HCBS waiver programs are the same as those
applicable to the Katie Beckett option (i.e., states typically use the 300% rule or the
medically needy standard, and parents’ income may be disregarded; see above
discussion and Table 1). Thus, as with the Katie Beckett category, the HCBS waiver
option may be applicable to IDEA children in middle- to upper-income families who
might otherwise not qualify for Medicaid. In addition, HCBS waiver programs may
offer support services that may be available only through such waivers (described
below).
A common misconception about the institutional requirement for HCBS waivers
is that a severe level of medical need or functional limitation must be present. There
is no federal requirement or definition here. In fact, states are not required to use
only medical, or even any medical, service criteria to determine eligibility for
institutional care, and hence HCBS waiver programs. States may use medical and
nursing needs as well as functional assessments in determining eligibility for HCBS.
Functional measures may include, for example, the need for assistance with
eating/drinking, toileting, mobility, and medication management; and/or the presence
of cognitive impairments or behavioral problems. To qualify for HCBS waivers, an
applicant may be required to display a certain minimum number of these functional
limitations, or to meet a certain score on a functional assessment tool to be eligible.29
In addition to the standard Medicaid benefits offered by a state, other services
which could be important to some IDEA children in the school setting may be
available through HCBS waiver programs that might not otherwise be covered under
Medicaid. These include, for example, personal care (e.g., assistance with
28 For more information on HCBs 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.
29 G. Smith, et al., Understanding Medicaid Home and Community Services: A Primer,
Washington, DC, George Washington University, Center for Health Policy Research, Oct.
2000.

CRS-16
eating/drinking, toileting, medication management, or ventilators as in the case of
Garrett F.); transportation; case management; psychosocial rehabilitation and clinic
services for persons with chronic mental illness; and home health aides or personal
attendants. Habilitation services (those services designed to assist individuals with
self-help, socialization and adaptive skills) for persons with mental retardation or
developmental disabilities may also be covered. However, the special education and
related services available through IDEA are specifically excluded from coverage as
habilitation services under these waiver programs. (Vocational rehabilitation is
similarly excluded.)30
Possible Reasons Why Medicaid Appears to Cover Relatively
Little of IDEA Health-Related Costs
As noted above, recent data indicate that Medicaid covers only a small share of
the excess cost for providing special education and related services for children with
disabilities. Although data limitations prevent definitive determination of Medicaid’s
limited role with respect to IDEA, possible reasons include:
! Many IDEA children may not be eligible for Medicaid,
! LEAs may not be identifying all IDEA children who are enrolled in
Medicaid,
! The in-school services covered by Medicaid for IDEA children may
be relatively low cost,
! Certain Medicaid financial requirements may reduce Medicaid
reimbursements for LEAs, and
! Medicaid’s billing procedures are complex, and as a result many
LEAs may be unwilling or unable to access this funding source.
Many Children with Disabilities May Not Be Eligible for Medicaid.
Although there is no current direct information on the number of IDEA children who
are eligible for Medicaid, it is likely that most are not eligible, and that is one reason
Medicaid does not cover more IDEA-related health care costs. The most recent
IDEA-relevant national data are from an SRI study for school year 1985-1986 for
children ages 13 to 21 in special education, which reported that about 22% were
covered by Medicaid or by “similar coverage.”31 There are no more recent IDEA-
specific data, in part, because different federal agencies collect different types of
survey data about Medicaid recipients and about children with disabilities served by
IDEA. Among other difficulties, these agencies use different definitions of who is
disabled.
The National Center for Health Statistics (NCHS) uses a broad definition of
disability in its National Health Interview Survey (NHIS). In this survey, an
individual is classified as having a disability if he or she:
30 Section 1915(c)(5)(C) of the Social Security Act.
31 National Longitudinal Study of Special Education, Youth with Disabilities: How Are We
Doing? SRI International, Menlo Park, CA, September 1991, Table 2-16, p. 2-26.

CRS-17
! has a specific physical, functional, or mental/emotional disability or
limiting condition;
! has significant difficulty performing daily self-maintenance
activities;
! uses special equipment or devices such as a wheelchair or breathing
aid;
! is limited in a major or other life activity due to physical, mental, or
emotional problems;
! receives income or insurance based on disability; or
! has other indicators of disability such as poor overall health status,
use of specialized programs or services, or other behavioral
indicators of disability or developmental delay.32
Based on this definition and using NHIS data, the Economic and Social Research
Institute (ESRI), a private research group, estimated that there are 8,960,000
individuals with disabilities ages 5 to 17.33
The NHIS definition is broader than the definition of a child with a disability
under IDEA, which, as noted above, uses disability categories, such as mental
retardation, hearing impairment, orthopedic impairment, autism, and specific learning
disability.34 Based on this definition and using state-provided data, ED reports that
there were 5,383,000 children with disabilities ages 6 to 17 served under IDEA Part
B in school year 1999-2000.35 Clearly the broader definition of disability used in the
NHIS classifies many more school-age children as disabled than states report being
served under IDEA.
According to the ESRI analysis of NHIS data, approximately 28% of individuals
with disabilities ages 5 to 17 are covered by Medicaid.36 Unfortunately because the
NHIS definition of disability differs significantly from the IDEA definition, this
percentage can provide only a rough guideline as to what percentage of children with
disabilities under IDEA are Medicaid-eligible.
The enrollment figures provided by the SRI and ESRI studies indicate that only
about one-fourth of all IDEA children are covered by Medicaid. This 25% estimate
probably represents a lower boundary for the overall proportion of IDEA children
32 Jack A. Meyer, and Pamela J. Zeller, Profiles of Disability: Employment and Health
Coverage, Report prepared by the Economic and Social Research Institute for the Kaiser
Commission on Medicaid and the Uninsured, Sept. 1999, p. 2. (Hereafter cited as Meyer
and Zeller, Profiles of Disability).
33 The ESRI analyses are based on the April 1999 Disability Supplement to the 1994
National Health Interview Survey.
34 See Section 602(3) of IDEA for the full definition.
35 ED, Twenty-Third Annual Report, Table AA1.
36 Meyer and Zeller, Profiles of Disability, Figure 6, p. 10. In addition, 58% of this group
is covered by private insurance, and 11% are uninsured. No determination of insurance
coverage was made for the remaining 3%. Medicaid coverage was higher (42% with 7%
uninsured) for infants, toddlers, and preschoolers with disabilities (ages birth to 4).

CRS-18
who are actually eligible for Medicaid, including both those enrolled and those
eligible but not enrolled. Because there are no income data available for IDEA
children, there is no way to adjust this 25% figure to more accurately estimate the
proportion of Medicaid-eligible IDEA children.
Medicaid only pays for services delivered to children actually enrolled in the
program. For the three-quarters of IDEA children not enrolled in Medicaid, their
health services are being paid by other means — probably in large part by state and
local special education funding.
LEAs May Not Be Identifying All IDEA Children Who Are Enrolled in
Medicaid. It is possible that federal privacy guarantees may inhibit the
identification of IDEA children who are covered by Medicaid. The Family
Educational Rights and Privacy Act (FERPA)37 provides parents and students with
certain rights to examine educational records and limits access to such records by
parties outside the schools. The U.S. Department of Education (ED) has made it
clear that identifying a child as eligible for IDEA means disclosing information
contained on the child’s IEP, which ED interprets as an “educational record” for the
purpose of FERPA. In addition, IDEA explicitly references FERPA and specifically
charges the Secretary of Education “to assure the protection of the confidentiality of
any personally identifiable data, information and records collected or maintained by
the Secretary and by State and local educational agencies pursuant to the provisions
of [IDEA].”38
Concerns about violating FERPA requirements apparently make some states
reluctant to use computer matching to identify IDEA students who are also enrolled
in Medicaid. In case studies of Medicaid billing for IDEA in four states, this was
found to be true in three of the four study states. In at least one of these states,
interviewees suggested that trying to determine Medicaid eligibility during the
process of creating the IEP instead of using computer matching was “a barrier to
maximizing Medicaid billings for IDEA services.”39
In a similar instance, ED has expressed concern that states have sought IDEA
eligibility information to determine eligibility for the Supplementary Security Income
(SSI) program. In a letter to the Commissioner of the Social Security Administration,
ED warned:
Under FERPA and its implementing regulations at 34 CFR Part 99 and the
confidentiality of information requirements of IDEA at 34 CFR §§300.560-
300.577, educational agencies are generally prohibited from releasing personally
identifiable information in education records without prior written consent of the
parent or eligible student, except in statutorily specified circumstances. 20
37 20 U.S.C. 1232g.
38 20 U.S.C. 1417(c).
39 S. Bachman, and S. Flanagan, Medicaid Billings for IDEA Services: Analysis and Policy
Implications of Site Visit Results, Prepared for the Office of the Assistant Secretary of
Health and Human Services, Interim Final Report (no date), p. 5. (Hereafter cited as
Bachman and Flanagan, Medicaid Billings for IDEA Services.)

CRS-19
U.S.C. §1232g(b)(1) and (d); see also 34 CFR §§99.30-31 and 34 CFR
§300.571(a) and (b)(1)(i).
Based on the information we have received, it does not appear that any of
FERPA’s exceptions to the prior written consent provision would permit the
nonconsensual disclosure by school districts of personally identifiable
information from education records regarding children who may be eligible for
SSI childhood disability benefits.40
Medicaid confidentiality requirements also must be considered. Medicaid law
requires that state Medicaid agencies restrict the use and disclosure of information
concerning Medicaid applicants and enrollees to purposes directly related to plan
administration. Such purposes include establishing eligibility. A state Medicaid
agency cannot submit a list of beneficiaries to other agencies, but LEAs can obtain
information on which school children are dually covered under IDEA and Medicaid
in one of two ways. States have established automated data systems for certified
Medicaid providers. LEAs that are certified Medicaid providers can access on-line
confidential Medicaid eligibility files to determine which IDEA children are enrolled
in Medicaid (by entering a child’s full name, date of birth and/or social security
number, for example) and for other information pertinent to billing (e.g., to determine
scope of covered benefits for a child). If this automated option is unavailable to an
LEA, Medicaid agencies may compare a list of all children compiled by an education
agency against Medicaid files, and in return, provide information concerning which
children on the education agency’s list are already enrolled in Medicaid. The LEA
can then identify those children enrolled in Medicaid who are also served by IDEA.
Some Medicaid agencies and school systems have taken additional steps to resolve
confidentiality requirements. For example, some Medicaid agencies have modified
application forms to obtain parental consent to release information (e.g., information
regarding education records necessary for claiming Medicaid reimbursement for
health-related educational services). In other states, some schools seek parental
permission to bill Medicaid for special education students, which in turn permits
information sharing.41
Computer matching of education and Medicaid records would assist LEAs in
obtaining Medicaid reimbursements for children who are covered under both IDEA
and Medicaid. But this strategy would not resolve the problem that some IDEA
children may be eligible but not enrolled in Medicaid. Such children will not be
included in Medicaid eligibility files. Other outreach and enrollment facilitation
strategies would be required to address this circumstance.
Many Medicaid In-School Services May Be Low Cost. Just as there are
no data on how many IDEA children are eligible for Medicaid, there is also no
information on precisely what in-school services Medicaid covers for eligible IDEA
40 Letter from Judith Heumann, Assistance Secretary, Office of Special Education and
Rehabilitative Services, to Mr. Kenneth Apfel, Commissioner, Social Security
Administration, July 20, 2000.
41 Health Care Financing Administration, Medicaid and School Health: A Technical
Assistance Guide, August 1997. (Hereafter cited as HCFA Medicaid Guide.)

CRS-20
children. However, in general, Medicaid in-school services for children may be
relatively low cost.
When children receive Medicaid financed services in school, state-level
expenditures for these services tend to be low. GAO conducted an analysis of
Medicaid claims from the late 1990s for school-based services in 47 states and the
District of Columbia and found that 31 of 47 states spent less than $100 per
Medicaid-eligible child on school-based services.42 If these general findings can be
applied to spending on Medicaid-enrolled children under IDEA, they suggest that the
services received may be relatively low cost, which could help explain the small
contribution Medicaid makes to IDEA’s excess cost. Even if true, however, it is
important to remember that health-related services for some children with
disabilities, for example, Garrett F. discussed above, are substantial.
Medicaid Financing Issues May Reduce LEA Reimbursements. Two
Medicaid financing issues may affect LEAs ability to bill Medicaid, and may
contribute to the trend in limited Medicaid spending for IDEA-related services —
Medicaid’s third party liability rules and financial arrangements under Medicaid
managed care.
One issue is Medicaid’s third-party liability rules when private insurance is
available to cover IDEA-related service costs. IDEA regulations permit the use of
private insurance for FAPE-required services; however, parents’ fully informed
consent must be obtained and that consent must be obtained each time private
insurance is to be accessed.43 Comments accompanying the final IDEA regulations
explain the need for fully informed parental consent.
Parents who permit use of their private insurance often experience unanticipated
financial consequences ... consent must fully inform parents that they could incur
financial consequences from the use of their private insurance .... In addition,
parents need to be informed that their refusal to permit a public agency to access
their private insurance does not relieve the public agency of its responsibility to
ensure that all required services are provided at no cost to the parents.44
At the same time, there are specific third-party liability rules under Medicaid
that can complicate the financing of school-based services to IDEA children with
both Medicaid and private insurance coverage. There are no official data showing
42 In addition, GAO found considerable variation in average payments across states, ranging
from $820 per Medicaid-eligible child in Maryland to about 5 cents per Medicaid-eligible
child in Mississippi. See Medicaid in Schools: Poor Oversight and Improper Payments
Compromise Potential Benefits. Testimony by Kathryn G. Allen before the Senate
Committee on Finance, April 5, 2000, (GAO/T-HEHS/OSI-00-87), p. 5. (Hereafter cited
as GAO April 5, 2000, testimony.) About one-half of all states reported data to GAO for
state fiscal year 1999. Most of the remaining states reported data for state fiscal year 1998,
federal fiscal year 1998 or calendar year 1998. Three states reported data for periods before
July 1997.
43 34 CFR §300.142(f).
44 64 F.R. 12567, March 12,1999.

CRS-21
how many Medicaid children are also covered by private insurance. But the
likelihood of such dual coverage increases with family income. When private
insurance is available, Medicaid must pay only the remainder of allowable costs for
coverable services after other third party coverage such as employer-based insurance
has been taken into account, even when such insurance actually pays nothing.
However, under IDEA, LEAs cannot require parents with private family coverage to
use that coverage to pay for IEP services required in school. The implications of
these seemingly conflicting program policies is that LEAs may be caught in the
middle, and could end up paying the portion of costs that Medicaid cannot cover
given its third party liability rules.
The second financing issue concerns Medicaid managed care and how these
arrangements may affect the availability of Medicaid payments to schools for IDEA-
related services. Under Medicaid managed care, state Medicaid agencies contract
with managed care organizations (MCOs; for example, Blue Cross/Blue Shield,
Kaiser Foundation Health Plan, Humana Family Health Plan) to provide a specified
set of benefits to enrolled beneficiaries. These MCOs are frequently reimbursed on
the basis of a pre-determined monthly fee (called a capitation rate) for each enrolled
Medicaid beneficiary. In FY1998 (the latest available data), of the roughly 18.3
million Medicaid children, nearly 57% were enrolled in prepaid health plans, and
Medicaid managed care has continued to grow since that time.45 Contracted benefits
may include the services required by IDEA children to benefit from public education.
When an IDEA child is eligible for Medicaid and enrolled in a Medicaid managed
care plan, control over the delivery of those services, and hence, reimbursement for
those services may fall to either the LEA or the health plan, depending on the terms
of any contractual relationship between the LEA and the MCO. When an LEA is not
in the “provider network” of the MCO, Medicaid reimbursement for IDEA-related
services provided by the LEA may not be available.46
While there is no federal requirement that states establish relationships between
LEAs and managed care organizations, HCFA (now CMS) has encouraged states to
promote such relationships. The policy goal is to insure that the provision of
Medicaid covered services can be coordinated between schools and MCOs so that
children receive necessary care and such care is not duplicated. For example, to
achieve this goal, some state laws require such coordination (e.g., MCOs must
include LEAs in their provider networks and reimburse them for school-based
services). Other states exclude school-based services from managed care contracts.47
45 Preliminary data for FY1999 (the latest official statistics available) indicate that the
largest single expenditure category for Medicaid children ages 6 to 18 ($5.3 billion or 28%
of total spending for this group) was for premium payments to managed care organizations
— the extent to which such payments cover school-based services is not known.
46 S. Bachman, and S. Flanagan, Medicaid Billings for IDEA Services: Analysis and Policy
Implications of Site Visit Result. Prepared for the Office of the Assistant Secretary of Health
and Human Services, Interim Final Report (no date). (Hereafter cited as Bachman and
Flanagan, Medicaid Billings IDEA Services.)
47 Medicaid and School Health: A Technical Assistance Guide, Aug. 1997.

CRS-22
Challenges for Schools Participating in Medicaid. In order for LEAs
providing IDEA-related services to qualify for reimbursement under Medicaid, four
conditions must be met: (1) the child receiving the service must be enrolled in
Medicaid, (2) the service must be covered in the state Medicaid plan or authorized
in federal Medicaid statute, (3) the service must be listed in the child’s IEP, and (4)
the LEA (or school district) must be authorized by the state as a qualified Medicaid
provider. More generally, with the exception of the IEP requirement, these same
conditions must be met by all other Medicaid providers (such as, hospitals) seeking
Medicaid payments for school-based services delivered to any Medicaid-enrolled
child. However, other Medicaid providers are likely to have considerably more
experience with Medicaid’s (and other insurers’) processes and procedures for
successfully claiming reimbursement. Ensuring that these conditions are met is a
more daunting prospect for LEAs that otherwise seldom if ever interact with health
insurers including Medicaid.48
While Congress has authorized the use of Medicaid funds for covered health
services for eligible children with disabilities, and HCFA encouraged the
establishment of relationships between the program and schools, HCFA pointed out
that
There are, however, challenges in the collaboration between the Medicaid
program and the schools. Federal Medicaid requirements are complex and the
implementation of Medicaid varies by state. Because many schools are
unaccustomed to these requirements and the complexity of operating in the
“medical services world,” understanding and negotiating Medicaid in order to
receive reimbursement often has the effect of placing a considerable
administrative burden on schools.49
The wide variability among state Medicaid programs makes it difficult, if not
impossible, for the federal government to provide uniform guidance to LEAs on how
to participate in this program. Although HCFA has published a lengthy guide on
Medicaid for schools,50 the guide frequently advises schools and school districts to
seek assistance from their state Medicaid office because of the variability in state
programs.
Selected Legislative Approaches
Faced with growing budget deficits, many states reduced Medicaid spending in
both state fiscal year 2002 and the current state fiscal year 2003. Further reductions
in 2003 and 2004 could be on the horizon for some states. This state fiscal situation
creates a difficult environment for proposals that could lead to increased Medicaid
costs for states. Nonetheless, there is continuing interest in approaches that would
increase funding of school-based medical and health services for children with
48 As previously noted, only about 40% of LEAs surveyed by SEEP reported recovering any
funds from Medicaid for in-school health services for children with disabilities under IDEA.
SEEP, What Are We Spending?, p. 17.
49 Medicaid and School Health: A Technical Assistance Guide, Aug. 1997, p. 2.
50 HCFA Medicaid Guide, p. 5.

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disabilities. If Congress desires to increase Medicaid funding for this group, various
changes to the program might be considered. To the extent that the problem is seen
as one of program complexity, improved technical assistance and outreach could be
considered. To the extent that the problem is seen as one of eligibility, expanding
Medicaid eligibility to cover more children with disabilities could be contemplated.
And to the extent that the problem is seen as one of Medicaid financing, changes
could be made to some of the rules that may adversely impact LEAs. These options
are outlined below. Before considering significant changes to Medicaid (because so
little is known about how Medicaid currently provides services to children with
disabilities), a state-by-state study might be utilized to determine (1) the number and
proportion of IDEA children at various income levels and the number and proportion
of those with private insurance coverage, (2) the number and proportion of IDEA
children who are eligible for Medicaid under current rules, and the subset also
covered by private insurance, (3) the proportion of Medicaid-eligible IDEA children
actually enrolled in the program, and the proportion enrolled in Medicaid managed
care plans, (4) the types of school-based, health-related services these children
require, (5) a description of which of these required services are currently covered by
Medicaid, (6) trends in the use of school-based services among these children, and
(7) Medicaid costs associated with these services.
Because some might oppose any changes to Medicaid that would result in
increased costs to states, other policy alternatives might be considered. The State
Children’s Health Insurance Program (SCHIP), which builds on Medicaid, might be
considered as another potential means of financing the health-related costs for
children with disabilities. Policy changes to SCHIP, in addition to changes in
Medicaid, could increase the funding available to finance these health-related
services, which in turn could free up IDEA funds to cover school-based health-
related services for children with disabilities not otherwise eligible for SCHIP or
Medicaid. Finally, changes to IDEA itself could be considered to target some
funding for high-cost medical and health services for children with disabilities.51
With respect to Medicaid and SCHIP, many of the possible legislative actions
outlined here would increase spending to some degree. In most state budgets,
Medicaid is second in size after elementary and secondary education costs. Although
state finances experienced a substantial boom in the second half of the 1990s, the
current economic recession has placed a severe strain on the majority of states.
While children in general are not an expensive coverage group under Medicaid,
legislative changes at the federal level, like those described in this report, must
nonetheless take into consideration the current budget crisis states are now facing.
Changes to Medicaid. Congress has allowed Medicaid to finance covered
school-based services delivered to children who are dually covered by IDEA and
Medicaid. School-based billing problems have been the subject of recent Senate
hearings because of concerns about fraud, waste and abuse. These hearings did
identify a number of situations where Medicaid payments for school-based services
51 Of course, Congress could choose not to change Medicaid, SCHIP, or IDEA, and could
continue to pursue its present course of increasing IDEA funding.

CRS-24
were made inappropriately.52 Why did this happen? Some of these problems may
stem at least in part from LEAs’ lack of understanding about Medicaid’s
reimbursement rules, which are likely to be particularly incomprehensible to
institutions that are in the business of education, not medical care. Also, for some
LEAs, the administrative resources necessary to regularly, successfully, and
appropriately bill Medicaid may be limited.
To facilitate schools’ participation in Medicaid on behalf of IDEA children, new
policies to remedy some of these problems may be helpful. For example, state
Medicaid agencies could be required or encouraged (through higher federal matching
rates, for example)53 to provide direct outreach and technical assistance to state and
local educational agencies. Another strategy to facilitate coordination between IDEA
and Medicaid, which was included in the President’s FY2003 Budget Proposal, is
that CMS will complete and publish guidance for school-based administrative
claiming, medical service claiming, and claiming reimbursement for transportation
services.54
Policies such as these could help LEAs make increased use of Medicaid to
finance additional IDEA-related costs. But these types of indirect policy changes
may not substantially reduce the overall health care-related financial burden on state
and local education agencies for special education students. Extending Medicaid
eligibility to additional IDEA children is a more direct strategy for providing
financial relief to these education agencies.
It is likely that some, perhaps many, special education students in higher income
families do not qualify for Medicaid under current law. Although there are no
reliable data that indicate the proportion of IDEA children currently eligible for
Medicaid, as noted earlier, as many as three-fourths of children in special education
are not enrolled in the program. Given the lack of detailed information on family
income in particular, this enrollment level may be appropriate. In addition, during
this time of fiscal stress, states may not be interested in further Medicaid eligibility
expansions. However, IDEA children, especially those with intensive service needs,
may be costly for some schools to serve, and may otherwise create substantial
52 See Medicaid Questionable Practices Boost Federal Payments for School-Based
Services. Testimony by William J. Scanlon before the Senate Committee on Finance, June
17, 1999, (GAO/T-HEHS-99-148), and GAO April 5, 2000 testimony.
53 Such outreach and technical assistance would be considered to be administrative services
under Medicaid. Administrative services are usually matched at 50%, including outreach
and interagency coordination, but some types of administrative expenses are matched at
75% (e.g., training of the state agency’s skilled professional medical personnel) and 90%
(e.g., development of mechanized claims processing and retrieval systems). Still other
administrative services are fully funded by the federal government (e.g., operation of the
immigration status verification system to establish Medicaid eligibility).
54 U.S. Department of Health and Human Services, FY2003 Budget in Brief. (no date) The
President’s Budget Proposal also states that CMS will begin work on creating a regulation
to ban contingency fee arrangements in accessing Medicaid funds to pay for school-based
health services.

CRS-25
financial hardships for their families. There have been some legislative proposals to
extend Medicaid coverage to such children.
The bill that received the most attention in the 107th Congress was the Family
Opportunity Act (FOA) of 2001 (S. 321 and H.R. 600), introduced in the House and
Senate in early 2001. On September 9, 2002, a substitute version of the Senate bill
was reported out of the Senate Committee on Finance and was placed on the Senate
Legislative Calendar. No further action was taken. The key provision in this bill
would add a new optional eligibility group for disabled children to the Medicaid
statute. The new group would include children under 18 years of age who meet the
disability definition for children under the Supplemental Security Income (SSI)
program, and whose family income is above the financial standards for SSI but not
more than 250% of the FPL. States would be permitted to exceed the 250% FPL
maximum, but federal financial participation would not be available for coverage of
disabled children in families with income above that level. While the income level
under FOA would potentially reach more IDEA children, the SSI definition of
disability differs from the disability definition under IDEA, which could make some
IDEA children ineligible under FOA, despite the higher income standard.
A more inclusive and targeted approach might be to create a new categorical
group under Medicaid comprised of IDEA children who are not otherwise eligible
for the program. Coverage of this new group could be made mandatory or optional
for states, and could include an income standard (e.g., IDEA children living in
families with income at or below 300% of FPL). Some members of Congress, and
some state legislatures, might be reluctant to support such a proposal, since it would
create a new eligibility group that may include some high-cost individuals all of
whom would be entitled to the full range of covered Medicaid benefits. To address
such concerns, legislation creating such a new categorical group could also limit
covered benefits to school-based, IDEA-related health and medical services.55
Finally, our analysis identified two Medicaid financing issues that may reduce
LEA reimbursements — Medicaid’s third party liability rules when private insurance
is available to cover IDEA-related service costs, and financial arrangements under
Medicaid managed care. An exemption to Medicaid’s third party liability rules
could be established in the case of LEA’s billing for school-based Medicaid services
delivered to IDEA children enrolled in Medicaid who also have private insurance (or
other third party liability coverage). Under IDEA rules, schools cannot require
families to use their private insurance (when available) to cover the cost of IDEA-
related services. But Medicaid law requires that Medicaid pay only the net amount
applicable after other available third party coverage is considered, even when such
coverage pays nothing. With an exemption to current Medicaid law, LEAs could
receive the full amount of allowable payments for Medicaid covered services, rather
than the net amount applicable after other third party coverage is taken into account.
55 There is a precedence for offering a limited benefit package to specific categorically
needy groups. For example, the group comprised of pregnant women with incomes up to
133% of FPL is restricted to pregnancy-related services only (through 60 days postpartum).
Similarly, states may offer to certain low-income tuberculosis (TB) infected individuals only
TB-related ambulatory services and TB-related drugs.

CRS-26
However, allowing such an exemption for LEAs only may be viewed as unfair to
other Medicaid providers that deliver school-based services to IDEA children.
In addition, state Medicaid agencies could be required to establish explicit
relationships between Medicaid managed care organizations and LEAs for the
purpose of providing school-based, IDEA-related services. To meet this requirement,
states could be given several options, such as: (1) require MCOs to include LEAs in
their provider networks and reimburse such LEAs for school-based services delivered
to IDEA children enrolled in these Medicaid managed care plans, (2) exclude IDEA-
related services from MCO contracts, eliminating possible service duplication and
facilitating LEAs’ access to Medicaid reimbursement outside the managed care
context and/or (3) devise an alternative plan which must be approved by the
Secretary of HHS to establish explicit relationships between MCOs and LEAs. States
may choose different options for MCOs serving different geographic regions and
Medicaid populations. State Medicaid agencies would need to inform education
agencies of these decisions and LEAs wishing to receive Medicaid payments would
need to work within the rules established for their region as well.
Changes to SCHIP and IDEA. Another potential means of financing the
health-related costs of special education students is through the State Children’s
Health Insurance Program (SCHIP).56 SCHIP allows states to cover uninsured
children under age 19 in families with incomes that are above applicable Medicaid
financial standards. As of FY2001, the upper income eligibility limit under SCHIP
had reached 350% of the FPL (in one state). Nearly one-half (24) of the states and
the District of Columbia had established upper income limits at 200% of the FPL.
Another 13 states exceeded 200% of the FPL. The remaining 14 states set maximum
income limits below 200% of the FPL.
States may choose from among three benefit options when designing their
SCHIP programs. They may expand Medicaid, create a new “separate state”
insurance program that must met minimum benefit requirements, or devise a
combination of both approaches. All 50 states, the District of Columbia, and five
territories have SCHIP programs in operation. As of early 2002, 21 are Medicaid
expansions, 16 are separate state programs, and 19 use a combination approach.
Approximately 4.6 million children were enrolled in SCHIP during FY2001. Over
3.4 million were served by separate state SCHIP programs, and 1.2 million were
enrolled in SCHIP Medicaid expansions.
States implementing Medicaid expansions under SCHIP create a new optional
coverage group under Medicaid. Such Medicaid expansions must provide all
mandatory Medicaid benefits and covered optional services to these SCHIP children,
but payments for services provided to Medicaid expansion children under SCHIP are
matched at a higher federal matching rate.57 In addition, the nominal cost-sharing
56 For general background information on SCHIP, see CRS Report RL30473, State
Children’s Health Insurance Program: A Brief Overview, by Elicia J. Herz and Peter Kraut.
57 Like Medicaid, SCHIP is a federal-state matching program. While the Medicaid federal
matching rate for benefits ranges from 50% to 76% in FY2002, the federal matching rate
(continued...)

CRS-27
rules under Medicaid apply to Medicaid expansions under SCHIP. Most importantly,
the funding relationship between IDEA and Medicaid described above applies to
Medicaid expansions under SCHIP.
In contrast, there is nothing in the SCHIP statute or regulations that establishes
a funding relationship between the IDEA program and separate state SCHIP
programs. To establish such a relationship, both the SCHIP and IDEA statute would
need to be amended. Such amendments could be modeled after that used to create
the funding link between Medicaid and IDEA. A SCHIP and IDEA funding link
could be made mandatory or optional for states.
With respect to IDEA, two SCHIP benefit issues are important to highlight.
First, guaranteed access to all federally allowed, medically necessary treatment under
the EPSDT provision in Medicaid does not apply to separate SCHIP programs.
Second, existing benefits under separate SCHIP programs may not include relevant
school-based services required by IDEA children. There are no recent data
delineating the specific benefits covered and limits applied to those benefits under
SCHIP. Adding an EPSDT-like mandate to SCHIP is likely to receive limited
political support. However, adding an optional benefit specifically for school-based,
IDEA-related services could be considered.
FERPA Amendment. Changes to FERPA might be considered so that
limitations on releasing educational records does not prevent or inhibit school
districts and state departments of education from sharing data on the status of
children with disabilities with Medicaid agencies. As noted above, this Act restricts
entities receiving federal funds from releasing “educational records” except to parents
and students and under other specified circumstances. Except in specified cases, the
permission of the parent or of the student must be obtained to release records.
Examples of exceptions are release of records to another school district to which a
student is transferring and release of information in connection with a student’s
application for financial aid. From time to time Congress amends FERPA to take
into account a reasonable need to share student information. For example, in 1992
Congress excluded from the definition of educational records law enforcement
records kept by a law enforcement unit (such as, the campus police) attached to an
educational agency or institution. Thus such records can be shared (with another law
enforcement agency, for example) without permission. In addition, FERPA could
be amended to permit school districts or state educational agencies to share
educational records with the state Medicaid agency for the purpose of identifying
children with disabilities who are eligible for Medicaid.
IDEA Funding. Changes to IDEA might also be considered. One approach
to relieve the financial burden on states and school districts for providing special
education and related services (including the costs of health services) is to increase
federal funding for IDEA; and the Congress has been doing this. Since FY1996
57 (...continued)
under SCHIP ranges from 65% to 83% across states. In both programs, these matching rates
are set such that states with lower per capita incomes receive the higher federal matching
rates (and vise versa for states with higher per capita incomes).

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funding for school-age children with disabilities under IDEA has more than tripled
— from $2.3 billion to $7.5 billion for FY2002. In addition, the President has
requested an additional $1 billion in funding for FY2003. Finally some Members
have advocated “fully funding” IDEA by providing states their maximum authorized
grants under the Act. This would currently require more than an $11 billion increase
to approximately $18.8 billion for FY2003.
In addition to increases in overall funding, Congress might consider setting
aside (or requiring states to set aside) funds for LEAs facing extremely high special
education costs (for example, as the LEA faced in the Garret F. case discussed
above). One difficulty in this approach is determining which children’s costs would
be considered and how much funding would be required.
One approach that Congress has considered and enacted deals with certain LEAs
educating children of parents in the military. As a supplement to funding under the
Impact Aid Program, the Floyd D. Spence National Defense Authorization Act for
Fiscal Year 2001 (P.L. 106-398, Section 363) authorized the Secretary of Defense to
make payments on behalf of certain children with severe disabilities. The
determination of severity is based on the cost of a child’s educational and related
services. If the LEA is paying for services by another provider (for example, a
private school placement), the cost must be “five times the national or State average
per pupil expenditure (whichever is lower).” If the LEA serves the child directly, the
cost must be at least “three times the State average per pupil expenditure.” Payments
would be determined after taking into account state, IDEA, and other funds for the
child’s education and related services.