Recent Changes to the Free Care Rule Put Federal Funds Back on the Table

The so-called “Free Care Rule” prevented states from receiving federal Medicaid funds to provide any service that is ordinarily provided for free to the community at large, even if Medicaid would cover these services for its beneficiaries. For instance, if a public school nurse were to examine a student, federal funds could not be used to cover that exam, because all students would be able to access the service without being charged.

Though the Health and Human Services (HHS) Departmental Appeals Board found that this policy was unjustified by statute or regulation in 2005, it wasn’t until December of 2014 that HHS sent a letter stating that the Free Care Rule was no longer in effect. In this letter, HHS announced that Medicaid reimbursement was available for services that are free to the community at large, as long as all other Medicaid requirements are met.

These requirements are as follows:

  • The individual to whom the federal funds are directed must be a Medicaid beneficiary,
  • The service must be a covered Medicaid service,
  • The healthcare providers are Medicaid-participating providers,
  • The state Medicaid plan governs the rate of reimbursement,
  • The Medicaid payments do not duplicated other specific payments for the same service,
  • Third party liability requirements are met, and
  • The states maintain documentation and appropriate financial oversight.

Implementation of this policy will vary by state. Several states have woven the Free Care Rule into their laws, so even with the federal version voided, Medicaid funds are banned. These states may require legislative changes and/or a state plan amendment to allow the Free Care Rule reversal to truly take effect.

This policy change will have a significant impact on schools, as the Free Care Rule was a barrier to reimbursing school healthcare providers. For the over 52 million children attending public schools, and especially the quarter of them that face a health challenge, the removal of the Free Care Rule is a game changer. States now have the opportunity to better leverage Medicaid programs to improve health care access and chronic care management for millions of low-income children across the country, and it can all start in the classroom.