Executive Summary

The Centers for Medicare and Medicaid Services (CMS) continues to promote state adoption of work and reporting requirements as a condition of Medicaid eligibility for certain nonelderly adults, although several such waivers have been set aside by federal courts. While most Medicaid adults are already working, some states and health plans have developed voluntary work support programs for nonelderly adults who qualify for Medicaid through non-disability pathways. These programs offer services that support work without conditioning Medicaid eligibility on having a job. This brief examines opportunities for and limitations on federal and state support of such programs, highlights several state and health plan initiatives, and explores their common themes. Key findings include the following:

• Medicaid supports employment by providing affordable health coverage, which helps low-wage workers get the care they need to remain healthy enough to work. Beyond providing coverage, state Medicaid programs have limited flexibility to provide services that support work for nonelderly Medicaid adults eligible through non-disability pathways.
• Montana’s HELP-Link program provides a leading example of a voluntary employment support program for enrollees who qualify through non-disability pathways. HELP-Link uses screening, employment, and referral services to identify participant goals and needs and connect them to appropriate resources. (Montana has also submitted a proposed waiver for a work requirement; implementation has been delayed.) On a smaller scale than Montana, Louisiana has taken a local approach, developing a pilot program to link targeted Medicaid expansion enrollees with work training programs at a local community college, and Maine has chosen to emphasize existing vocational training and workforce supports. Some of these states have devoted new state resources to these programs, but no state has received new federal Medicaid funds specifically for their operation.
• Medicaid managed care plans can take steps to link their members with employment resources. One health plan that provides its members with direct employment assistance is CareSource, which operates the JobConnect program in Georgia, Indiana, and Ohio.
• These state and plan programs share common features, including customization to locality; a focus on identifying individuals who are not working but currently are in a position to work, and then addressing their barriers to employment; state coordination across agencies and with community-based organizations; and high-touch referrals and follow-up with participants.
• Looking ahead, it will be important to evaluate the effects of existing voluntary work support programs on enrollee participation and employment rates and to identify common elements of success and key challenges as well as costs needed to administer a successful program. As work requirements continue to face litigation, and research shows limited gains in employment from such requirements, voluntary programs that support work and can be implemented without waiver authority could provide another option for states interested in supporting employment for enrollees who qualify through non-disability pathways.

Background

KFF analysis shows that 63% of Medicaid adults¹  are already working, many in jobs that do not offer health insurance, and that those who are not working often face barriers to employment.²  Caregiving responsibilities, illness or disability, and school attendance are the most common reasons that Medicaid enrollees report for not working, while those in better health and with more education are more likely to be working. Among Medicaid adults who are working, the majority (53%) work full-time for the entire year. These enrollees may be eligible for Medicaid in expansion states if they are working low-wage jobs, while those working in non-expansion states could earn enough to become ineligible for Medicaid but not enough to qualify for Marketplace subsidies (which require income of 100% to 400% of the poverty level), while also not necessarily receiving health coverage through their jobs. Only about four in ten working Medicaid adults have access to employer-sponsored insurance.

CMS issued guidance in January 2018³  for state Medicaid waiver proposals that condition Medicaid eligibility on work and reporting requirements, and several states have received approval for or are pursuing these waivers.⁴  The administration says that such policies are designed to address health determinants, such as employment, to improve health outcomes.⁵  The waivers seek to promote work by making individuals’ health coverage contingent on meeting certain requirements – like reporting minimum monthly work hours – versus supporting employment through voluntary efforts that focus on identifying barriers to work and facilitating links to services that address those barriers. The January 2018 CMS guidance notes the importance of employment supports while stating that such support services are not eligible for federal Medicaid funds.

The experience of Arkansas, the first state to implement a Medicaid work requirement, reveals widespread coverage losses and little measurable increase in employment as a result of the requirement. The work requirement phased in beginning in June 2018, and state data revealed that, by December 2018, over 18,000 Medicaid enrollees had been disenrolled⁶  from the program for failure to comply with the new requirements, with most of this coverage loss resulting from failure to report activities. By February 2019, only 11% of those enrollees had regained coverage in Medicaid. While the state did not track whether enrollees began work activities in response to the requirement, an independent study found no significant change in employment in response to implementation of the requirement.⁷  Arkansas’s waiver that authorizes its work requirement was set aside by a federal court in March 2019, suspending the requirement’s implementation; an appeal is currently pending.

How can Medicaid support employment without a waiver?

Medicaid supports employment by providing affordable health coverage, which helps low-wage workers get care that enables them to remain healthy enough to work. Research has shown that access to affordable health insurance and care promotes individuals’ ability to obtain and maintain employment. For example, in studies on the effects of Medicaid expansion in Ohio and Michigan before CMS approved work requirements in these states, previously unemployed individuals reported that Medicaid enrollment made it easier for them to seek employment, while employed individuals reported that enrollment allowed them to perform better at work or made it easier to continue working.⁸  A study of Montana’s Medicaid expansion, including the state’s voluntary Medicaid work support program (HELP-Link), found an increase of four to six percentage points in labor force participation among low-income, non-disabled adults ages 18-64 following expansion, compared to higher-income non-Medicaid Montanans and to the same population in other states.⁹ 

Medicaid also supports work by providing eligibility pathways for individuals with disabilities and home and community-based services (HCBS) that support employment and target barriers to work.¹⁰  Under Medicaid buy-in programs, states can elect to cover people with disabilities who choose to work, supporting their participation in the workforce without carrying the risk of coverage loss. The median income limit for this pathway is 250% FPL, well above the income limit for other coverage groups.¹¹  HCBS help individuals with disabilities with self-care and household activities to enable them to live independently in the community. These services can support work for individuals with disabilities who choose to work by addressing physical, mental health, or cognitive needs that create barriers to employment.¹²  States can also provide voluntary supported employment services to targeted Medicaid populations, such as pre-employment services (e.g., employment assessment, assistance with identifying and obtaining employment, and/or working with employer on job customization) and employment sustaining services (e.g., job coaching and/or consultation with employers).¹³ 

State Medicaid programs have limited flexibility to support employment for nonelderly Medicaid adults eligible through non-disability pathways. The transitional medical assistance (TMA) pathway allows low-income parents who lose eligibility for cash assistance due to earned income to remain eligible for Medicaid for at least six months and, at state option, up to a year if their earnings increase through work and exceed the Medicaid eligibility threshold. Although states are not able to use federal Medicaid funds to pay the direct costs of non-medical services that address social needs (e.g., housing, food assistance, employment supports), states can link enrollees to social service programs through case management or targeted case management benefits. In addition, many states that contract with Medicaid managed care organizations (MCOs) to deliver services to enrollees are leveraging MCO contracts to promote strategies to address enrollee social needs. According to a KFF survey of state Medicaid programs¹⁴  released in October 2019, about three-quarters of the 41 managed care states will require MCOs to screen enrollees for social needs, provide enrollees with referrals to social services, or partner with community-based organizations in FY 2020. Under federal Medicaid managed care rules, health plans also have some flexibility to pay for non-medical services directly, but it is currently unclear how frequently plans engage in funding these types of activities, as states have provided little guidance to health plans in this area to date.^15 ,16 

In the spring of 2019, CMS released further guidance¹⁷  on implementing, monitoring, and evaluating Medicaid work requirement waivers, which contains strategies that states interested in developing voluntary work support programs could adopt as well. The guidance includes a detailed implementation plan template¹⁸  with a section on establishing beneficiary supports and modifications, requiring states to describe in detail how they will provide supports to beneficiaries (e.g., transportation, child care, language) to ensure that they are able to meet work requirements. Although CMS developed the guidance for states pursuing policies to condition coverage on meeting work and reporting requirements, it provides numerous examples of practical strategies that state Medicaid programs interested in developing voluntary work support initiatives could implement as well.

What are states and health plans doing to support work for Medicaid enrollees who qualify through non-disability pathways?

While most Medicaid adults are already working, some states have launched initiatives to support employment for Medicaid enrollees who qualify for Medicaid through non-disability pathways, without making employment a condition for eligibility. While states like Arkansas and Indiana offered voluntary employment referral programs for Medicaid expansion enrollees before implementing work requirements, those programs relied on general enrollee notices rather than targeted outreach and follow-up and saw limited participation.¹⁹  Other states have taken a more proactive approach to maximize the success of their voluntary work support programs, incorporating intensive targeted outreach and case management services. These states — Montana, Louisiana, and Maine — provide examples of work support activities that provide Medicaid expansion enrollees with targeted employment-related services and trainings and/or connect them with appropriate existing state and federal workforce programs. In addition to state agencies, some MCOs have developed work support initiatives in an effort to address their members’ social determinants of health.

Montana

Montana provides a leading example of a state that supports employment for Medicaid enrollees without conditioning eligibility on work. While Montana did submit a proposed work requirement waiver amendment to CMS in August 2019 as a condition of continuing its Medicaid expansion — and has since delayed the implementation of the requirement²⁰  — the state has several years of experience with providing voluntary work supports to expansion enrollees with identified barriers to work. As part of the 2015 “Health Economic Livelihood Partnership” (HELP) legislation that established the state’s ACA Medicaid expansion, Montana created “HELP-Link,” a free voluntary workforce support program for eligible expansion adults. HELP-Link, which launched on January 1, 2016, provides individualized career planning and training assistance, and participation in the program may help individuals who fall behind in paying Medicaid premiums to maintain coverage, as nonpayment can otherwise result in disenrollment.²¹  Montana’s stated objective for HELP-Link is to “improve the employment and wage outcomes of individuals enrolled in certain types of Montana Medicaid, with the goal of reducing clients’ reliance on Medicaid for health insurance and improving Montana’s workforce.”²² 

Since states cannot receive federal Medicaid funds for employment support services for Medicaid enrollees, Montana administers the HELP-Link program with state funds. The state’s Department of Labor and Industry (MTDLI) operates the HELP-Link program in partnership with Montana’s Department of Health and Human Services. Montana allocated state workforce training funds specifically for HELP-Link, which offers more intensive one-on-one services and case management than other MTDLI programs. In serving Montana Medicaid enrollees found eligible for HELP-Link, the state often leverages other federally funded workforce programs to help stretch HELP-Link dollars. Of the roughly 32,000 Montana Medicaid expansion adults who received career or workforce training services through an MTDLI program from the launch of HELP-Link through June 30, 2019, 4,257 people received services with targeted HELP-Link funds.²³  HELP-Link clients can also co-enroll in multiple workforce programs. The state appropriated $1.8 million for HELP-Link for the first year and a half of the program, spent $1.6 million in SFY 2018, and allocated almost $889,000 for SFY 2019, supplementing that initial SFY 2019 allocation with $50,620 in additional state funds.²⁴  Of total HELP-Link spending, 53% went directly to participants and 32% to case management and other client services.²⁵  HELP-Link was initially a pilot program scheduled to expire in July 2019, but the 2019 state legislation that required submission of the work requirement waiver appropriated $3.5 million to extend the program through SFY 2021, although some of this funding will be used to create another state workforce program.²⁶ 

The HELP-Link program uses a screening survey, employment support services, and referrals to identify enrollee goals and needs and connect them to the appropriate resources (Figure 1). As soon as Montanans enroll in Medicaid expansion, they are automatically directed to a state website to complete a survey about their employment status and barriers to work and invited to participate in state workforce programs. Individuals can also complete the survey in person in a Job Service Montana office. If found eligible for HELP-Link, individuals must meet in person with Job Service Montana staff to develop an Individualized Employment Plan that serves as a step-by-step checklist that can assist HELP-Link participants in achieving their employment goals. The state acknowledges that this in-person interview can be a barrier to participation for individuals who live in rural or reservation areas or far from a Job Service office, although the state notes that participants may request a phone appointment if “extenuating circumstances” prevent an in-person visit.²⁷ 

HELP-Link assists participants across five domains, which require different levels of resources. The domains include employment services and career planning (e.g., resume assistance, mock interview practice, local job opportunity information); workforce and educational training; work-based learning (including wage subsidies for on-the-job training); supportive services (financial assistance to address specific barriers); and referrals to other service providers (e.g., for needs related to transportation, childcare, or domestic violence). Most HELP-Link participants receive less resource-intensive career services, which could include referrals to other federal workforce programs, while a smaller group of participants receive support for educational and job training programs, which could take several years to complete. The level of HELP-Link funds required for different types of services varies by resource intensiveness. For example, the majority of SFY 2019 HELP-Link funding went to employment-related training and support ($1,703 per client for 250 clients), while the state spent $176 per participant on case management services for 1,159 participants. Montana has noted that this tiered support system, in which individuals with greater need receive more intensive program services, may serve as a cost-effective method of operation.²⁸ 

To address participant barriers to work such as lack of transportation, housing, internet access, or childcare, Montana Job Service staff can use HELP-Link funds both to meet these needs directly and to refer participants to other state and federal programs or community-based organizations that provide appropriate resources. HELP-Link stresses the provision of customized and flexible support to its participants, tailored to meet individual needs. For example, HELP-Link funds can cover qualifying individuals’ enrollment in educational or training programs that can help them attain credentials that further their careers. HELP-Link funds can also cover supportive services, providing financial assistance to help resolve barriers to employment (e.g., to pay for gas, auto repairs, or job-related equipment). To remain eligible to receive work supports through HELP-Link after signing their employment plans, participants must complete a qualifying workforce planning, training, or job search activity every 90 days.

Outcomes from the first two years of HELP-Link implementation, alongside other MTLDI programs, reveal several common barriers to work, along with high rates of participant employment and wage growth after receipt of HELP-Link training (Figure 2). The most common barriers to employment for those individuals who completed the survey included personal finances and credit history; felony or misdemeanor conviction; lack of transportation, childcare, housing, or telephone access; poor physical health; mental illness; and physical disability. Because of limited HELP-Link funds, some Medicaid expansion enrollees received employment services through HELP-Link specifically, while others participated in other MTDLI workforce development programs. Wage outcomes for enrollees who participated in training activities varied according to whether the individuals received HELP-Link-funded training or training funded through MTDLI programs more broadly.²⁹  Large shares of both those in MTDLI workforce programs overall and those who received the additional training resources and services available under the HELP-Link program saw wage growth among employed participants (82% and 84%, respectively). However, those receiving HELP-Link-funded services saw higher median wage increases a full year after completing training ($10,650, versus $8,700 for those participants in MTDLI programs overall).³⁰  These outcomes include only participants who completed training by the first quarter of 2018 (388 in HELP-Link and 13,093 in MTDLI workforce training programs) and had a full year of wage earning data available after completion.³¹  The most common occupations pursued by HELP-Link participants include truck drivers, registered nurses, and personal care and service workers.

Louisiana

On a smaller scale than Montana, Louisiana has taken a local approach to voluntary Medicaid enrollee work supports. After Louisiana rejected legislation to condition Medicaid eligibility on work, the state invested in a pilot program to link certain Medicaid expansion enrollees with targeted work training programs through Louisiana Delta Community College (LDCC).³²  Under the program, LDCC identifies a subset of unemployed and underemployed Medicaid recipients living in Ouachita Parish whom it considers able to benefit from the program, and LDCC and the Louisiana Department of Health (LDH) collaborate to conduct outreach to those individuals. Individuals who accept the invitation to enroll in the pilot program then participate in an intake process to identify work experience and interests, which leads to the formation of an individualized participant plan with the assistance of designated pilot staff members. Participants are then matched with tailored support services and enroll in select work training programs with assignment to an LDCC mentor. Support services may include job readiness and job search resources, while available training programs include those for occupations such as certified nurse assistants and environmental services technicians. The time that participants have to complete their programs will depend on the courses of study that they select.³³  Public state documents do not specify the source of funding for this program, but the governing legislation establishes that a partnership of state agencies, led by the executive director of the Louisiana Workforce Commission, will design and administer the program.³⁴ 

Maine

Maine provides another example of a state that has chosen to emphasize vocational training and workforce supports rather than impose a work requirement as a condition of eligibility in its Medicaid program. After Maine’s voters approved a 2016 ballot initiative to expand Medicaid (which did not include a work requirement), the governor in office at the time refused to adopt it and instead submitted a waiver request to CMS seeking approval of a work requirement. Once the current governor took office in early 2019, she adopted the voter-approved Medicaid expansion and chose not to accept the federal government’s terms for a work requirement,³⁵  electing instead to increase the accessibility and use of existing state and federal programs devoted to work training.

Maine’s work support activities for both expansion and non-expansion Medicaid enrollees include collaborating with other state agencies and connecting enrollees to federal programs that address their employment and social needs.³⁶  At a high level, the state’s governor directed the Commissioners of Labor and Health to coordinate their departments’ activities to maximize the accessibility of work-related opportunities to Medicaid enrollees, with the Commissioner of Health noting that access to health care is the first step in supporting employment. For example, the governor indicated that the state would take steps to ensure that its existing vocational training workforce programs, including those under public benefit programs such as TANF and the Supplemental Nutrition Assistance Program (SNAP), are available to Medicaid enrollees “at every opportunity, while increasing access to needed services that will keep them in the workforce.” She noted that work mandates without appropriate employment supports would likely “leave more Maine people uninsured without improving their participation in the workforce,” and that “Maine believes that providing appropriate educational opportunities and vocational training, along with critical health care, is the most effective way to lift people out of poverty and into the workforce.” ³⁷  While emphasizing cross-agency collaboration and maximization of existing funding to support work, the state does not specify whether new resources will be available for such efforts.

Managed Care Organizations

In addition to state-led initiatives, Medicaid managed care plans can take steps to connect their members with job services and employment, as well as other support services. In a 2017 survey of Medicaid MCOs, 77% of MCOs reported that they had undertaken activities in the previous year to address enrollee needs in housing, 73% in nutrition and food security, and 51% in education. The survey further shows that 31% of MCOs reported efforts in the previous year to address their members’ employment needs directly, and 52% reported offering social services, such as WIC application assistance and employment counseling referrals, to their members in the previous year. The scope and depth of plan activities in these areas were not clear from the survey responses.

Some states require MCOs to assist their members with addressing barriers to work and finding employment. For example, West Virginia’s managed care contracts require MCOs to refer members who seek information about workforce opportunities to local workforce offices for additional assistance.³⁸  For members that have behavioral health or medical needs that interfere with their ability to establish employment, the MCO is required to enroll the member in care management and establish a care plan to address those barriers to work. Massachusetts also requires its MCOs to develop care plans for their members that address identified social needs, including employment.³⁹ 

CareSource, which operates a program called JobConnect in Georgia, Indiana, and Ohio, provides direct employment assistance to its members. JobConnect is part of a larger CareSource initiative called Life Services, which focuses on social determinants of health, particularly for low-income members. JobConnect is a voluntary program that offers members the chance to work one-on-one with life coaches to identify personal strengths and areas of social need. Interested members first enroll in JobConnect by completing a Health Risk Assessment, calling or emailing CareSource, or being referred by a community partner.⁴⁰  Personal life coaches then assess participants’ resources, skills, interests, and needs, and they connect participants with community partners that provide social services to address members’ barriers to work, such as food banks, transportation vouchers, and other public benefit programs like SNAP and TANF. JobConnect life coaches also link participants with employment opportunities by working directly with employers and connecting members with work support resources such as free computer classes. CareSource directly funds several other employment-related supports, including fee contributions for High School Equivalency exams and transportation to test preparation classes.⁴¹  In addition, CareSource offers such JobConnect services to non-member parents whose children are enrolled in CareSource.⁴²  JobConnect has served 2,870 members since its 2015 inception and is 90% funded by CareSource and 10% from external grants. Outcomes for Life Services more broadly show 5,016 total community referrals, and 86% of members retaining employment.⁴³  CareSource offers multiple lines of business, so the degree to which Life Services and JobConnect serve Medicaid enrollees specifically is unclear.

What common themes appear across voluntary Medicaid work support programs?

Across state and MCO voluntary employment support programs, several themes emerge. First, due to their voluntary nature, they all allow Medicaid enrollees to keep their coverage. The programs often take a targeted approach to the county, locality, or individuals that they serve, including a focus on identifying the specific barriers that may prevent a particular individual from working and providing services to address those barriers and support enrollees’ ability to work. These programs also often incorporate coordination among state agencies or public benefit programs, such as TANF and SNAP, as well as community-based organizations that can help meet enrollees’ needs. Finally, the most robust programs include high-touch referrals to these partners as well as follow-up to track enrollee progress.

State Medicaid agency and MCO employment initiatives customize their programs to the county or locality that they serve. For example, Louisiana’s program is designed to operate in a specific local context, with the express goal of replicability by and customization to other locales. Eligible participants are a subset of those in the Medicaid expansion population who reside in the state’s Oachita Parish and whom LDCC identifies as standing to benefit from work training. Similarly, CareSource’s JobConnect program draws its life coaches from the communities that they serve, allowing for greater connection with local resources and opportunities.

Voluntary employment support programs emphasize the importance of identifying individuals who are not working but currently are in a position to work, and then assessing and addressing their barriers to employment. For example, in Montana, the HELP-Link program begins with a formal assessment of participants’ personal barriers and challenges to employment or higher earnings. Job Service staff then analyze these assessments and connect the enrollees to personalized services that will address the barriers that they have identified. Such services can include childcare referrals for parents, help with resumes, or job training. MTDLI has conducted HELP-Link outreach with limited funds and focused resources on those who completed the survey or indicated interest in the program. This targeted outreach resulted in higher take-up for HELP-Link than other MTDLI programs. Similarly, Louisiana’s pilot program with LDCC includes an intake process that involves completion of a participant assessment tool and an individual participant plan.⁴⁴  The assessment tool includes a participant’s work experience, skills, challenges, and interests, while the plan then establishes the support services and educational activities identified for that participant.

Voluntary employment support programs for Medicaid enrollees often involve coordination with other state agencies and programs, as well as community-based organizations, to connect enrollees with targeted services. For example, both Montana’s and Maine’s Medicaid agencies partner with their TANF and SNAP programs to connect Medicaid enrollees with work supports available through those programs. Both HELP-Link and JobConnect link participants with community-based organizations, such as local non-profit partners, that can assist them with needs such as financial counseling, food security, or internet service. Louisiana’s pilot program involves cross-agency collaboration, as the state’s Department of Health partners directly with LDCC to run the initiative.

HELP-Link and JobConnect also demonstrate the importance of high-touch referrals and follow-up to the success of their employment programs. After development of the individualized employment plan, state workforce consultants regularly follow up to help participants achieve the goals outlined in their plans. They employ a team approach designed to coach clients through a variety of applications and paperwork for training programs. If a participant’s barriers to work fall under the mission of another state agency or community-based organization, HELP-Link staff will refer that participant to the appropriate partner. After employers for specific jobs, the most common referrals are to the state’s workforce programs, as well as its Office of Public Assistance for help with housing, childcare, food stamps, or TANF.⁴⁵  HELP-Link staff then work with those partner organizations to provide participants with comprehensive case management. Similarly, CareSource’s JobConnect life coaches work closely with participants throughout every step of the program, from initial screenings to post-employment check-ins, to ensure that members are receiving services that address their barriers to employment and then allow them to advance in new jobs.

Across initiatives, state resources may not be adequate to provide the full level of support required to address low-income Medicaid enrollees’ barriers to work. For example, while Montana operates HELP-Link with specifically allocated state funds, the state has acknowledged the insufficiency of those resources to meet demand for the program. As a result, the state has so far targeted resources to a subset of the HELP-Link-eligible population to make most efficient use of available funding, noting that other Montana Medicaid enrollees may face barriers that hinder their participation in the program. Under the 2019 legislation that extended HELP-Link, the state is exploring changes to the program to increase its cost-effectiveness and expand participation. In Louisiana and Maine, the governors have developed new programs or emphasized existing ones that can help address Medicaid enrollees’ barriers to work, but the states have not indicated whether additional staff or funding is available to support these initiatives. Finally, while CareSource is covering 90% of the cost of JobConnect operations, it is unclear whether most managed care plans have sufficient resources to do so, and how managed care plans can fund such initiatives more generally. Such questions about adequate resources pertain to both maintaining existing program operations and expanding the programs to more eligible participants who could benefit from them.

Looking Ahead

Looking ahead, it will be important to evaluate the effects of the small number of existing voluntary work support programs on enrollee participation and employment rates and to identify common elements of success and key challenges as well as costs needed to administer a successful program. Montana has published state data and reports⁴⁶  on outcomes through SFY 2019, and there may be an opportunity to compare that experience with a work requirement (including any increase in work, as well as coverage losses due to noncompliance), if it is ultimately implemented in the state. The state’s legislation scheduled the Medicaid work requirement to take effect beginning January 1, 2020, contingent on CMS approval of the Section 1115 waiver that the state submitted in August 2019. However, the state announced in November 2019 that it would not be able to follow that schedule given that it is still awaiting federal approval of its waiver.⁴⁷  In addition, although Louisiana had planned to release early results from the LDCC pilot program, which is scheduled to run through the end of December 2019, the state has yet to publish implementation documents or initial program findings. MCOs with work support programs like JobConnect can share best practices and collect data to build their evidence base, with a particular focus on Medicaid enrollee participation and outcomes. Evaluation of these and other work support initiatives can help other states, communities, and plans develop similar models.

Voluntary work support programs offer an opportunity to address enrollee employment needs, but funding presents a challenge. State efforts to invest in voluntary work support programs may be able to increase employment rates among Medicaid expansion enrollees without conditioning eligibility on employment. CMS indicated that it cannot make federal Medicaid matching funds available for such programs, so successful models must find other resources to address Medicaid enrollees’ barriers to work. MCOs can explore opportunities to use “value-added” services or other funding mechanisms to address enrollee social determinants of health. As Medicaid work requirements continue to face litigation, and research shows limited gains in employment from such requirements, voluntary programs that support work and can be implemented without waiver authority can provide another option for states interested in supporting work for enrollees who qualify through non-disability pathways. However, their success may be limited without an infusion of new resources.

 

1. “Medicaid adults” refers to non-dual, non-SSI, non-elderly adult enrollees. ↩︎
2. Rachel Garfield, Robin Rudowitz, Kendal Orgera, and Anthony Damico, “Understanding the Intersection of Medicaid and Work: What Does the Data Say?” (Washington, DC: Kaiser Family Foundation, August 2019), https://modern.kff.org/medicaid/issue-brief/understanding-the-intersection-of-medicaid-and-work-what-does-the-data-say/. ↩︎
3. Centers for Medicare & Medicaid Services (CMS), Dear State Medicaid Director Letter #18-002, Opportunities to Promote Work and Community Engagement Among Medicaid Beneficiaries (Jan. 11, 2018), https://www.medicaid.gov/federal-policy-guidance/downloads/smd18002.pdf. ↩︎
4. Kaiser Family Foundation, “Medicaid Waiver Tracker: Approved and Pending Section 1115 Waivers by State” (Washington, DC: Kaiser Family Foundation, Nov. 11, 2019), https://modern.kff.org/medicaid/issue-brief/medicaid-waiver-tracker-approved-and-pending-section-1115-waivers-by-state/. ↩︎
5. The federal court that has ruled on this issue so far rejected the contention that the Secretary of Health and Human Services could focus on alternative criteria, including health and well-being, in approving the demonstration project, instead of the objective to promote affordable health coverage. See: https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2018cv1900-58. ↩︎
6. Robin Rudowitz, MaryBeth Musumeci, and Cornelia Hall, “February State Data for Medicaid Work Requirements in Arkansas” (Washington, DC: Kaiser Family Foundation, March 2019), https://modern.kff.org/medicaid/issue-brief/state-data-for-medicaid-work-requirements-in-arkansas/. ↩︎
7. Benjamin Sommers, Anna Goldman, Robert Blendon, and John Orav, “Medicaid Work Requirements – Results from the First Year in Arkansas,” New England Journal of Medicine 381 (Sept. 12, 2019): 1073-1082 https://www.nejm.org/doi/full/10.1056/NEJMsr1901772. ↩︎
8. The Ohio Department of Medicaid, “Ohio Medicaid Group VIII Assessment: A Report to the Ohio General Assembly (The Ohio Department of Medicaid, January 2017), https://medicaid.ohio.gov/Portals/0/Resources/Reports/Annual/Group-VIII-Assessment.pdf; Renuka Tipirneni et al., “Changes in Health and Ability to Work Among Medicaid Expansion Enrollees: a Mixed Methods Study,” Journal of General Internal Medicine 34:2 (February 2019): 272-280, https://link.springer.com/article/10.1007/s11606-018-4736-8. ↩︎
9. Bryce Ward and Brandon Bridge, “The Economic Impact of Medicaid Expansion in Montana: Updated Findings” (University of Montana Bureau of Business and Economic Research, Prepared for the Montana Healthcare Foundation and Headwaters Foundation, January 2019), https://mthcf.org/wp-content/uploads/2019/01/Economic-Impact-of-MedEx-in-MT_1.28.19-FINAL.pdf. ↩︎
10. MaryBeth Musumeci, Priya Chidambaram, and Molly O’Malley Watts, “Medicaid Home and Community-Based Services Enrollment and Spending” (Washington, DC: Kaiser Family Foundation, April 2019), https://modern.kff.org/medicaid/issue-brief/medicaid-home-and-community-based-services-enrollment-and-spending/. ↩︎
11. MaryBeth Musumeci, Priya Chidambaram, and Molly O’Malley Watts, “Medicaid Financial Eligibility for Seniors and People with Disabilities: Findings from a 50-State Survey” (Washington, DC: Kaiser Family Foundation, June 2019), https://modern.kff.org/medicaid/issue-brief/medicaid-financial-eligibility-for-seniors-and-people-with-disabilities-findings-from-a-50-state-survey/. ↩︎
12. For example, someone with a spinal cord injury may need personal care services for help with bathing, preparing meals, and dressing to get ready for work. ↩︎
13. Within Medicaid, states can use a range of optional state plan and waiver authorities (e.g., 1915(i), 1915(c), or Section 1115) to add certain non-clinical services to the Medicaid benefit package, including case management, housing supports, employment supports, and peer support services for people who need help with self-care or household activities as a result of disability or chronic illness. ↩︎
14. Kathleen Gifford, et al., “A View from the States: Key Medicaid Policy Changes: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2019 and 2020” (Washington, DC: Kaiser Family Foundation, Oct. 2019), https://modern.kff.org/medicaid/report/a-view-from-the-states-key-medicaid-policy-changes-results-from-a-50-state-medicaid-budget-survey-for-state-fiscal-years-2019-and-2020/. ↩︎
15. Under federal Medicaid managed care rules, Medicaid MCOs may have flexibility to pay for non-medical services through “in-lieu-of” authority and/or “value-added” services. “In-lieu-of” services are a substitute for covered services and may qualify as a covered service for the purposes of capitation rate setting. “Value-added” services are extra services outside of covered contract services and do not qualify as a covered service for the purposes of capitation rate setting. ↩︎
16. Additionally, the 2016 managed care final rule broadens federal standards for care coordination to include coordination between settings, with services provided outside the plan, and with community and social support providers. ↩︎
17. Medicaid.gov, 1115 Demonstration State Monitoring & Evaluation Resources, last accessed Nov. 26, 2019, https://www.medicaid.gov/medicaid/section-1115-demo/evaluation-reports/evaluation-designs-and-reports/index.html. ↩︎
18. Centers for Medicare & Medicaid Services (CMS), Medicaid Section 1115 Eligibility and Coverage Demonstration Implementation Plan, https://www.medicaid.gov/medicaid/section-1115-demo/downloads/evaluation-reports/ce-implementation-plan-template.pdf. ↩︎
19. Indiana’s Healthy Indiana Plan (HIP) 2.0 included the voluntary “Gateway to Work” program, which offered participants case management, job support, and training services. In the state’s annual reports, the only enrollee outreach method that the state cites is mailing letters to all HIP members to inform them of the existence of Gateway to Work. See: https://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Waivers/1115/downloads/in/Healthy-Indiana-Plan-2/in-healthy-indiana-plan-support-20-annl-rpt-feb-jan-2016-04292016.pdf. Prior to implementing its work requirements, Arkansas provided a voluntary referral for all enrollees to the state Department of Workforce Services (DWS) for free job search and job training assistance. State law enacted in April 2016 required this referral for enrollees with income at or below 50% FPL. Beginning in January 2017, DWS referrals were made for all Arkansas Works beneficiaries. See: https://modern.kff.org/medicaid/issue-brief/an-early-look-at-implementation-of-medicaid-work-requirements-in-arkansas/view/footnotes/#footnote-371775-7. ↩︎
20. Mike Dennison, “Montana’s Medicaid Expansion work requirements won’t take effect Jan. 1,” Missoula Current (Nov. 15, 2019), https://www.missoulacurrent.com/business/2019/11/montana-medicaid-expansion-7/. ↩︎
21. Montana’s Medicaid program requires that expansion enrollees pay premiums. Nonpayment of premiums by expansion enrollees at or above 100% FPL can result in cancellation of coverage unless enrollees meet certain criteria. Participation in qualifying workforce programs, including HELP-Link, can prevent disenrollment when combined with other qualifying criteria. The state notes that HELP-Link can help enrollees maintain health coverage if they fall behind on payment of premiums, noting that 2,995 people used HELP-Link, WIOA, or RESEA to help meet the requirements for the workforce disenrollment exemption in SFY 2018. See: https://montanaworks.gov/Portals/180/Documents/help-link/HELP-Link_2018Report.pdf?ver=2019-08-16-105528-603. ↩︎
22. Montana Department of Labor & Industry, “HELP-Link Program: 2019 Fiscal Year End Report,” http://lmi.mt.gov/Portals/193/Publications/LMI-Pubs/Special%20Reports%20and%20Studies/HELP-Link_2019Report.pdf. ↩︎
23. Ibid. ↩︎
24. Ibid. ↩︎
25. Ibid. ↩︎
26. H.B. 658, Montana State Legislature 2019 (enacted May 2019), https://leg.mt.gov/bills/2019/billhtml/HB0658.htm. ↩︎
27. Montana Department of Labor & Industry, “Health and Economic Livelihood Partnership (HELP) Link Policy,” (Revised Oct. 3, 2018), http://wsd.dli.mt.gov/Portals/56/Documents/WSDPolicy/HELP%20Link%20Policy.pdf?ver=2017-11-30-111931-307. ↩︎
28. Montana Department of Labor & Industry, “HELP-Link Program: 2019 Fiscal Year End Report,” http://lmi.mt.gov/Portals/193/Publications/LMI-Pubs/Special%20Reports%20and%20Studies/HELP-Link_2019Report.pdf. ↩︎
29. In addition to wage data, the SFY 2019 state HELP-Link report indicates that 72% of the 13,093 individuals in MTDLI programs overall were employed in the year after completion of training. After report publication, the state shared that this number was 79% for the 388 participants receiving HELP-Link funding specifically. See: http://lmi.mt.gov/Portals/193/Publications/LMI-Pubs/Special%20Reports%20and%20Studies/HELP-Link_2019Report.pdf. ↩︎
30. Montana Department of Labor & Industry, “HELP-Link Program: 2019 Fiscal Year End Report,” http://lmi.mt.gov/Portals/193/Publications/LMI-Pubs/Special%20Reports%20and%20Studies/HELP-Link_2019Report.pdf. ↩︎
31. Montana presents full-year views of wage earning data due to the fact that the state’s seasonal economy results in large variations in earnings from quarter to quarter. ↩︎
32. State of Louisiana, “Memorandum of Understanding Between Louisiana Department of Health (LDH) and Louisiana Delta Community College,” (2019), http://gov.louisiana.gov/assets/MOU-LDH.pdf. ↩︎
33. Louisiana Office of the Governor, “Gov. Edwards, Officials Establish Work Training Program for Medicaid Expansion Recipients” (April 1, 2019), http://gov.louisiana.gov/index.cfm/newsroom/detail/1858. ↩︎
34. H.B. 735, Louisiana State Legislature 2019 Regular Session (enacted May 2018), https://legiscan.com/LA/text/HB735/2018. ↩︎
35. Maine Office of the Governor, Letter from Governor Janet Mills to CMS Administrator Seema Verma (Jan. 22, 2019), https://www.maine.gov/governor/mills/sites/maine.gov.governor.mills/files/inline-files/01-22-19%20CMS%201115%20Waiver.pdf ↩︎
36. Maine Office of the Governor, “In Lieu of Medicaid Restrictions, Governor Mills Directs DHHS & Labor to Promote Work Opportunities” (Jan. 22, 2019), https://www.maine.gov/governor/mills/news/lieu-medicaid-restrictions-governor-mills-directs-dhhs-labor-promote-work-opportunities-2019. ↩︎
37. Maine Office of the Governor, Letter from Governor Janet Mills to CMS Administrator Seema Verma (Jan. 22, 2019), https://www.maine.gov/governor/mills/sites/maine.gov.governor.mills/files/inline-files/01-22-19%20CMS%201115%20Waiver.pdf ↩︎
38. State of West Virginia Department of Health and Human Resources, State Fiscal Year 2019 Model Purchase of Service Provider Agreement Between State of West Virginia Department of Health and Human Resources Bureau for Medical Services and (Managed Care Organization), https://dhhr.wv.gov/bms/Members/Managed%20Care/MCOcontracts/Documents/LEWINVWVSFY19MCOModel_Contract.pdf. ↩︎
39. Center for Health Care Strategies, “Addressing Social Determinants of Health via Medicaid Managed Care Contracts and Section 1115 Demonstrations” (Dec. 2018), https://www.chcs.org/media/Addressing-SDOH-Medicaid-Contracts-1115-Demonstrations-121118.pdf. ↩︎
40. CareSource, Annual Stakeholder Report, “Promise” (2018), https://www.caresource.com/documents/2018-annual-stakeholder-report/. ↩︎
41. CareSource Life Services, “Life Services and JobConnect: Indiana” (Oct. 17, 2017), https://www.in.gov/medicaid/files/caresource%20life%20services.pdf. ↩︎
42. Association for Community Affiliated Plans, “Where Education, Employment, and Health Meet” (May 2019), https://www.communityplans.net/wp-content/uploads/2019/09/Where-Education-Employment-and-Health-Meet.pdf. ↩︎
43. CareSource Life Services, “Life Services and JobConnect” (2017), http://www.rootcausecoalition.org/wp-content/uploads/2017/10/Vanzant.pdf. ↩︎
44. State of Louisiana, “Memorandum of Understanding Between Louisiana Department of Health (LDH) and Louisiana Delta Community College,” (2019), http://gov.louisiana.gov/assets/MOU-LDH.pdf. ↩︎
45. Montana Department of Labor & Industry, “HELP-Link Program: 2019 Fiscal Year End Report,” http://lmi.mt.gov/Portals/193/Publications/LMI-Pubs/Special%20Reports%20and%20Studies/HELP-Link_2019Report.pdf. ↩︎
46. Montana Department of Labor & Industry, “Montana HELP-Link Program Reports,” last accessed Nov. 26, 2019, https://montanaworks.gov/help-link/program-reports; Montana Department of Labor & Industry, “HELP-Link Program: 2019 Fiscal Year End Report,” http://lmi.mt.gov/Portals/193/Publications/LMI-Pubs/Special%20Reports%20and%20Studies/HELP-Link_2019Report.pdf. ↩︎
47. Mike Dennison, “Montana’s Medicaid Expansion work requirements won’t take effect Jan. 1,” Missoula Current (Nov. 15, 2019), https://www.missoulacurrent.com/business/2019/11/montana-medicaid-expansion-7/. ↩︎

Medicaid provides health coverage and long-term care services and supports for low-income individuals and families, covering more than 76 million Americans and accounting for about 1 in 6 dollars spent on health care.¹  Medicaid is a large source of spending in both state and federal budgets, making program integrity efforts important to prevent waste, fraud, and abuse and ensure appropriate use of taxpayer dollars. Recent audits and improper payment reports have brought program integrity issues back to the forefront. This brief explains what program integrity is, recent efforts at the Centers for Medicare and Medicaid Services (CMS) to address program integrity, and current and emerging issues. It finds:

Program integrity refers to the proper management and function of the Medicaid program to ensure it is providing quality and efficient care while using funds–taxpayer dollars–appropriately, with minimal waste. Improper payments, which are often cited when discussing program integrity, are not necessarily the same as criminal activities like fraud and abuse, which are a subset of improper payments. The federal government and states share the responsibility of promoting program integrity. CMS conducts a range of actions focused on program integrity. Outside of CMS, other federal agencies, including the Office of Inspector General (OIG) and the Government Accountability Office (GAO), undertake program integrity and oversight efforts.

Recent CMS actions to promote program integrity have focused on federal audit and oversight functions. CMS released a program integrity strategy in June 2018 and a notice in June 2019 highlighting program integrity as a priority and emphasizing new and planned actions centered on stronger audit and oversight functions, increased beneficiary eligibility oversight, and enhanced enforcement of state compliance with federal rules

CMS released Payment Error Rate Measurement (PERM) estimates for Medicaid that include eligibility determinations for the first time since implementation of the Affordable Care Act (ACA). The PERM estimate is based on reviews of fee-for-service and managed care claims and eligibility determinations. The eligibility component was suspended for several years as states implemented the ACA and was reintegrated into the 2019 rate. The national Medicaid improper payment rate for 2019 is 14.90% or $57.36 billion.²  A separate HHS report shows a 16.3% error rate for fee-for-service claims, an 8.36% error rate for eligibility, and a 0.12% error rate for the managed care claims (Figure 1). HHS reports that 77% of improper payments were due to missing information and/or states not following the appropriate process for enrolling providers and/or determining beneficiary eligibility. These payments do not necessarily represent payments for ineligible providers or beneficiaries, since they may have been payable if the missing information had been on the claim and/or the state had complied with requirements. It finds 8% of improper payments were for ineligible providers or beneficiaries.

CMS’s heightened focus on reducing errors in eligibility determinations could have trade-offs that make it more difficult for eligible people to obtain and maintain coverage. CMS plans to change eligibility rules to tighten standards for eligibility verification.³  While such changes could reduce instances of ineligible people being enrolled in the program and other eligibility errors, they also could also result in greater enrollment barriers for people who are eligible for the program at the same time. PERM error rates do not capture errors associated with eligible people being disenrolled or denied enrollment.

Focusing program integrity efforts on areas identified as contributing to larger amounts of improper payments could yield greater returns on program integrity efforts. HHS indicates that Medicaid improper payment rates have been driven by errors associated with screening and enrollment of providers.⁴  Moreover, PERM only represents one tool to measure improper payments and does not fully capture all losses associated with program waste, fraud, and abuse.

Through administrative actions related to program integrity, CMS is making changes that could have broader implications for eligibility and spending. As noted, CMS guidance and planned changes to eligibility rules to tighten standards for verification could restrict enrollment in the program. Further, through guidance and regulation, CMS has heightened oversight of state claiming for the ACA expansion, increased oversight of and made changes to state claiming for federal funds under Section 1115 waivers, and proposed changes to supplemental payments. These changes could reduce federal spending on the program and limit states ability to access federal matching funds. In some cases, reduced federal spending may be tied to additional oversight to ensure states are complying with current rules, while in other cases the reductions may reflect CMS changes or proposed changes in policies.

What is Program Integrity in Medicaid?

Program integrity refers to the proper management and function of the Medicaid program to ensure it is providing quality and efficient care while using funds–taxpayer dollars–appropriately with minimal waste. Program integrity efforts work to prevent and detect waste, fraud, and abuse, to increase program transparency and accountability, and to recover improperly used funds. The goal of program integrity initiatives is to help ensure that: eligibility decisions are made correctly; prospective and enrolled providers meet federal and state participation requirements; services provided to enrollees are medically necessary and appropriate; and provider payments are made in the correct amount and for appropriate services.⁵ 

There are an array of challenges associated with implementation of an effective and efficient Medicaid program integrity strategy. Some challenges cited by MACPAC include: overlap between federal and state responsibilities; lack of collaboration and information sharing among federal agencies and states; lack of information on the effectiveness of program integrity initiatives and appropriate performance measures; lower federal matching rates for state activities not directly related to fraud control; incomplete and outdated data; and few program integrity resources.

Improper payments are often cited when discussing program integrity, but they are not the same as fraud and abuse. The GAO reports improper payments across all government programs, including Medicaid. There are also other audits specific to Medicaid that measure errors and improper payments. These improper payment and error measures are often cited when discussing program integrity. However, improper payments may result from a variety of circumstances including errors, waste, abuse, and fraud. Errors and waste may result in unnecessary expenditures or improper payments, but are not criminal activities like fraud and abuse (see Box 1 for definitions).

One of CMS’s primary enforcement mechanisms to support program integrity is disallowance. CMS has the ability to work with states regarding the repayment of the federal share of improper payments. When an improper payment is identified, states can voluntarily return federal funds or CMS can issue a disallowance. CMS has been working through backlogs of potential disallowances. However, corrective action plans, rather than disallowances, are the typical enforcement mechanism for dealing with error rates found through the PERM process.

How have Program Integrity Efforts Evolved over Time?

Ensuring program integrity in Medicaid is the responsibility of both the federal government and the states. State Medicaid agencies manage the day-to-day operations of Medicaid (conducting enrollment and eligibility verification; licensing and enrolling providers; setting rates and paying providers; monitoring quality of care and provider claims (“data-mining”); conducting audits; detecting improper payments and recovering overpayments; and investigating and prosecuting provider fraud and patient abuse or neglect).⁶  In addition, states are required to have a Medicaid Fraud Control Unit (MFCU) that is separate from the Medicaid agency to conduct criminal investigations and prosecutions related to fraud. The federal government oversees and helps finance state program integrity efforts and monitors and enforces state compliance with federal rules; reviews state agency performance; audits, evaluates, and investigates individuals or organizations suspected of fraud; imposes sanctions; and provides training and guidance to the states.⁷  For more information on responsibilities of each agency, see Appendix A.

Since the enactment of Medicaid in 1965, the statute has evolved to promote program integrity. Key recent program integrity legislative milestones include the following:

• The Deficit Reduction Act of 2005 (DRA) included new initiatives and funding to focus on four key program integrity priority areas: prevention, detection, transparency and accountability, and recovery.⁸  The DRA contained several Medicaid provisions designed to improve the ability of both the states and federal government to address program integrity issues and directed CMS to establish the Medicaid Integrity Program (MIP) and to develop a Comprehensive Medicaid Integrity Plan (CMIP).
• The ACA of 2010 marked another major investment in program integrity efforts in Medicare and Medicaid, providing an additional $350 million in resources over ten years.⁹  The ACA provided new resources for provider screening and data-matching efforts, established new authorities to federal and state agencies and contractors to take action against suspected program abusers, and created new program coordination and state-to-state collaboration opportunities.¹⁰  The ACA also increased the emphasis on collaboration efforts across payers and states to make sure efforts are not duplicated and that a provider found to be fraudulent in one state does not attempt to practice in another state or in another public program.¹¹ 
• The 21^st Century Cures Act of 2016 extended screening and enrollment requirements to providers in Medicaid managed care and required states to submit information to CMS regarding provider termination as well as creating a centralized and uniform database of terminated Medicaid and the Children’s Health Insurance Program (CHIP) providers with reason for termination.¹² 

The focus of program integrity efforts have also evolved at CMS in response to changing legislation, policy developments and priorities. Program integrity efforts historically focused on the recovery of misspent funds, but initiatives included in the ACA attempted to move beyond “pay and chase” models to focus more heavily on prevention and early detection of fraud and abuse and other improper payments.

What are CMS’s current Medicaid program integrity priorities?

Recent actions by CMS to promote program integrity have focused on federal audit and oversight functions. CMS released a program integrity strategy in June 2018 and a notice in June 2019 highlighting program integrity as a priority and emphasizing new and planned actions centered on stronger audit and oversight functions, increased beneficiary eligibility oversight, and enhanced enforcement of state compliance with federal rules. Specifically, CMS points to initiatives focused on audits of state claiming for federal match and rate setting, including high-risk vulnerabilities identified by the GAO and OIG, which include improper payment rates, state use of supplemental payments, and oversight of waiver demonstration programs.¹³  It also indicates that it will conduct new audits of state beneficiary eligibility determinations with a focus on the impact of changes to state eligibility policy as a result of the ACA Medicaid expansion. Below are a range of recent CMS program integrity efforts and initiatives, including those highlighted in its recent guidance. This is not necessarily a comprehensive list of all current CMS program integrity strategies, but highlights recent areas of focus and new or planned future actions. Moreover, the list does not capture the full range of program integrity efforts of states and other federal agencies. Outside of CMS, other federal agencies, including the OIG and GAO, also are engaged in program integrity and oversight efforts.

Payment Error Rate Measurement (PERM)

The PERM program measures improper payments in Medicaid and CHIP and produces error rates for each program.¹⁴  The error rates are based on reviews of the fee-for-service and managed care claims and eligibility determinations in the fiscal year under review. The error rate is not a “fraud rate” but a measurement of payments made that did not meet statutory, regulatory or administrative requirements. Each state is audited on a rolling three year basis and annually produces national and state-specific improper payments. In light of the major changes to the way states determine eligibility for Medicaid and CHIP under the ACA, the eligibility determinations component of PERM was temporarily suspended between 2015 and 2018.

In November 2019, CMS released the first PERM estimates with eligibility determinations reintegrated into the review since implementation of the ACA. Estimated improper payments for Medicaid were 14.9% or $57.36 billion in 2019 across all three components included in the PERM review (fee-for-service, managed care, and eligibility).¹⁵  Given the reintegration of the eligibility component, the overall rates and payments are not comparable with prior years.¹⁶  In a separate report, HHS released estimates for each component in PERM, showing a 16.30% rate for fee-for-service, 0.12% rate for managed care, and 8.36% rate for eligibility.¹⁷  These data show that the fee-for-service component accounted for the highest improper payment rate (Figure 2). GAO has reported that the managed care component does not fully account for all program risks in managed care, and points to overpayments and unallowable costs that have not been accounted for by previous estimates.¹⁸ 

HHS reports that the majority of improper payments do not necessarily represent expenses that should not have occurred. HHS identified a range of factors contributing to improper payments, including the reintegration of the eligibility component, improper payments due to insufficient documentation, and noncompliance with screening and enrollment of providers.¹⁹  HHS finds that over three-quarters (77%) of Medicaid improper payments were due to instances where information was missing and/or states did not follow the appropriate process for enrolling providers and/or determining beneficiary eligibility, which do not necessarily represent payments for ineligible providers or beneficiaries.²⁰  HHS notes that if the missing information had been on the claim and/or had the state complied with the enrollment or redetermination requirements, then the claims may have been payable. It finds that 8% of improper payments were for ineligible providers or beneficiaries.

Beneficiary Eligibility

In June 2019 guidance, CMS reminded states about program integrity obligations particularly related to expenditures claimed at the enhanced match for the ACA Medicaid expansion group. The guidance details a program readiness checklist to ensure accurate eligibility determinations and claiming at the appropriate match rate. The guidance encouraged states to use periodic data matching to identify beneficiaries who may have had a change in circumstance that affects their eligibility. The guidance also indicated that state program integrity reviews, PERM, Medicaid Eligibility Quality Control (MEQC) and other audit findings will be part of oversight activities. Additionally, CMS noted plans to propose regulations to make changes to eligibility rules to increase requirements around verification, monitoring of changes in beneficiary circumstances, and eligibility redeterminations.

As noted, PERM measures eligibility determinations as one component of improper payments in Medicaid. As described above, CMS resumed the eligibility component of PERM reviews in 2019. For the eligibility component, a federal contractor assesses states’ application of federal rules and the state’s documented policies and procedures related to beneficiary eligibility. Examples of noncompliance with eligibility requirements include a state: enrolling a beneficiary when he or she is ineligible for Medicaid; determining a beneficiary to be eligible for the incorrect eligibility category, resulting in an ineligible service being provided; not conducting a timely beneficiary redetermination; or not performing or completing a required element of the eligibility determination process, such as income verification.²¹  While PERM payment errors may capture over and underpayments and errors in eligibility determinations, they do not capture errors associated with eligible people being disenrolled or denied enrollment.

The MEQC program uses state directed reviews in the two off-cycle PERM years to conduct eligibility reviews. Under the MEQC program, states design and conduct projects, known as pilots, to evaluate the processes that determine an individual’s eligibility for Medicaid and CHIP. States have great flexibility in designing pilots to identify vulnerable or error-prone areas. The MEQC program does not generate an error rate.

Based on audits from the OIG, CMS is conducting eligibility audits in select states. As a result of OIG findings tied to eligibility, CMS is conducting additional audits in California, New York, Kentucky, and Louisiana.²²  These audits will be in addition to PERM and MEQC reviews.

State Claiming of Federal Matching Dollars

CMS has issued guidance related to oversight of federal matching funds provided to states through Section 1115 waivers. Specifically, in guidance, CMS has noted oversight concerns related to states obtaining federal Medicaid matching funds under waivers for Designated State Health Programs that previously were fully state-funded and described several actions it is taking to increase documentation and review of claiming of federal funds for these programs. CMS also noted that it will no longer accept state proposals for new or renewing Section 1115 demonstrations that rely on federal matching funds for these programs. In separate guidance, CMS outlined recent changes to its approach to calculating budget neutrality for Section 1115 waiver extensions that are intended to strengthen fiscal accountability and prevent the federal government’s exposure to excessive expenditures.

In November 2019, CMS proposed regulations to make changes to supplemental payments that it indicates are designed to promote program integrity and increase transparency. The proposed rule would establish new reporting requirements for states to provide CMS with certain information on supplemental payments to Medicaid providers and applicable upper payment limits. The proposed rule also places new limits on supplemental payments (up to 150% of fee-for-service base rates or 175% of base rates in rural areas) and adds new requirements for states to use financing mechanisms such as intergovernmental transfers (IGTs), certified public expenditures (CPEs), and provider taxes and donations.

CMS plans to conduct additional audits of high-risk areas. CMS has indicated plans to conduct additional audits of state claiming of federal matching dollars to address areas that have been identified as high-risk by GAO and OIG, as well as other behavior previously found detrimental to the Medicaid program.²³ 

Managed Care Rates and Compliance with Federal Rules

Beginning in 2014, CMS implemented enhanced review of state capitation rates for coverage of the new expansion population.²⁴  CMS has since expanded that review to all managed care capitation rates and adopted a regulation providing more detailed requirements related to rate setting. All managed care rates are reviewed to ensure that the rates are actuarially sound and in compliance with Medical Loss Ratios (MLRs).²⁵  CMS has indicated plans to release additional guidance on the Medicaid Managed Care Final Rule from 2016 to further state implementation and compliance with program integrity safeguards, such as reporting overpayments and possible fraud.²⁶  In November 2019, CMS published an informational bulletin outlining changes to the Medicaid managed care contract approval process and future steps to streamline the process.

Provider Screening

Provider screening and enrollment is required for all providers in Medicaid fee-for-service or managed care networks. Additionally, the ACA requires states to terminate provider participation in Medicaid if the provider was terminated under Medicare or another state program, such as CHIP. CMS has multiple tools to assist states with provider screenings and enrollment compliance, including leveraging Medicare data. CMS pointed to additional provider screening efforts in its 2018 program integrity strategic plan and noted that it has released guidance regarding Medicaid provider screening and enrollment for Medicaid managed care organization network providers.²⁷  It also referenced plans to implement a pilot to screen Medicaid providers on behalf of states. CMS indicates that these actions are designed to improve efficiency and coordination across Medicare and Medicaid, reduce state and provider burden, and address one of the biggest sources of error included in the PERM rates.

Data Sharing

CMS is engaged in several efforts to increase access to data as part of program integrity and transparency efforts. CMS is developing enhanced administrative data through T-MSIS, which will provide increased eligibility, utilization and claims data that will be used broadly to monitor enrollment, payment, access, quality, and program integrity efforts.²⁸  CMS has released a Medicaid Scorecard that presents selected state performance measures related to their Medicaid programs. The CMS Medicaid program integrity strategy also highlights data analytic pilots and efforts to increase data sharing with states.

Education/Collaboration

Conducting outreach and education for states and providers is an additional component of program integrity efforts. The Medicaid Integrity Institute (MII) provides training and education to state Medicaid program integrity staff annually. CMS also has initiatives to collaborate with states and other entities to share best practices and conducts State Program Integrity Reviews to assess the effectiveness of states’ program integrity efforts. CMS has indicated plans for provider education efforts that will focus on providers who have high error rates and educate them on billing requirements as well as educating providers through Comparative Billing Reports, which show providers how their billing patterns compare to their peers.²⁹ 

What are current and emerging program integrity issues?

Through administrative actions related to program integrity, CMS is making policy changes that could have broader implications for eligibility and spending, particularly related to the ACA Medicaid expansion. Through guidance and regulation, CMS recently heightened the focus on federal oversight of state claiming for the ACA expansion, increased oversight of and made changes to state claiming for federal funds and budget neutrality for Section 1115 waivers, and proposed changes to supplemental payments and other financing mechanisms. CMS has also issued guidance to states on eligibility practices and indicated plans to issue regulations to make changes to eligibility rules to tighten standards for verification. While CMS has taken these actions as part of its goals to increase program integrity and transparency, these changes could have broader implications for eligibility and spending. For example, the changes to eligibility practices and rules could restrict enrollment in the program and the changes to state claiming for federal funds and budget neutrality rules for Section 1115 waivers and some of the proposed changes to supplemental payments and other financing mechanisms could reduce federal spending on the program and limit states ability to access federal matching funds. In some cases, reduced federal spending may be tied to additional oversight to ensure states are complying with current rules, while in other cases the reductions may be tied to CMS changes or proposed changes in policies.

CMS’s heightened focus on reducing errors in eligibility determinations could have trade-offs that make it more difficult for eligible people to obtain and maintain Medicaid coverage. CMS has increased its focus on beneficiary eligibility determinations as part of program integrity efforts, and indicated that it plans to take steps to change eligibility rules and tighten standards for eligibility verification to reduce improper payment rates associated with eligibility errors.³⁰  As noted, these errors do not necessarily reflect fraud and abuse or that the individual was not eligible for the program. Increased documentation and verification requirements could reduce instances of ineligible people being enrolled in the program and other eligibility errors, but also could result in greater enrollment barriers for people who are eligible for the program at the same time. Recent experiences in some states suggest that eligible individuals may be losing coverage due to increased periodic verification checks or because they failed to receive notices and/or did not provide documentation within required timeframes. While PERM error rates can measure under and over payments, they do not capture errors associated with eligible people being disenrolled or denied enrollment. States can adopt policies to streamline and simplify eligibility, which can reduce error rates and promote stable enrollment. For example, 24 states have adopted 12-month continuous eligibility for children in Medicaid, meaning they remain eligible for the 12-month period, even if they have small changes in income that increase above the eligibility limit. This policy helps reduce churn or people moving on and off the program due to small and/or temporary changes income, for example, due to seasonal work or overtime, as well as potential errors associated with fluctuating incomes.

Focusing program integrity efforts on areas identified as contributing to larger amounts of improper payments could yield greater returns on program integrity efforts. Improper payments are being largely driven by errors associated with screening and enrolling providers rather than beneficiary eligibility. In its program integrity strategy, CMS notes that its efforts to assist states with provider screening are designed to address one of the biggest sources of error measured by PERM.³¹  As noted, the HHS report shows that the fee-for-service component of PERM accounted for the highest improper payment rate.³²  HHS further indicates that, since FY2014, Medicaid improper payment rates have been driven by errors associated with screening and enrollment of providers.³³  Moreover, PERM only represents one tool to measure improper payments and may not fully capture all losses associated with program waste, fraud, and abuse. For example, GAO has reported that the managed care component of PERM does not fully account for all program risks in managed care and points to overpayments and unallowable costs that previously have not been accounted for by the estimate.³⁴  Other reports point to losses specific to provider fraud.³⁵  There may also be other program areas that are not currently a focus of program integrity efforts that are contributing to waste in the program. For example, the GAO recently found weaknesses in CMS’s oversight of the administrative costs of Section 1115 waiver demonstrations with work requirements, noting that CMS did not consider administrative costs during approval and that current procedures may be insufficient to ensure costs are allowable and matched at the correct rate, especially for administrative costs.

Federal Entities

Centers for Medicare and Medicaid Services (CMS) – Works to deter, detect, and combat fraud and abuse and take action against those that commit or participate in fraudulent activities. These activities are primarily implemented through the Center for Program Integrity (CPI), which was created to coordinate all program integrity efforts across CMS and other state and federal partners.

Department of Justice (DOJ) – Monitors and enforces federal fraud and abuse laws and prosecutes law violators. Several offices within DOJ are involved in Medicaid program integrity activities, including of the U.S. Attorneys, the Criminal Division, and the Federal Bureau of Investigations (FBI).³⁶ 

Office of Inspector General (OIG) of the Department of Health and Human Services (HHS) – Conducts audits, investigations, and evaluations of HHS programs, including Medicaid. It oversees state Medicaid Fraud Control Units (MFCUs), provides resources and education to the health care industry and the public to combat fraud and abuse.³⁷ 

Government Accountability Office (GAO) – Is a Congressional agency that investigates the federal spending of tax dollars and individual fraud allegations. GAO can audit agency operations and assess whether programs and policies are meeting objectives.³⁸  Other Congressional agencies involved in program integrity activities include the Congressional Oversight Committee, the Medicare Payment Advisory Commission (MedPAC), and the Medicaid and CHIP Payment and Advisory Commission (MACPAC).

State Entities:

State Medicaid Agency – Develops policies and handles the day-to-day operation of Medicaid. In some states, program integrity responsibilities are distributed across agencies, including the Office of the Attorney General and the Office of the State Auditor.³⁹  Most program integrity efforts implemented by the states are matched at the standard 50 percent administrative match rate, but some efforts receive higher match rates, including the Medicaid Management Information Systems and survey and certification.

Medicaid Fraud Control Unit (MFCU) – Is an entity of state government that investigates program administration and health care providers, prosecutes (or refers) those defrauding the program, and collects overpayments. They also review cases of abuse and neglect and the misuse of patient personal funds in long-term care facilities.⁴⁰  MFCU costs are matched at a 75 percent rate.

1. Robin Rudowitz, Rachel Garfield, and Elizabeth Hinton, “10 Things to Know about Medicaid: Setting the Facts Straight”, Kaiser Family Foundation, March 6, 2019, https://modern.kff.org/medicaid/issue-brief/10-things-to-know-about-medicaid-setting-the-facts-straight/ ↩︎
2. Centers for Medicare & Medicaid Services, 2019 Estimated Improper Payment Rates for Centers for Medicare & Medicaid Services (CMS) Programs (November 18, 2019), https://www.cms.gov/newsroom/press-releases/fiscal-year-fy-2019-medicare-fee-service-improper-payment-rate-lowest-2010-while-data-points and Department of Health and Human Services, FY 2019 Agency Fiscal Report, https://www.hhs.gov/sites/default/files/fy2019-hhs-agency-financial-report-final.pdf ↩︎
3. Centers for Medicare and Medicaid Services, CMS Administrator Seema Verma’s Speech to the National Association of Medicaid Directors in Washington, D.C. (November 12, 2019), https://www.cms.gov/newsroom/press-releases/cms-administrator-seema-vermas-speech-national-association-medicaid-directors-washington-dc and Centers for Medicare and Medicaid Services, Oversight of State Medicaid Claiming and Program Integrity Expectations (June 20, 2019), https://www.medicaid.gov/federal-policy-guidance/downloads/cib062019.pdf ↩︎
4. Department of Health and Human Services, FY 2019 Agency Fiscal Report, https://www.hhs.gov/sites/default/files/fy2019-hhs-agency-financial-report-final.pdf ↩︎
5. “Program Integrity,” MACPAC, accessed November 26, 2019, https://www.macpac.gov/subtopic/program-integrity/ ↩︎
6. Victoria Wachino, “The New Medicaid Integrity Program: Issues and Challenges in Ensuring Program Integrity in Medicaid”, Kaiser Family Foundation, June 2007, https://modern.kff.org/wp-content/uploads/2013/01/7650.pdf ↩︎
7. Ibid. ↩︎
8. Four priorities highlighted by Angela Brice-Smith of Centers for Medicare & Medicaid, Medicaid Integrity Group in her address to MACPAC, entitled, Addressing Medicaid Program Integrity. November 2011. ↩︎
9. Peter Budetti, “Fighting Fraud and Waste in Medicare and Medicaid” statement before Senate Committee on Appropriations, Subcommittee on Labor, Health and Human Services, Education and Related. February 15, 2011. Accessed May 21, 2012. Available at: https://www.govinfo.gov/content/pkg/CHRG-112shrg64653/html/CHRG-112shrg64653.htm ↩︎
10. “Patient Protection and Affordable Care Act, (Public Law 111-148 Title VI – Transparency and Program Integrity, 23 March 2010). Available at: http://www.gpo.gov/fdsys/pkg/PLAW-111publ148/pdf/PLAW-111publ148.pdf ↩︎
11. Center for Medicare and Medicaid Services, The Health Care Fraud and Abuse Control Program Protects Consumers and Taxpayers by Combating Health Care Fraud (February 26, 2016), https://www.cms.gov/newsroom/fact-sheets/health-care-fraud-and-abuse-control-program-protects-consumers-and-taxpayers-combating-health-care ↩︎
12. United States Government Accountability Office, CMS Oversight Should Ensure State Implementation of Screening and Enrollment Requirements (October 10, 2019), https://www.gao.gov/products/GAO-20-8 and “21st Century Cures Act” (Public Law 114-255, 13 December 2016). Available at: https://www.gpo.gov/fdsys/pkg/PLAW-114publ255/pdf/PLAW-114publ255.pdf ↩︎
13. United States Government Accountability Office, Actions Needed to Mitigate Billions in Improper Payments and Program Integrity Risks (June 27, 2018), https://www.gao.gov/assets/700/692821.pdf ↩︎
14. The Improper Payments Information Act (IPIA) of 2002 (amended in 2010 by the Improper Payments Elimination and Recovery Act or IPERA) requires the heads of federal agencies to annually review programs they administer and identify those that may be susceptible to significant improper payments, to estimate the amount of improper payments, to submit those estimates to Congress, and to submit a report on actions the agency is taking to reduce the improper payments. The Office of Management and Budget (OMB) has identified Medicaid and CHIP as programs at risk for significant improper payments. As a result, CMS developed the PERM program to comply with the IPIA and related guidance issued by OMB. ↩︎
15. Centers for Medicare & Medicaid Services, 2019 Estimated Improper Payment Rates for Centers for Medicare & Medicaid Services (CMS) Programs (November 18, 2019), https://www.cms.gov/newsroom/fact-sheets/2019-estimated-improper-payment-rates-centers-medicare-medicaid-services-cms-programs ↩︎
16. Ibid. ↩︎
17. Department of Health and Human Services, FY 2019 Agency Fiscal Report, https://www.hhs.gov/sites/default/files/fy2019-hhs-agency-financial-report-final.pdf ↩︎
18. United States Government Accountability Office, Actions Needed to Mitigate Billions in Improper Payments and Program Integrity Risks (June 27, 2018), https://www.gao.gov/assets/700/692821.pdf ↩︎
19. Ibid. ↩︎
20. Ibid. ↩︎
21. Ibid. ↩︎
22. U.S. Department of Health and Human Services Office of Inspector General, California Made Medicaid Payments on Behalf of Newly Eligible Beneficiaries Who Did Not Meet Federal and State Requirements (February 20, 2018), https://oig.hhs.gov/oas/reports/region9/91602023.asp; Office of Inspector General, New York Did Not Correctly Determine Medicaid Eligibility for Some Newly Enrolled Beneficiaries (January 5, 2018), https://oig.hhs.gov/oas/reports/region2/21501015.asp; Office of Inspector General, Kentucky Did Not Always Perform Medicaid Eligibility Determinations for Non-Newly Eligible Beneficiaries in Accordance With Federal and State Requirements (August 17, 2017), https://oig.hhs.gov/oas/reports/region4/41608047.asp; and, Centers for Medicare and Medicaid Services, Medicaid Program Integrity: A Shared and Urgent Responsibility (June 25, 2019), https://www.cms.gov/blog/medicaid-program-integrity-shared-and-urgent-responsibility ↩︎
23. Centers for Medicare and Medicaid Services, CMS Medicaid Program Integrity Strategy (June 26, 2018), https://www.medicaid.gov/state-resource-center/downloads/program-integrity-strategy-factsheet.pdf ↩︎
24. Ibid. ↩︎
25. Ibid. ↩︎
26. Ibid. ↩︎
27. Ibid. ↩︎
28. Ibid. ↩︎
29. Ibid. ↩︎
30. Centers for Medicare and Medicaid Services, Oversight of State Medicaid Claiming and Program Integrity Expectations (June 20, 2019), https://www.medicaid.gov/federal-policy-guidance/downloads/cib062019.pdf and Centers for Medicare and Medicaid Services, CMS Administrator Seema Verma’s Speech to the National Association of Medicaid Directors in Washington, D.C., November 12, 2019, https://www.cms.gov/newsroom/press-releases/cms-administrator-seema-vermas-speech-national-association-medicaid-directors-washington-dc ↩︎
31. Centers for Medicare and Medicaid Services, CMS Medicaid Program Integrity Strategy (June 26, 2018), https://www.medicaid.gov/state-resource-center/downloads/program-integrity-strategy-factsheet.pdf ↩︎
32. Department of Health and Human Services, FY 2019 Agency Fiscal Report, https://www.hhs.gov/sites/default/files/fy2019-hhs-agency-financial-report-final.pdf ↩︎
33. Ibid. ↩︎
34. United States Government Accountability Office, Actions Needed to Mitigate Billions in Improper Payments and Program Integrity Risks (June 27, 2018), https://www.gao.gov/assets/700/692821.pdf ↩︎
35. The Department of Health and Human Services And The Department of Justice, Health Care Fraud and Abuse Control Program Annual Report for Fiscal Year 2018 (May 2019), https://www.oig.hhs.gov/publications/docs/hcfac/FY2018-hcfac.pdf ↩︎
36. “Medicaid Integrity Program – General Information”, Centers for Medicare & Medicaid Services, accessed December 12, 2019, https://www.cms.gov/Medicare-Medicaid-Coordination/Fraud-Prevention/MedicaidIntegrityProgram/index?redirect=/MedicaidIntegrityProgram/ and Medicaid and CHIP Payment and Access Commission, March 2012 Report to the Congress on Medicaid and CHIP (March 2012), https://www.macpac.gov/publication/report-to-the-congress-on-medicaid-and-chip-312/ ↩︎
37. U.S. Department of Health and Human Services Office of Inspector General, Use of Funds Appropriated to the Office of Inspector General for Medicaid-Related Program Integrity Activities (March 2009), http://oig.hhs.gov/publications/medicaid_integrity/files/medicaid_integrity_reportFY08.pdf and “Enforcement Actions”, U.S. Department of Health and Human Services Office of Inspector General, accessed December 2, 2019, https://oig.hhs.gov/fraud/enforcement/index.asp ↩︎
38. “Medicaid Integrity Program – General Information”, Centers for Medicare & Medicaid Services, accessed December 12, 2019, https://www.cms.gov/Medicare-Medicaid-Coordination/Fraud-Prevention/MedicaidIntegrityProgram/index?redirect=/MedicaidIntegrityProgram/ ↩︎
39. Medicaid and CHIP Payment and Access Commission, March 2012 Report to the Congress on Medicaid and CHIP (March 2012), https://www.macpac.gov/publication/report-to-the-congress-on-medicaid-and-chip-312/ ↩︎
40. “Medicaid Fraud Control Units”, National Association of Medicaid Fraud Control Units, accessed December 2, 2019, https://www.namfcu.net/mfcu-information.php ↩︎

On November 20, 2019, Tennessee submitted an amendment to its longstanding Section 1115 Waiver that would make major financing and administrative changes to its Medicaid program.¹  The Centers for Medicare and Medicaid Services (CMS) certified the waiver as complete and opened a federal public comment period through December 27, 2019. Most significantly, Tennessee is requesting to receive federal funds in the form of a “modified block grant” and to retain half of any federal “savings” achieved under the block grant demonstration. The state identified five high-priority areas for reinvestment of such savings. Tennessee is also requesting authority to implement a closed formulary for prescription drugs and a waiver of all federal managed care oversight rules.² 

Tennessee has a longstanding Section 1115 waiver, called TennCare II, through which most of its Medicaid program runs, dating back to 1994. Tennessee has not adopted the ACA Medicaid expansion, so excludes childless adults from coverage but covers parents up to 95% FPL (as of January 2019).³  The current waiver includes most enrollees and services, including most seniors, adults with physical disabilities, children with special health care needs,⁴  and children and adults with intellectual and developmental disabilities (I/DD). TennCare enrollees receive both acute care and long-term services and supports through mandatory capitated managed care arrangements. The state’s current waiver is set to expire in June 2021. In FY 2019, the Tennessee state legislature passed legislation requiring the state to submit a waiver amendment to CMS to request to convert their Medicaid funding mechanism to a “block grant” model under its TennCare waiver.⁵  If/when the state receives approval from CMS, the legislation requires the General Assembly to approve the agreement before implementation.

CMS has been developing guidance for states related to block grant waivers; however, CMS withdrew this guidance from Office of Management and Budget (OMB) review on November 15, 2019⁶  – prior to Tennessee submitting its proposal. This will be an important waiver to watch as CMS decisions related to financing, treatment of budget neutrality, managed care regulations, and permanent waiver approval (among other areas) will send important signals to other states interested in pursuing similar program policies. This waiver will again test the limits of how the Administration and states can reshape the Medicaid program through Section 1115 waiver authority. This brief provides a high-level overview of the proposed waiver changes and context for why these changes matter. 

The Tennessee waiver amendment proposes significant changes to Medicaid financing through a “modified block grant” with the potential for shared savings.

Under the proposal, Tennessee is requesting to receive federal Medicaid funds in the form of a “modified block grant.” Base spending for FY 2018 under the Tennessee proposal would be calculated based on average enrollment from state FYs 2016-2018 in four categories (blind and disabled, elderly, children, and adults) multiplied by expected “without waiver⁷ ” per member per month (PMPM) expenditure amounts by category (excluding costs for outpatient prescription drugs) multiplied by the Tennessee federal match rate (about 65%) (Figure 1). Spending estimates for 2018 would be trended forward based on Congressional Budget Office (CBO) projections for growth in Medicaid spending to determine the block grant amount in the first year of the demonstration, which the state estimates to be $7.9 billion. These calculations to create a new “without waiver baseline” for waiver budget neutrality (as well as the block grant amount for measuring shared savings) could be, in part, related to compliance with CMS budget neutrality guidance released in 2018, scheduled to go into effect fully in January 2021.⁸  The state is proposing to exclude the following expenditures from its modified block grant model: administrative expenses, uncompensated care funds, spending for all dual eligible beneficiaries (full benefit and partial duals), and spending for services carved out of the Section 1115 waiver (e.g., services provided under the state’s separate Section 1915 (c) waivers for some people with I/DD and institutional I/DD services).

Unlike a typical block grant, federal funding would increase if enrollment grows. Base year spending would increase by spending growth estimated by CBO plus a per capita adjustment if actual enrollment exceeds enrollment estimates for the 2016-2018 base period. In this way, the block grant would set a federal financing floor. Federal funding would not decrease if enrollment were to decline. However, there would be no additional adjustment if per enrollee costs rise faster than anticipated (e.g., due to the development of new drug therapies or other advances or the emergence of public health crises (like the opioid epidemic)). The CBO per enrollee spending projections over the next decade are above inflation.⁹  The state does not anticipate that the block grant would reduce overall federal Medicaid spending in the state.

Under its proposed modified block grant, Tennessee would no longer draw down federal dollars based on a fixed federal match percentage and on state spending for covered beneficiaries and services.¹⁰  Tennessee proposes that it would be required to maintain state Medicaid spending at 2019 levels (trended forward for each block grant demonstration year). However, the proposal does not require such state spending to be for Medicaid-only services. While Tennessee notes that it expects that the “bulk” of block grant funds will be spent on “traditional” expenses (i.e., expenditures for medically necessary covered services), it proposes to have flexibility to spend federal block grant funds on services that may not otherwise be covered by Medicaid. Specifically, the state notes it would like the flexibility to spend federal funds on services not currently covered by Medicaid (or eligible for federal match) if the state determines such expenditures will benefit the health of enrollees or are likely to lead to improved health outcomes.

In any year that the state does not spend its entire federal block grant amount, Tennessee is proposing to share equally in the savings with the federal government. Each year, CMS would project the total amount of state and federal dollars that would have been spent without the waiver. The total amount of state and federal dollars actually spent during the year would be subtracted from CMS’s projected “without waiver” total. The difference would be multiplied by the state’s federal medical assistance percentage (FMAP) to determine the federal share of the savings. That amount would be multiplied by 50% to determine the federal savings that could be retained by the state.¹¹  So, the state would retain their “state share” of any block grant savings as well as 50% of the federal share.¹² 

Tennessee says that it does not intend to restrict eligibility or benefits; however, the proposal does not require the state to maintain its current eligibility or benefits and the shared savings provision could create an incentive to reduce eligibility or benefits so that the state can achieve savings. Tennessee identified the following five priority areas as examples of areas where the state may invest such savings: extending coverage for postpartum women from two to 12 months; providing dental benefits only for prenatal and postpartum women; covering additional “needy” individuals who are not currently eligible; clearing the waiting list for home and community-based services for individuals with intellectual disabilities; and addressing other state-specific health crises.¹³  Under current federal law, the state could expand eligibility and/or optional benefits and receive federal matching funds to address these “high priority” areas. However, any expansion of coverage or services resulting from the availability of shared savings would likely remain dependent on the continued availability of such demonstration savings.

Capped federal financing with a potential for shared savings could incentivize the state to reduce optional eligibility and services for high cost enrollees.

Spending for non-dual seniors and persons with disabilities – who on average have high health needs and associated costs – would be included in the block grant.¹⁴  Tennessee estimates that this includes approximately 64,000 member months for non-dual seniors (about 5,300 enrollees) receiving capitated managed long-term services and supports (MLTSS), including non-dual seniors receiving MLTSS in nursing facilities or in the community. These seniors are not dually eligible likely because they do not have a qualifying work history to gain Medicare eligibility. The block grant would also include approximately 1.6 million member months for people with disabilities (about 133,000 enrollees) including adults with physical disabilities receiving MLTSS in nursing facilities or in the community, children who are eligible based on a disability (i.e., receive SSI) or are otherwise identified as blind or disabled (e.g., from claims), and adults and children with intellectual or developmental disabilities receiving home and community-based services.¹⁵ 

New coverage for children with disabilities and/or complex medical needs included in a separate waiver amendment pending at CMS would be excluded from the block grant. Directed by state legislation, Tennessee currently has a separate Katie Beckett-like waiver program amendment pending at CMS that would add coverage for some children with special health care needs. At least for the first several years, Tennessee proposes that this and any other new coverage groups would be excluded from the block grant, so that the state could gain experience paying for services before adding to the block grant calculation.

Seniors and people with disabilities account for a small share of enrollees but a large share of expenditures, placing these groups at higher risk under a capped financing model. While the state says the intent of the waiver is not to restrict eligibility or benefits, placing a cap on federal funding as well as an incentive to spend below the cap could lead the state to reduce optional eligibility or benefits to achieve these savings (which would not be prohibited under the terms of the waiver). Because seniors and people with disabilities often need complex acute and long-term care services, which are high cost and unavailable through other coverage sources, these groups may be particularly vulnerable to financing models that incentivize lowering costs to realize savings. Nearly all home and community-based long-term services and supports and most coverage pathways for seniors and people with disabilities are optional. Tennessee can scale back this coverage under current law. However, this proposal could create additional incentives to do so to access shared savings.

Beyond financing, Tennessee is seeking unprecedented flexibility to administer its program.

Tennessee is seeking authority to implement a closed formulary for prescription drugs (Figure 2). Under current rules, manufacturers that want their drugs covered by state Medicaid programs must rebate a portion of drug payments back to states (who share these rebates with the federal government). In exchange, Medicaid programs must cover almost all FDA-approved drugs produced by those manufacturers. Although states are required to cover nearly all of the manufacturer’s FDA-approved drugs, states employ a range of strategies to control prescription drug costs and utilization. The Tennessee proposal excludes outpatient prescription drugs from the block grant calculation but also seeks authority to implement a closed formulary, which would allow the state to cover just one drug per therapeutic drug class. The state is not proposing to forgo statutory rebates from drug manufacturers. The state is also proposing to exclude new drugs from the formulary until “market prices are consistent with prudent fiscal administration” or sufficient data exists regarding the drug’s cost effectiveness.¹⁶  A similar proposal put forth by Massachusetts was not approved by CMS.¹⁷ 

Tennessee is also seeking authority to add covered benefits without CMS approval and a waiver of all federal Medicaid managed care regulatory requirements. Under current law, states have authority to add optional benefits and to increase the amount, duration, and scope of a benefit by submitting a state plan amendment (SPA) (or demonstration waiver amendment). The Tennessee proposal would allow such changes without CMS approval. However, Tennessee would continue to submit SPAs to CMS for any changes that would eliminate or decrease benefits. The proposal also seeks to waive the managed care regulations at 42 CFR Part 438, which detail parameters involving how states contract with and oversee managed care plans. These regulations are extensive and outline federal requirements related to plan enrollment and disenrollment, network adequacy, utilization management, care coordination, member appeals, actuarially sound rates, quality strategies, program integrity as well as other areas.

Tennessee seeks authority to terminate enrollees from coverage and impose up to a 12-month lock out if an individual is determined to be guilty of TennCare fraud. The state seeks to determine additional details through state policy (e.g., when termination is appropriate, the length of the suspension) based on the nature of the offense and does not include these details in the waiver proposal. The state further notes that under certain circumstances it may choose to develop alternatives to termination or suspension of coverage including restricting access to certain benefits (e.g., pharmacy benefits for a member who fraudulently obtained prescription opioids) or conditioning continued coverage on specific member actions (e.g., participation in substance use disorder treatment for enrollees convicted of fraudulently obtaining prescription opioids). Under current federal law, enrollees suspected of fraud are referred to the appropriate law enforcement agency to make a determination of fraud with penalties assigned by the court (not the Medicaid agency),¹⁸  and states may not terminate or suspend Medicaid eligibility for individuals that remain eligible for the program.

Tennessee seeks exemptions from future federal requirements, additional flexibility to make program changes without CMS approval, and authority to have its waiver approved on a permanent basis. The proposal seeks exemptions from any new federal requirements as well as new flexibility to make changes to enrollment processes, service delivery systems, and the distribution methodology for the charity care and virtual disproportionate hospital share (DSH) funds without seeking CMS approval. Section 1115 waivers are typically approved for a five-year period and can be extended, usually for three years.¹⁹  Tennessee also proposes that CMS should authorize its demonstration on a permanent basis and only require future amendments to the waiver to go through the CMS approval process, which could result in less federal oversight and fewer opportunities for public comment.²⁰ 

Looking Ahead

Tennessee’s proposed amendment is open for federal public comment through December 27, 2019. Some advocates have raised concerns that the federal public comment period is limited by holidays that fall within the time-period, which may constrain public engagement/comment and that the state has not provided sufficient detail in the current proposal to provide meaningful input on the proposed policy changes.²¹  Looking ahead, this will be an important waiver to watch as CMS decisions related to financing, treatment of budget neutrality, managed care regulations, and permanent waiver approval (among other areas) will send signals to other states interested in pursuing similar program policies. As a version of a block grant, the waiver mirrors longstanding conservative proposals to cap federal Medicaid spending while giving states added flexibility, which was also a prominent part of the debate to repeal and replace the ACA. However, Tennessee’s modified block grant proposal differs from a traditional block grant, as it would require the federal block grant calculation to adjust for enrollment growth, mitigating some risk for the state while creating a federal financing “floor” instead of a federal financing “ceiling.” This waiver proposal will again test the limits of how the Administration and states can reshape the Medicaid program through Section 1115 waiver authority.

1. “Medicaid Waiver Tracker: Approved and Pending Section 1115 Waivers by State,” KFF, https://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Waivers/1115/downloads/tn/tn-tenncare-ii-pa10.pdf. ↩︎
2. The state seeks relief from the federal requirements at 42 CFR Part 438. ↩︎
3. The Kaiser Family Foundation State Health Facts. Data Source: Medicaid and CHIP Eligibility, Enrollment, Renewal, and Cost Sharing Policies as of January 2019: Findings from a 50-State Survey, Kaiser Family Foundation, March 2019, “Medicaid Income Eligibility Limits for Parents, 2002-2019, https://modern.kff.org/medicaid/state-indicator/medicaid-income-eligibility-limits-for-parents/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D. ↩︎
4. TN has a separate waiver amendment pending with CMS that would cover a limited number of additional children with special health care needs. If approved, TN proposes that this new coverage group initially be excluded from the block grant proposal. ↩︎
5. Tennessee House Bill 1280, https://legiscan.com/TN/text/HB1280/2019. ↩︎
6. Office of Information and Regulatory Affairs, Office of Management and Budget, State Medicaid Director Letter: Medicaid Value and Accountability Demonstration Opportunity, Withdrawn on 11/15/2019, https://www.reginfo.gov/public/do/eoDetails?rrid=129184. ↩︎
7. The “without waiver” projected costs are part of long-standing federal policy that requires Section 1115 waivers to be budget neutral to the federal government. This means that the federal government cannot spend more under the waiver than it would have been expected to spend without the waiver. To determine “with” and “without” waiver costs, CMS establishes a per member per month (PMPM) spending amount. Tennessee’s waiver has PMPMs for four populations that it proposes to include in the block grant. ↩︎
8. In August 2018, CMS issued guidance related to Section 1115 budget neutrality indicating methodology adjustments related to calculating “without waiver” expenditures that would be fully phased in for waiver extensions beginning January 1, 2021. Notably, these methodology changes restrict the ability of states with long-running demonstrations to roll over “unspent” budget neutrality savings and to extend baseline spending assumptions for years without adjustment. SMD # 18-009, Budget Neutrality Policies for Section 1115 (a) Demonstration Projects, https://www.medicaid.gov/Federal-Policy-Guidance/downloads/SMD18009.pdf. ↩︎
9. CBO average annual growth per enrollee estimates over the next decade (2019-2029) are 3% aged, 5% blind and disabled, 5.7% children and 5.3% adults. Medicaid—CBO’s May 2019 Baseline, https://www.cbo.gov/system/files/2019-05/51301-2019-05-medicaid.pdf. ↩︎
10. The Tennessee proposal is not like other capped waiver programs approved in the past. In the past, capped waiver programs have been approved in Rhode Island, Vermont, and Virginia (for a limited population). However, despite the calculation of a federal cap on funds that would be available to the state, in each case the states still had to expend state dollars to be able to draw down the federal funds. ↩︎
11. Tennessee Medicaid Block Grant Proposal Frequently Asked Questions, https://www.tn.gov/content/dam/tn/tenncare/documents2/TennCareAmendment42FAQs.pdf. ↩︎
12. Tennessee also indicates in its waiver application that itis open to discussing with CMS how the shared savings could be accomplished within the more traditional federal-match funding model. ↩︎
13. Such as opioids, maternal and infant mortality, access to care in rural and underserved areas, and tobacco cessation. ↩︎
14. All Medicaid spending for duals, including long-term services and supports, would be excluded from the block grant. ↩︎
15. TN is unlike other states in that it does not have a Katie Beckett state plan option or comparable waiver to expand financial eligibility for children with significant disabilities. Instead, TN’s waiver has a demonstration group for children that meet medical criteria with income at or above 211% FPL – enrollment in this group is capped and closed. This group would be excluded from the block grant. ↩︎
16. If approved and implemented, these provisions could potentially impact people with disabilities and others who need access to and could benefit from breakthrough drugs that offer cure, new treatment etc. ↩︎
17. In its rejection of Massachusetts’ proposal, CMS said it would be willing to consider a closed formulary proposal under which the state agrees to negotiate directly with manufacturers and forgo all manufacturer rebates available under the federal Medicaid Drug Rebate Program, https://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Waivers/1115/downloads/ma/ma-masshealth-ca.pdf ↩︎
18. 42 CFR § 455.15 (b). ↩︎
19. Elizabeth Hinton, MaryBeth Musumeci, Robin Rudowitz, Larisa Antonisse, and Cornelia Hall, Section 1115 Medicaid Demonstration Waivers: The Current Landscape of Approved and Pending Waivers (Washington, DC, Kaiser Family Foundation, February 2019), https://modern.kff.org/medicaid/issue-brief/section-1115-medicaid-demonstration-waivers-the-current-landscape-of-approved-and-pending-waivers/. ↩︎
20. The Affordable Care Act (ACA) made Section 1115 waivers subject to new rules about transparency, public input, and evaluation. In February 2012, HHS issued new regulations that require public notice and comment periods at the state and federal levels before new Section 1115 waivers and extensions of existing waivers are approved by CMS. Although the final regulations involving public notice do not require a state-level public comment period for amendments to existing/ongoing demonstrations, CMS has historically applied these regulations to amendments. ↩︎
21. National Health Law Program Letter to CMS Concerning TennCare II Demonstration, November 26, 2019, https://healthlaw.org/resource/letter-to-cms-concerning-tenncare-ii-demonstration/.   ↩︎