Dual Eligibles: Medicaid Expenditures for Prescription Drugs and Other Services

Dual Eligibles: Medicaid Expenditures for Prescription Drugs and Other Services

Order Code RL31987
CRS Report for Congress
Received through the CRS Web
Dual Eligibles: Medicaid Expenditures for
Prescription Drugs and Other Services
Updated July 13, 2004
Karen Tritz
Analyst in Social Legislation
Domestic Social Policy Division
Megan Lindley
Research Associate
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

Dual Eligibles: Medicaid Expenditures for
Prescription Drugs and Other Services
Summary
The term “dual eligibles” refers to individuals who qualify for both Medicare
and Medicaid. Generally, persons qualify for Medicare if they or their spouse (or, in
some cases, their parent) have worked and paid Medicare taxes, and they are either
over age 65 or are a younger person with blindness or a disability. Persons qualify
for Medicaid because they have limited income and resources and meet other federal
and state requirements such as age or disability. In addition to qualifying for
Medicare benefits, most dual eligibles also qualify for Medicaid services provided
by the state. Medicaid covers certain services for most dual eligibles that Medicare
does not cover including outpatient prescription drugs and long-term care.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(MMA, P.L. 108-173), enacted in December 2003, made several major changes to
Medicare including adding a voluntary outpatient prescription drug benefit effective
January 1, 2006. This new benefit will significantly change the prescription drug
coverage of dual eligibles. To assist in understanding these changes, the purpose of
this report is to provide background and information on the current prescription drug
coverage of dual eligibles under Medicaid. It should be noted that the largest
category of Medicaid spending for dual eligibles is long-term care including nursing
facilities, home and community-based services, institutions for individuals with
mental retardation, and other long-term care services ($49.0 billion, 69% of total
spending for dual eligibles).
In FY2000, total Medicaid service spending was $168.1 billion. Of this amount,
$70.8 billion (42%) was attributed to dual eligibles in payment for Medicaid covered
benefits and in deductibles and coinsurance for Medicare services. An additional
$4.2 billion in Medicaid expenditures were for Medicare premiums for dual eligibles.
While Medicaid payments for dual eligibles represented a fairly large portion of total
Medicaid expenditures, dual eligibles represented only 14.6% of all Medicaid
beneficiaries.
Medicaid provides coverage for dual eligibles for many services not covered by
Medicare including, at state option, outpatient prescription drugs. As of November
2002, all 50 states and the District of Columbia covered prescription drugs for at least
some Medicaid beneficiaries. However, most states limited the quantity of the
prescription that could be filled (e.g., 30-day supply), the total number of refills, or
the total number of prescriptions within a given time period.
In FY2000, Medicaid paid for prescription drugs for 76% of dual eligibles
totaling $10.7 billion. The average per-capita prescription drug payment for dual
eligibles was $2,249. The percentage of dual eligibles who had Medicaid
prescription drug costs ranged, in most states, between 70 and 90%. This report will
be updated as needed.

Contents
Who Are the Dual Eligibles? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Medicaid Spending for All Dual Eligibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Medicaid Prescription Drugs for Dual Eligibles . . . . . . . . . . . . . . . . . . . . . . . . . . 4
List of Tables
Table 1. Medicaid Spending on Services and Medicare Co-Payments
for Dual Eligibles by Category, FY2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Table 2. Medicaid Enrollees and Dual Eligibles by State, FY2000 . . . . . . . . . . . 5
Table 3. FY2000 Medicaid Expenditures for Dual Eligibles . . . . . . . . . . . . . . . . 7

Dual Eligibles: Medicaid Expenditures for
Prescription Drugs and Other Services
Who Are the Dual Eligibles?
The term “dual eligibles” generally refers to individuals who qualify for both
Medicare benefits and those Medicaid benefits offered in their state.1 However,
some groups (including the Centers for Medicare and Medicaid Services (CMS)) also
include in the definition of “dual eligibles” certain low-income Medicare
beneficiaries for whom Medicaid only covers some Medicare cost-sharing
obligations. All data on dual eligibles provided in this report include both those with
full Medicaid benefits and the low-income Medicare beneficiaries receiving only
cost-sharing assistance from Medicaid.2
Persons qualify for Medicare if they or their spouse (or in some cases, their
parent) have worked and paid Medicare taxes, and they are either over age 65 or are
a younger person with blindness or a disability. Persons qualify for Medicaid
because they have limited income and resources and meet other federal and state
requirements related to, for example, age or disability.3 In FY2000, 90% of all aged
Medicaid beneficiaries were dually eligible; 41% of Medicaid beneficiaries who were
blind or had a disability were dually eligible.4
For a Medicare beneficiary to qualify for all state Medicaid benefits, he or she
must meet the Medicaid eligibility criteria. A common pathway into Medicaid for
a Medicare beneficiary is through eligibility for the Supplemental Security Income
(SSI) program which, in most states, provides automatic Medicaid eligibility.
Another common eligibility pathway for Medicare beneficiaries is through the
“medically needy” option. Under this option, the state sets an income standard and
allows certain individuals whose income exceeds that standard to “spend down” to
1 For additional information on dual eligibles see CRS Report RL30813, Federal and State
Initiatives to Integrate Acute and Long-term Care: Issues and Profiles, by Edward Alan
Miller.
2 The data used in this report, provided by CMS, does not differentiate between Medicaid
service expenditures and expenditures for Medicare co-payments and deductibles.
3 Though most (over 98%) of dual eligibles qualify for Medicaid as elderly or having
blindness or a disability, about 1.6% are children and adults who qualify under other
eligibility pathways.
4 Many Medicaid beneficiaries with disabilities do not qualify for Medicare because they
do not have a sufficient work history in which they paid Medicare taxes; many of these
individuals include persons with mental retardation and/or developmental disability.

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eligibility by incurring medical expenses. The state may also set a resource standard
that the individual must meet.5
The majority of dual eligibles are eligible for both Medicare benefits6 and all
Medicaid benefits that the state provides within state guidelines. In general,
Medicaid is the last payer. For those benefits covered by both Medicare and
Medicaid, Medicare is the primary payer. Medicaid covers those costs in excess of
what is covered by Medicare. Medicaid benefits not available under Medicare (e.g.,
long-term care services, medical transportation) are paid by Medicaid unless there is
a third-party to cover the cost.
Some Medicare beneficiaries are only eligible for Medicaid coverage of a
portion of their Medicare premiums and cost-sharing.7 States are required to cover
certain Medicare cost-sharing expenses for four categories of dual eligibles:
! Qualified Medicare Beneficiaries (QMB) are Medicare beneficiaries
whose income is no greater than 100% of the federal poverty level
(FPL) and whose assets are no greater than $4,000 for an individual
and $6,000 for a couple.
! Specified Low-Income Medicare Beneficiaries (SLMB) are those
individuals who meet QMB criteria, except that their income is
greater than 100% of FPL, but does not exceed 120% FPL.
! Qualifying-Individuals (QI-1) are Medicare beneficiaries whose
income is between 120% and 135% FPL. States are required to pay
the monthly Medicare Part B premium for these individuals until the
federal allotment provided for this purpose is depleted.8,9
! Qualified Disabled and Working Individuals (QDWIs). States are
required to pay the Medicare Part A premiums for persons who were
entitled to Medicare on the basis of a disability, but lost their
entitlement due to earned income and continue to have a disabling
5 For additional information see CRS Report RL31413, Medicaid: Eligibility for the Aged
and Disabled, by Julie Stone.
6 Medicare benefits are separated into Part A and Part B. Part A covers inpatient hospital
services, up to 100 days of post-acute care in a skilled nursing facility following a hospital
stay, some home health services, and hospice services. Part B covers services such as
physicians, outpatient hospital, laboratory, durable medical equipment and some home
health care.
7 For additional information see the Centers for Medicare and Medicaid Services (CMS)
website at [http://www.cms.hhs.gov/dualeligibles/ftshhmpg.asp]
8 In general, Medicaid payments are shared between the federal government and the states
according to a matching formula. However, expenditures under the QI-1 program are paid
100% by the federal government up to a state allocation level. This temporary program,
originally slated to end Dec. 31, 2002, has been extended through Sept. 30, 2004.
9 From Jan. 1, 1998 to Dec. 31, 2002, there was an additional group referred to as
“Qualifying Individuals (QI-2).” This group covered individuals whose income was
between 135% and 175% of FPL for Part B premium increases attributable to home health
care. This group is represented in the FY2000 data in this report.

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condition. Such persons may only qualify if their income is below
200% of FPL and resources are below $4,000.
States also have the option of paying the Medicare Part A and/or Part B
premiums for other Medicaid beneficiaries who qualify for Medicare under a buy-in
agreement authorized under Section 1839 of the Social Security Act. These
individuals are also considered “dual eligibles.”
Medicaid Spending for All Dual Eligibles
Both Medicare and Medicaid offer comprehensive coverage for acute medical
care benefits. Currently, Medicaid covers many additional benefits not covered by
Medicare including prescription drugs and long-term care.10 Within broad federal
guidelines, states can design the scope and availability of Medicaid benefits.
Medicaid law requires states to provide certain services including, for example,
hospital and physician services. Within federal guidelines, states may, at their
option, cover other services, and limit the amount, duration or scope of any Medicaid
service. For example, a state may limit Medicaid coverage of a particular service to
a certain number of hours or days or make a service available only to those with a
particular condition (e.g., individuals who need 10 hours of personal care per week).
In FY2000, total Medicaid service spending was $168.1 billion. Of this amount,
$70.8 billion (42%) was attributed to dual eligibles in payment for Medicaid covered
benefits and in deductibles and coinsurance for Medicare services. An additional
$4.2 billion in Medicaid expenditures were for Medicare premiums for dual
eligibles.11 While Medicaid payments for dual eligibles represented a fairly large
portion of total Medicaid expenditures, dual eligibles represented only 14.6% of all
Medicaid beneficiaries.
Medicaid prescription drug spending for dual eligibles totaled $10.7 billion in
FY2000. However, the largest category of Medicaid spending for dual eligibles in
FY2000 was long-term care which totaled $49.0 billion including nursing facilities,
home and community-based services, intermediate care facilities for individuals with
mental retardation (ICF/MR), and other long-term care services (Table 1).
10 Starting in 2006, dual eligible individuals will no longer be eligible for the state’s
prescription drug benefit provided under Medicaid. To receive coverage of prescription
drugs, dual eligibles must enroll in the Medicare Part D benefit. These changes were made
by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (P.L.
108-173). For additional information on the effect of this legislation see CRS Report
RS21837, Implications of the Medicare Prescription Drug Benefit for Dual Eligibles and
State Medicaid Programs, by Karen Tritz.
11 Data on Medicaid spending on Medicare premiums based on Centers for Medicare and
Medicaid Services, Form 64, FY2000.

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Table 1. Medicaid Spending on Services and Medicare
Co-Payments for Dual Eligibles by Category, FY2000
Category of service
Total spending (in millions)
Percentage of total
Nursing facility
$28,851
40.8
Prescription drugs
$10,725
15.2
HCBS and othera
$7,207
10.2
ICF-MR
$5,775
8.2
Personal care services
$3,382
4.8
All other services
$14,841
21.0
Total
$70,781
100.0
Medicare premiums
$4,204
n/a
Source: Congressional Research Service (CRS) based on the Centers for Medicare and Medicaid
Services (CMS), Medicaid Statistical Information System (MSIS), FY2000, and Form 64 (for
Medicare premium data only).
a Includes Home and Community-Based Waiver services (HCBS) provided under Section 1915(c) of
the Social Security Act (totaling approximately $6.1 billion) and several other services such as
prosthetic devices and optical care (totaling approximately $1.1 billion).
Medicaid Prescription Drugs for Dual Eligibles
Currently, Medicaid provides coverage for dual eligibles for many services not
covered by Medicare including, at state option, outpatient prescription drugs. As of
November 2002, all 50 states and the District of Columbia covered prescription drugs
for at least some Medicaid beneficiaries.12 However, most states limited the quantity
of the prescription that could be filled (e.g., 30-day supply), the total number of
refills, or the total number of prescriptions within a given time period.13
The specific types of prescription drugs covered under Medicaid are very broad.
States may create lists of preferred drugs or require advance (prior) approval for non-
preferred drugs, but statutory requirements insure that Medicaid covers a
comprehensive list of drugs. Most states also cover some categories of non-
prescription, over-the-counter drugs.14
In FY2000, Medicaid paid for prescription drugs for 76% of dual eligibles
totaling $10.7 billion. The average per-capita prescription drug payment for dual
12 Coverage of drugs dispensed while a Medicaid beneficiary is hospitalized is mandatory.
Expenditures for inpatient drugs are reported by states as part of inpatient services.
13 Pharmaceutical Benefits Under State Medical Assistance Programs, National
Pharmaceutical Council, 2001.
14 There are 10 categories of prescription drugs that states are allowed to exclude from
coverage under Medicaid (e.g., weight loss, fertility, relief from coughs and colds.) For
additional information see CRS Report RL30726, Prescription Drug Coverage Under
Medicaid, by Jean Hearne.

CRS-5
eligibles was $2,249. The percentage of dual eligibles who had Medicaid
prescription drug costs ranged, in most states, between 70 and 90% (Tables 2 and 3).
The number of enrollees and amounts shown in Tables 2 and 3 do not include
prescription drugs for Medicaid beneficiaries enrolled in a Medicaid managed care
program. For example, due to a large enrollment in managed care, Tennessee and
Arizona reported very low numbers of dual eligibles who received Medicaid
prescription drugs. Under managed care, states pay an organization a fixed, monthly
payment per enrollee to provide all the services specified under the managed care
contract. Data reported to the federal government generally show only the fixed,
monthly, per-person payment amount and do not itemize expenditures for specific
services. In FY2000, 33.6% of dual eligibles were enrolled in managed care for at
least a portion of their Medicaid services.
The amounts shown in Table 3 do not reflect rebates paid to states by
pharmaceutical manufacturers. Under federal law, manufacturers seeking to have
their drugs available for Medicaid beneficiaries must enter into rebate agreements
with the Secretary of Health and Human Services (HHS), on behalf of the states.15,16
States may also enter into rebate agreements with pharmaceutical manufacturers for
additional discounts. In FY2000, Medicaid drug expenditures for all beneficiaries
(i.e., about $20.6 billion) were offset by 19.4% due to manufacturer rebates.17
Table 2. Medicaid Enrollees and Dual Eligibles by State, FY2000
(in thousands)
Total
Dual eligibles with
% of dual eligibles
Medicaid
All dual
Medicaid drug
with Medicaid drug
State
enrollees
eligiblesa
spending
spending
Alaska
96.4
8.4
7.6
90%
Alabama
619.5
122.7
96.8
79%
Arkansas
489.3
109.1
83.1
76%
Arizonab
681.3
59.1
1.2
2%
California
7,915.5
860.7
637.3
74%
Colorado
381.0
60.7
43.7
72%
Connecticut
419.9
74.4
66.5
89%
Dist. of Col.
138.7
15.1
11.5
76%
Delaware
115.3
11.7
8.5
73%
Florida
2,360.4
315.5
270.6
86%
Georgia
1,289.8
161.3
122.6
76%
Hawaiic
203.8
51.9
21.4
41%
Iowa
313.6
57.2
49.9
87%
15 Omnibus Budget Reconciliation Act of 1990, P.L. 101-508
16 Under these agreements, manufacturers must pay state Medicaid agencies rebates on drugs
paid for Medicaid beneficiaries. In return for entering into agreements with the Secretary,
state Medicaid agencies are required to cover all of the drugs marketed by participating
manufacturers.
17 CRS analysis of data from the Centers for Medicare and Medicaid Services (CMS), Form
64.

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Total
Dual eligibles with
% of dual eligibles
Medicaid
All dual
Medicaid drug
with Medicaid drug
State
enrollees
eligiblesa
spending
spending
Idaho
131.1
10.7
8.6
80%
Illinois
1,516.1
169.5
149.6
88%
Indiana
704.6
100.3
87.8
88%
Kansas
262.6
39.8
35.9
90%
Kentucky
770.5
193.5
137.1
71%
Louisiana
761.2
114.9
94.5
82%
Massachusetts
1,047.4
185.5
170.5
92%
Maryland
664.6
75.8
66.8
88%
Maine
191.6
40.6
38.1
94%
Michigan
1,351.7
183.2
149.4
82%
Minnesota
559.5
89.8
56.5
63%
Missouri
890.3
139.3
126.5
91%
Mississippi
605.1
118.3
113.8
96%
Montana
103.8
14.5
13.1
90%
North Carolina
1,208.8
222.8
206.7
93%
North Dakota
60.9
12.6
11.1
88%
Nebraska
229.0
32.4
30.5
94%
New Hampshire
96.9
18.3
17.0
93%
New Jersey
822.4
138.1
128.8
93%
New Mexico
375.6
33.2
21.7
65%
Nevada
138.1
19.7
14.3
73%
New York
3,419.9
537.7
418.9
78%
Ohio
1,304.9
194.9
172.5
89%
Oklahoma
507.1
76.0
63.7
84%
Oregon
542.4
63.4
43.9
69%
Pennsylvaniac
1,554.4
352.2
169.8
48%
Rhode Island
178.9
28.7
26.0
91%
South Carolina
685.1
110.6
96.5
87%
South Dakota
102.0
16.9
11.5
68%
Tennesseeb
1,568.3
243.5
0.0
0%
Texas
2,602.6
389.4
315.5
81%
Utah
224.3
17.2
15.5
90%
Virginia
627.2
116.2
89.0
77%
Vermont
138.9
24.7
23.7
96%
Washington
895.3
91.9
84.7
92%
Wisconsin
576.6
110.2
99.7
90%
West Virginia
335.0
44.9
34.7
77%
Wyoming
46.4
6.7
5.2
78%
United States
42,825.6
6,285.8
4,769.7
76%
Source: Congressional Research Service (CRS) based on analysis of Centers for Medicare and
Medicaid Services (CMS) Medicaid Statistical Information System (MSIS) data, FY2000.
a Includes all dual eligibles except those in which Medicaid only paid for Medicare premiums.
b Medicaid drug spending in Arizona and Tennessee is primarily included in capitation payments
under managed care. As described in this report, under managed care, data on drug spending
may not be itemized.
c The figures for Hawaii and Pennsylvania represent FY1999 due to missing data.

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Table 3. FY2000 Medicaid Expenditures for Dual Eligibles
(total expenditures in millions)
Total Medicaid
Total Medicaid
prescription drug spending
Total
spending for dual
for dual eligibles
spending all
eligibles (except
Medicaid
Medicare
State
enrollees
premiums)
Total
Per-capita
Alaska
$470
$112
$21
$2,783
Alabama
$2,391
$1,046
$171
$1,769
Arkansas
$1,510
$795
$137
$1,646
Arizonaa
$2,112
$579
$1
$574
California
$17,060
$6,156
$1,310
$2,055
Colorado
$1,809
$811
$97
$2,225
Connecticut
$2,839
$1,822
$179
$2,691
Dist. of Columbia
$793
$227
$25
$2,182
Delaware
$528
$189
$21
$2,503
Florida
$7,350
$2,964
$753
$2,783
Georgia
$3,578
$1,242
$256
$2,091
Hawaiib
$535
$207
$28
$1,286
Iowa
$1,476
$727
$110
$2,206
Idaho
$594
$125
$24
$2,795
Illinois
$7,807
$2,379
$375
$2,509
Indiana
$2,976
$1,473
$267
$3,042
Kansas
$1,226
$633
$97
$2,700
Kentucky
$2,913
$1,585
$317
$2,313
Louisiana
$2,631
$1,001
$219
$2,318
Massachusetts
$5,397
$2,868
$372
$2,179
Maryland
$3,586
$1,079
$152
$2,278
Maine
$1,307
$521
$95
$2,488
Michigan
$4,881
$1,451
$274
$1,836
Minnesota
$3,277
$1,746
$128
$2,264
Missouri
$3,270
$1,605
$362
$2,865
Mississippi
$1,807
$837
$224
$1,970
Montana
$433
$168
$30
$2,320
North Carolina
$4,830
$2,180
$460
$2,227
North Dakota
$356
$221
$25
$2,228
Nebraska
$958
$435
$76
$2,482
New Hampshire
$651
$375
$47
$2,797
New Jersey
$4,707
$2,329
$348
$2,702
New Mexico
$1,249
$315
$40
$1,827
Nevada
$515
$155
$26
$1,842
New York
$26,148
$12,375
$1,013
$2,418
Ohio
$7,090
$3,537
$446
$2,586
Oklahoma
$1,604
$680
$114
$1,781
Oregon
$1,700
$600
$87
$1,993
Pennsylvaniab
$6,137
$2,506
$355
$2,090
Rhode Island
$1,070
$581
$58
$2,243
South Carolina
$2,672
$931
$176
$1,821

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Total Medicaid
Total Medicaid
prescription drug spending
Total
spending for dual
for dual eligibles
spending all
eligibles (except
Medicaid
Medicare
State
enrollees
premiums)
Total
Per-capita
South Dakota
$401
$189
$25
$2,190
Tennesseea
$3,491
$680
0
0
Texas
$9,075
$3,770
$546
$1,731
Utah
$959
$212
$42
$2,711
Virginia
$2,484
$1,134
$216
$2,423
Vermont
$479
$200
$53
$2,247
Washington
$2,432
$757
$208
$2,455
Wisconsin
$2,906
$1,680
$233
$2,338
West Virginia
$1,392
$492
$71
$2,057
Wyoming
$214
$102
$13
$2,508
United States
$168,076
$70,781
$10,725
$2,249
Source: Congressional Research Service (CRS) based on analysis of Centers for Medicare and
Medicaid Services (CMS) Medicaid Statistical Information System (MSIS) data, FY2000.
a Medicaid drug spending in Arizona and Tennessee is primarily included in capitation payments
under managed care. As described in this report, under managed care, data on drug spending
may not be itemized
b The figures for Hawaii and Pennsylvania represent FY1999 due to missing data.