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Native Americans and Medicaid: Coverage and Financing Issues

Native Americans and Medicaid:Coverage and Financing Issues

Medicaid and Welfare

Until 1996, families with children who received cash assistance under the Aid to Families with Dependent Children (AFDC) program were automatically entitled to Medicaid coverage. The welfare law enacted that year, Public Law 104-193, repealed the AFDC program and created a Temporary Assistance for Needy Families (TANF) block grant to the states. The 1996 welfare law also severed the automatic eligibility linkage between welfare and Medicaid. States may now use different eligibility rules for families under their welfare block grant programs than they use under Medicaid. At a minimum, states must maintain their Medicaid eligibility standards for families with dependent children at the level of those in effect as of July 16, 1996, under the state’s AFDC program.

In states that choose to use different eligibility rules for mothers and children under the welfare block grant than they do under Medicaid, low-income families who qualify for cash or other assistance under the welfare block grant may no longer automatically qualify for Medicaid. Instead, they may have to file a separate application for Medicaid benefits, perhaps in a different location. In such cases, there is a risk that eligible individuals, especially children, will not be enrolled in Medicaid due to logistical and administrative barriers.

Under the welfare law, tribes may elect to receive federal (but not necessarily state) welfare block grant dollars directly to operate their own “tribal family assistance” program separately from that of the state in which their members reside. However under Medicaid law, tribes are not expressly authorized to administer their own Medicaid programs. As a legal matter, it is possible that a tribe could, with cooperation from the state in which it is located and the approval of the Secretary of HHS, operate its own Medicaid program under a demonstration waiver under section 1115 of the Social Security Act. The legal issues are by no means clear, the technical issues are formidable, and no such waiver has been granted.

Medicaid and Resource Testing

Financial eligibility criteria for Medicaid generally include resource as well as income requirements. For example, disabled and elderly individuals who seek to qualify for Medicaid on the basis of receipt of SSI benefits must have countable resources of less than $2,000 ($4,000 for a couple). Similarly, families who seek to qualify for Medicaid coverage on the basis that they meet the eligibility requirements for AFDC in effect in a state as of July 16, 1996, must have countable resources of less than $1,000. Not all resources are countable; for example, a home of any value is excluded from the calculation of an individual’s resources. States have the option, with respect to certain eligibility groups, to liberalize these resource requirements or to discard them altogether. Many states have chosen to apply only an income test in determining the Medicaid eligibility of children with incomes at or below the poverty line.

Resource tests pose some unique issues for American Indians and Alaska Natives. Certain income-producing property, such as pick-up trucks and fishing boats, can disqualify an individual for Medicaid. Similarly, non-trust land which an individual owns may result in denial of Medicaid eligibility due to excess resources. States have the flexibility under federal Medicaid law to reduce or eliminate these barriers to eligibility by using less restrictive methodologies for counting resources. For example, a coastal state could choose to disregard the first $75,000 dollars in equity value of a boat used to produce income during the fishing season.

Coordination of Medicaid and IHS Coverage

Native Americans who are eligible for health care through the IHS are also entitled to Medicaid coverage if they meet the categorical and financial eligibility requirements of the Medicaid program in the state in which they reside. In cases in which an individual is eligible for both Medicaid and IHS services, and a service (such as hospital care) is covered both by Medicaid and by the IHS, the Medicaid program is required to pay for the service. Where a Medicaid beneficiary receives a service provided by the IHS that is not included in the Medicaid benefits package in that state – for example, non-emergency dental care for adults – the IHS, as the residual program, has the responsibility to pay.

Medicaid as a Source of Revenue for Hospitals and Clinics

The IHS is an appropriated program rather than an entitlement program. That is to say, the federal funding for all the IHS, tribally-operated, and urban Indian programs are appropriated in advance each year in fixed amounts. These annually appropriated amounts are then allocated among the different geographic areas and tribes served by the IHS.

Because no individual American Indian or Alaska Native is entitled to any particular health care service from the IHS, when the funding for a given year has been consumed, the provision or purchase of services must be postponed until the next fiscal year when new appropriations become available. This is particularly evident in the case of contract health (CHS) services, for which waiting lists for non-emergency services are not uncommon in many areas. In contrast, Medicaid is an entitlement program, under which the federal government matches, on an open-ended basis, all state expenditures for covered services on behalf of eligible individuals. In the case of Native American beneficiaries, the federal matching rate is generally 100 percent. Unlike the federal funding for the IHS, federal Medicaid matching funds are not subject to annual appropriations limits.

Under the Balanced Budget Act, growth in federal spending on appropriated programs such as the IHS is tightly constrained for the next five years by across-the-board “caps.” Because the IHS will have to compete for funding with the National Institutes of Health, the Head Start program, and all other domestic programs subject to these appropriations “caps,” IHS funding is not likely to grow nearly as fast as federal spending on entitlement programs like Medicaid, which are projected to grow at around 7 percent per year. As a result, revenues from Medicaid are likely to become increasingly important to many IHS, tribal, and urban programs to help relieve appropriated funding limitations over the next few years.12

Medicaid is already an important source of revenue for IHS hospitals and clinics as well as for tribally operated facilities and urban Indian health programs. In fiscal year 1997, IHS and tribally operated facilities were projected to receive $184.3 million in Medicaid reimbursements, compared with the $1.806 billion appropriated for IHS and tribally-provided health services that year.

The Medicaid program is in transition. Historically, like other health insurers, Medicaid paid for covered care on a fee-for-service basis. Today, most states are encouraging or requiring Medicaid beneficiaries to enroll in managed care in order to receive covered services. Again, there is much variation among the states. Some have enrolled virtually all of their Medicaid beneficiaries in managed care; others have just begun this process. Hospitals, clinics, and other providers – whether or not operated by the IHS or tribes – may face significantly different participation and reimbursement rules when they serve a Medicaid beneficiary on a fee-for-service basis than when they serve a Medicaid managed care enrollee.

Participation in Medicaid by IHS Facilities and Tribal Health Programs

State Medicaid agencies are responsible for establishing and maintaining health standards for public or private facilities in which Medicaid beneficiaries receive care or services. Under federal regulations, a facility owned or leased by the IHS, whether operated by the IHS or by a tribe or tribal organization, is entitled to participate in Medicaid and receive payment for covered services delivered to Medicaid beneficiaries if it meets the requirements and standards generally applicable to the type of facility (e.g., hospital, clinic) under the state Medicaid program. IHS owned or leased facilities are not required to be licensed by the state in order to participate in Medicaid; however, they are required to meet the applicable standards for licensure.

Under the December 19, 1996 Memorandum of Understanding (MOA) between the IHS and the Health Care Financing Administration (HCFA), these same participation rules apply to “638” facilities owned or operated by tribes. These “638” facilities are operated by tribes or tribal organizations under contracts, grants, or compacts under the Indian Self-Determination and Education Assistance Act, Public Law 93-638. Thus, “638” facilities are not required to obtain a state license in order to participate in Medicaid, but they must meet all applicable standards for licensure.

100 Percent Federal Matching for Covered Services Provided by IHS and Tribal Programs

Medicaid has special rules for the financing of covered services provided to Native Americans. In general, Medicaid is a federal-state matching program under which the federal government contributes toward the costs states incur in paying for covered services on behalf of eligible individuals. The federal government’s share of these costs ranges from 50 percent in more affluent states to 80 percent in the poorest states; on average, the federal government pays 57 percent of the cost of Medicaid benefits.

However, a higher federal matching rate applies in the case of services provided by IHS or tribal facilities. Under section 1905(b) of the Social Security Act, the cost of services provided to Medicaid beneficiaries by a hospital, clinic, or other facility of the IHS, whether operated by the IHS or by a tribe or tribal organization, is matched by the federal government at a 100 percent rate. In these cases, the state is reimbursed fully by the federal government and is not required to contribute any of its own funds toward the cost of care. In addition, under a December 19, 1996, Memorandum of Agreement (MOA) between the IHS and the Health Care Financing Administration (HCFA), this same 100 percent federal matching rate also applies to the cost of any covered services furnished on or after July 11, 1996, to Medicaid-eligible American Indians or Alaska Natives by any tribal facility operating under a “638” agreement by grant, contract, or compact. The cost of covered services provided by tribal facilities to Medicaid beneficiaries who are not Native Americans will continue to be matched by the federal government at each state’s regular matching rate.

This 100 percent federal matching rate removes any financial disincentive a state might otherwise face in paying for covered services provided to Native American Medicaid beneficiaries by IHS or tribal providers, because a state does not have to commit any of its own funds. The 100 percent match also provides a financial incentive for states to encourage Native American beneficiaries to use IHS and tribal providers. If these beneficiaries receive covered Medicaid services from providers other than IHS or tribally-run hospitals or clinics, the state would have to contribute the same share of the cost that it is required to match in the case of any Medicaid beneficiaries who are not Native Americans. Note that, because Medicaid is an entitlement program, there is no annual appropriations limit on the 100 percent matching funds for covered services provided by IHS or “638” tribal facilities to Indian beneficiaries.

The December 19, 1996 MOA does not extend to urban Indian health programs. Thus, the cost of covered services provided by urban Indian health programs to Medicaid beneficiaries will continue to be matched at each state’s regular matching rate, whether or not those beneficiaries are Native Americans. A central purpose of the MOA is, by its own terms, “to encourage tribal self-determination in program operation and facility ownership,” as well as “to address state financing concerns.” While 100 percent federal financing for covered services provided by urban Indian health programs would clearly address state financing concerns, it does not apply to tribal self-determination. Whatever the merits of this policy rationale, the effect is clearly to leave the urban Indian health programs in a Medicaid provider category that is less favorable from the states’ standpoint than the category in which the MOA places tribally owned or operated facilities.

Note that the special 100 percent federal matching rate applies only to state expenditures for services covered by the state’s Medicaid program. The services which a state Medicaid program covers are sometimes not as broad in scope as the services which an IHS or tribally-operated hospital or clinic delivers. For example, tribally-run facilities may provide preventive dental care or orthodontic services to Indians who are eligible for Medicaid. Under Medicaid law, states have the option as to whether to cover these particular services for adults, and many have chosen not to do so. In these states, the “638” clinic would not receive Medicaid payment for such dental visits by eligible adults, and the state would therefore not receive any federal matching funds for such costs.

Fee-for-Service Reimbursement Rates

In general, states have broad discretion in establishing payment rates to hospitals, clinics, and other providers that participate in Medicaid on a fee-for-service basis. States are generally not required to pay these providers for the costs of delivering care to Medicaid beneficiaries. However, special reimbursement rules apply with respect to facilities operated by the IHS. Minimum payment standards also apply to Federally-qualified health centers (FQHCs), which include “638” tribally-operated facilities and urban Indian programs.

  • IHS Facilities. State Medicaid programs have the option of paying hospitals and other facilities operated by the IHS at a federally specified or “global” rate for delivering covered services to Medicaid beneficiaries who are Native Americans, and most states do so. This rate, which is revised periodically, is $760 per day for inpatient hospital care and $152 per visit for outpatient care in 1997 (62 Fed. Reg. 26806 (May 15, 1997)). Under the December 19, 1996 Memorandum of Agreement, tribally operated facilities may elect to be treated as IHS operated facilities for purposes of qualifying for this federally specified rate for services provided to American Indians or Alaska Natives. As discussed above, where this federally specified or “global” rate applies, the federal government reimburses the state Medicaid program for 100 percent of the amount paid at this federally specified rate (or, in the case of a state that opts not to use this rate, the alternative rate used by the state).

  • FQHCs. State Medicaid programs must at a minimum cover certain benefits, including hospital and physician services, and outpatient services provided by Federally-qualified health centers (FQHCs). These centers include programs or facilities operated by tribes or tribal organizations under “638” contracts or compacts as well as facilities operated by urban Indian organizations and funded under title V of the Indian Health Care Improvement Act. States are required to pay all FQHCs, including tribally operated and urban Indian clinics, at a rate equal to 100 percent of a facility’s reasonable cost of providing services to Medicaid beneficiaries. Under the recent Balanced Budget Act of 1997, P.L. 105-33, this minimum payment requirement will begin to decline to 95 percent of cost in fiscal year 2000, to 90 percent in fiscal year 2001, to 85 percent in fiscal year 2002, to 70 percent in fiscal year 2003, and will be repealed thereafter.

In many states, tribally-operated “638” facilities do not bill their Medicaid programs using the 100 percent of reasonable cost rate, even though they are FQHCs and are entitled under federal Medicaid law to do so. Instead, they use the federally-specified or “global” rate. The reasons for billing using the federally-specified rate include more frequent updates and the absence of an annual retrospective audit. The FQHC protection remains important to these facilities, however, because it guarantees that the ambulatory services they provide are included in their state Medicaid program’s benefits package.

Medicaid and Managed Care

Over the past few years, Medicaid in many states has been shifting from a predominantly fee-for-service program to a program that purchases services from managed care organizations (MCOs) or primary care case management organizations (PCCMs), or both, on a prepaid, capitated basis. MCOs are managed care plans that are fully capitated or “full risk” – that is, they assume financial risk for providing covered inpatient hospital, physician, and other services to their enrollees. In contrast, PCCMs are typically not capitated; they provide covered primary care services and manage access to specialist and hospital care for their enrollees in exchange for a monthly management fee and do not assume financial risk for providing inpatient hospital care.

As there is variation among IHS areas and tribes, so there is variation among state Medicaid programs with respect to the use of managed care. Table 2, which is based on HCFA data analyzed by the Urban Institute, shows Medicaid managed care enrollment by state as of June, 1996. Because the data do not distinguish Native American beneficiaries from other Medicaid beneficiaries, it is not possible to draw any conclusions about enrollment by Native American beneficiaries in managed care. The data do, however, show that some states with large Native American populations such as Idaho, Montana, New Mexico, North Carolina, North Dakota, and South Dakota, enrolled none of their Medicaid beneficiaries in full-risk MCOs but relied exclusively on PCCMs. Other states with large Native American populations, such as California, Minnesota, New York, Oklahoma, Washington, and Wisconsin enrolled significant proportions of their Medicaid populations in full-risk MCOs and enrolled almost none of their beneficiaries in PCCMs. Alaska did not enroll any Medicaid beneficiaries in managed care; Arizona and Oregon enrolled most of their Medicaid beneficiaries in full risk plans.

This shift to managed care is likely to accelerate as the result of wide-ranging changes in Medicaid law contained in the Balanced Budget Act of 1997, P.L. 105-33, enacted in August, 1997. Many issues regarding the implementation of these changes remain unresolved. However, the following points seem clear:

  • Mandatory Beneficiary Enrollment in Managed Care. Effective October 1, 1997, states, without seeking waivers from the Secretary of Health and Human Services, will have the authority to require most Medicaid beneficiaries to enroll in MCOs or PCCMs. These MCOs or PCCMs do not have to serve employer groups; they can do business only with Medicaid. States will be able to require Native Americans who are eligible for Medicaid to receive all covered services through an MCO or PCCM, but only if the MCO or PCCM is the IHS, a tribally operated “638” program, or an urban Indian health program. States do not have authority under the Balanced Budget Act to require Medicaid-eligible Native Americans to enroll in MCOs that are not operated by the IHS, a tribe, or an urban Indian organization. However, states do have the authority to require such enrollment under “section 1115” demonstration waivers (as in the case of Arizona) or under “section 1915(b)” program waivers (as in the case of New Mexico).

  • Capitation Payments under Medicaid Managed Care. The December 19, 1996 MOA concerning 100 percent federal matching does not expressly address the issue of payments to MCOs. Presumably, state Medicaid capitation payments on behalf of Indian Medicaid beneficiaries to MCOs or PCCMs that are operated by the IHS or by tribes or tribal organizations would be subject to federal matching at a 100 percent rate. This policy would parallel the clear MOA policy in a fee-for-service context, addressing “state financing concerns” and encouraging “tribal self-determination in program operation and facility ownership.” However, the treatment of capitation payments on behalf of Indian beneficiaries to MCOs or PCCMs that are not IHS- or tribally-operated is less clear. One possible interpretation is that capitation payments in such cases would be matched by the federal government at each state’s regular matching rate (on average, 57 percent). Such a matching rate differential would create a fiscal incentive for states to encourage enrollment of Indian beneficiaries in MCOs or PCCMs operated by the IHS or by tribes or tribal organizations.13

Strategic Choices for Native American Health Facilities

  • IHS Facilities and Medicaid Managed Care. Under Medicaid law, IHS facilities have three basic options in states implementing Medicaid managed care programs.

    • They can establish their own MCO or PCCM and seek to contract with the state to enroll Indian (and non-Indian) Medicaid beneficiaries residing in their service area. There is no current example of an MCO or PCCM that is fully owned by a tribe. One close variant of this approach is the Pascua Yaqui Health Plan in Tucson, Arizona, which contracts with the Southwest Catholic Health Network to operate an MCO in which some 3,500 tribal members are enrolled. The Network also operates Mercy Care, a Medicaid MCO, into which tribal members who qualify for Medicaid may enroll. 14

    • They can subcontract with a private MCO or PCCM and provide services to the Indian (and non-Indian) enrollees of that MCO or PCCM. An example of this approach is the Indian Health Board of Minneapolis, which subcontracts with four different Medicaid MCOs, including an MCO operated by the County Medical Center.
    • They can continue to be reimbursed by Medicaid on a fee-for-service basis and remain unaffiliated with any Medicaid MCO or PCCM. One example of this approach in a state with very low Medicaid managed care enrollment is the Chief Andrew Isaac Health Center in Fairbanks, Alaska, operated by the Tanana Chiefs Conference, Inc., under a “638” self-governance compact.

The first of these options may in many cases prove impractical due to the unavailability of start-up capital for information systems, reserve funds, and planning and marketing costs; legal issues relating to the assumption of risk by IHS-operated programs; and state licensure requirements. Some of the issues that arise in the context of developing an MCO do not come up for IHS facilities seeking to establish PCCMs. In either case, the first option will often give the IHS facility the best protection against market forces that may otherwise result in the erosion of its patient base and fiscal stability over the long run.15 Of course, participation in Medicaid as an MCO is not an absolute guarantee of survival for a hospital or clinic. There are other reasons why a provider’s Medicaid revenues would decline, including loss of eligibility by beneficiaries due to income fluctuations and changes in state Medicaid eligibility standards.

IHS facilities that are able to establish their own MCO or PCCM are not guaranteed a contract with a state Medicaid program even if they meet the state’s solvency, quality, and other requirements. That is because states are not under federal law required to contract with every qualified MCO or PCCM; instead, states can limit the number of contracting MCOs or PCCMs to two in urban areas and to one in rural areas. Unless they receive a waiver from the Secretary of HHS, however, states can not require Medicaid-eligible Indians to enroll in any MCO or PCCM that is not an IHS- or tribally-operated program. Where a state contracts with an MCO, the state must pay capitation rates that are set on an “actuarially sound” basis whether or not the MCO is operated by the IHS.

Medicaid MCOs may, but are not required to, contract with IHS facilities for the provision of hospital or other services. If an MCO chooses to contract with an IHS facility, it is not required to pay the specified federal reimbursement rate for services rendered to MCO enrollees, and it is not required to pay the IHS facility at the same rate it pays non-IHS providers for the same services.

In those states that have adopted federally-specified rates for IHS facilities, those IHS facilities that remain unaffiliated with MCOs or PCCMs are eligible for payment at such rates for covered inpatient and outpatient services provided to Medicaid-eligible Indian beneficiaries who are not enrolled in MCOs. Where an IHS hospital provides emergency care to a Medicaid-eligible MCO enrollee (whether or not that enrollee is a Native American), the MCO must reimburse the hospital for the care if a “prudent layperson” would have sought emergency care under the same circumstances. Note that if a Medicaid-eligible Indian is enrolled in an MCO or PCCM that is not operated by the IHS but continues to use the IHS facility as a source of health care without a referral from the MCO, the MCO is not obligated to pay for nonemergency services provided by the IHS facility to its enrollee, unless state regulations require the MCO to pay. The IHS facility will not be able to bill the state Medicaid program directly because the MCO has assumed financial responsibility for the beneficiary’s care.

In these circumstances, the IHS facility has two basic options for protecting itself against using its own resources to pay for nonemergency care for Indian MCO beneficiaries. One option is to affiliate with the MCO as a participating provider. The MCO is under no federal law obligation to affiliate with the IHS facility or to do so on reasonable terms, however. The other option is for the state Medicaid agency to include in its contracts with MCOs a provision allowing Indian enrollees to go “out of plan” to receive care from IHS facilities without a referral from the MCO. This contract provision could potentially be structured so that the federal government, through its 100 percent matching for state expenditures, reimburses the IHS facility for the costs of this care, holding the beneficiaries and the MCO harmless for such costs.

  • Tribally Owned and Operated Facilities and Medicaid Managed Care. Tribally owned and operated facilities face many of the same basic choices as IHS facilities with two important differences. First, the tribal facilities that qualify as FQHCs are given a special statutory protection until 2003. State Medicaid programs must include services provided by FQHCs in the benefits package they provide to all of their eligible beneficiaries. While states that contract with MCOs are not required to include FQHC services in those contracts, if they choose not to do so, they must then “carve out” this benefit from their contracts with MCOs and continue to pay for the services separately. The logistical problems associated with “carve out” arrangements provide a strong incentive for states to contract with MCOs directly for the provision of FQHC services.

    Under the Balanced Budget Act, MCOs that subcontract with FQHCs must pay an FQHC at the same level and amount which they would pay any other provider for the same services. In addition, the Act requires state Medicaid programs to pay each subcontracting FQHC the difference between the payment it receives from the MCO and the payment it would receive under fee-for-service Medicaid (i.e., 100 percent of cost phasing down to 70 percent of cost by 2003). These protections expire on October 1, 2003.

    The other option that tribally-owned or operated facilities may have that IHS facilities may not have is the legal capacity to assume financial risk, which is a prerequisite to becoming an MCO. In many cases, “638” facilities have a legal structure that allows them, under state law, to bear risk. Whether, as a practical matter, they have the necessary capital and technical capacity to do so, and whether it makes strategic sense for them to do so, will of course vary from case to case.

  • Urban Indian Facilities and Medicaid Managed Care. Urban Indian programs that provide primary care face major challenges. Many of them have historically been underfunded and require significant capital and technical assistance that will be difficult for the IHS to provide under current budget constraints. And, as discussed above, urban Indian health programs are not covered by the December 19, 1996 MOA, so that state reimbursement for the care they provide to Medicaid beneficiaries is matched by the federal government at the state’s regular matching rate rather than 100 percent as in the case of tribally-run programs. This will make it more difficult for urban Indian health programs to survive the phase-out of the “reasonable cost” payment protections for FQHCs.

    The Balanced Budget Act prohibits states from mandating the enrollment of urban Indian Medicaid beneficiaries in MCOs or PCCMs unless the MCO or PCCM is an urban Indian health program. This in theory gives urban Indian programs the ability to negotiate exclusive enrollment agreements with state Medicaid programs. However, because urban Indian programs are generally small in scale, it is unlikely that many of them will be able to qualify as MCOs or PCCMs for this purpose. In most cases, the only practical option is likely to be subcontracting with one or more Medicaid MCOs or PCCMs. Because this subcontracting is optional with the MCO or PCCM, there is no assurance that urban Indian health programs will be allowed to affiliate with the MCO or PCCM at all, much less on terms that are favorable to the urban Indian organization.

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Native Americans and Medicaid: Coverage and Financing Issues
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