By Jocelyn Guyer

On April 2^nd, 2013, HHS released the “final” version (more on that below) of its FMAP claiming rule. It outlines the process states must use to figure out the matching rate that applies to adults who are covered by the expansion of Medicaid to 138 percent of the federal poverty line.   This blog reviews some of the highlights of the rule.  For those of you interested in the direct implications for kids, they are covered at the very end of this blog.  You may want to skip right there because this stuff isn’t exactly Shades of Gray material.

Comment Period

The rule is “final,” but HHS is nevertheless taking comments on some key sections through June 3, 2013:

• The expansion state FMAP (not covered in this blog)
• The way disability is addressed
• The way resources are addressed
• Enrollment cap adjustments
• Treatment of medically needy eligibility, and
• “Special circumstances”.

If HHS decides it is warranted based on the comments, it will make revisions to these policies despite the “final” nature of the rule.

Background on the New Rule

In reviewing the new rule, it might be helpful to remember that when Congress designed the matching rate structure for the Medicaid expansion, it wanted to pick up the vast majority of the cost of covering newly eligible adults.  At the same time, it did not want to refinance the cost of existing coverage of adults in the states. So, the ACA provides the increased matching rate only for adults in the new adult group who would not have qualified for Medicaid benefits under eligibility rules in place as of December 1, 2009.[1]  As a result, a major challenge the new rule must address is how states should determine who would have qualified for Medicaid under old eligibility rules that no longer are in place.

Scope of the New Rule

While the new rule primarily describes how states can determine the appropriate matching rate for adults, it also provides information on how HHS intends to implement the “expansion state FMAP.” We’ll blog about this on another day, but the basic gist is that Congress wanted to provide some help to states that already had expanded coverage for adults prior to the enactment of the ACA.  It did so by providing a higher matching rate for some of the adults who are not newly eligible in these states.  Initially, this “expansion state” matching rate isn’t quite as generous as the increased matching rate available for newly-eligible adults, but over time the two rates converge.  The rule also describes a temporary 2.2 percentage point matching rate increase that applies to only a few states so we aren’t covering it at Say Ahhh!.

HHS’s Basic Approach (The “Threshold” Methodology)

The heart of the new rule is a description of the process states must use to figure out if a person covered under the new adult group is eligible for the regular Medicaid matching rate, the increased FMAP, or, if applicable, an expansion state matching rate.  To make this assessment, states are required to use the “threshold methodology.”  Under this methodology, a state must compare an adult’s modified adjusted gross income (MAGI) income to the income threshold in place in December of 2009 for the appropriate category (e.g., an adult who is a parent would have her income compared to the parent eligibility category with the highest income threshold).   The income threshold against which someone’s income is compared must be converted (i.e., slightly increased) to reflect the loss of disregards and deductions in accordance with the ACA and HHS’s regulations.  (States have to do these conversions for a bunch of reasons, not just FMAP claiming purposes.)

Consider the simplified example of a parent residing in a state that covered parents to 35 percent of the FPL on December 1, 2009 and that has converted this threshold to 40 percent.  If a parent in 2014 has MAGI income below 40 percent of the FPL, the state will receive the regular matching rate for the cost of her coverage. But, if she has income between 40 percent and 138 percent of the FPL, it will receive the increased FMAP.

Additional Factors

Since income isn’t the only factor relevant to eligibility under December 1, 2009 rules, the HHS rule also addresses the following issues.

• Enrollment caps.  The ACA recognizes that some states that offered coverage to adults as of December 1, 2009 did so through waivers that capped enrollment.  So, states must calculate the share of their new adult enrollees who would have qualified under December 1, 2009 rules given the enrollment cap and use it to adjust their increased FMAP funding. For example, consider a state that extended eligibility to adults up to 133 percent of the FPL in December of 2009, but capped enrollment at 1,000.  If the state enrolls 4,000 people in the new adult category in 2014, it can receive the regular matching rate for 25 percent of the cost of covering this group and the increased matching rate for the remaining 75 percent.

• State option to apply a resource proxy. The rule allows states to use a sampling methodology or historical data to estimate the share of adults covered in the new adult group who are newly eligible as a result of elimination of the asset test.  The option is complex and appears to be of limited importance.  This is because most people who gain coverage solely as a result of elimination of an asset test will not be part of the new adult group and, thus, not eligible for the increased match.

• Disability determinations.  When evaluating whether someone would have met December 1, 2009 eligibility rules, states are expected to take into account disability categories. The rule, however, is clear that states don’t have to treat someone as disabled under the threshold methodology until they are actually determined to be disabled.  For example, states can treat someone in the midst of being evaluated by the Social Security Administration for a disability as a parent or childless adult – not as a disabled person – for FMAP purposes. After the person is determined to have a disability, he or she will be treated as disabled for FMAP purposes on a prospective basis.  This prospective policy allows states to skip the costly and complex process of returning increased FMAP funds for the period during which the disability determination was being conducted by SSA or the state. On the other hand, as HHS notes in the preamble to the rule, it means that the agency will need to monitor and review the timeliness of disability determinations conducted by the state and also work with SSA to expedite its disability determinations.

• Medically needy coverage.  The rule is clear that states do not need to determine whether someone might have qualified for medically needy coverage under December 1, 2009 rules after their medical bills are taken into account.  As a result, in most states, medically needy coverage will be entirely irrelevant to the FMAP determination.  The only exception might be in a state with a particularly high medically needy threshold.  If a person has income below a medically need threshold from December 1, 2009 –– not taking into account his or her medical bills – then the person cannot be treated as newly eligible.  In most states, however, medically needy income thresholds are well below those that apply to the other categories that cover adults and so are irrelevant for FMAP purposes.

• Special circumstances.  The rule includes a provision saying that states can submit requests for additional proxy methodologies for approval.  This appears to be a catch-all provision giving HHS some flexibility to address unique or unexpected circumstances as they arise.

Implications for Children

There aren’t too many direct implications for children in the rule since it addresses matching rates for adults, but here are a few tidbits we picked up from the preamble:

• Clarification that CHIP Funding is Available for Children Moved to Medicaid.  As we’ve long maintained, the preamble to the rule clarifies that states can receive the CHIP matching rate (assuming CHIP funds are available) for the “stair-step kids”.  These are children ages six to 18 with family income between 100 percent and 133 percent of the FPL who are moved from separate CHIP programs into Medicaid under the ACA.

• Clarification that Foster Care Children up to Age 26 Are Not Eligible for the Increased Matching Rate.  While not a surprise since it was required by the ACA statute, the FMAP rule clarifies that young adults up to age 26 who are eligible for Medicaid as former foster care children cannot receive the increased FMAP.  Instead, states are reimbursed for the cost of their coverage at the regular FMAP.

In the months ahead, states will be figuring out how to implement the new threshold methodology.  They are required to outline their plans in an attachment to their State Plans, which means that they will be publicly available.