1. Legal Framework for the Medicaid Program
Prepared by:
Jean Sullivan, J.D.
Associate Vice Chancellor, Commonwealth Medicine
Director, Center for Health Law & Economics
August 2008

2. Medicaid: a Federal and State Program
Medicaid is a jointly funded and administered "cooperative Federal-State program" of medical assistance for the needy
Congress enacted Title XIX of the federal Social Security Act in 1965 as a companion piece of legislation to Medicare (Title XVIII of the Social Security Act) in order to provide assistance to certain groups without the financial resources to afford health care
It is an entitlement program that covers defined population groups: low-income children, seniors, people with disabilities and low-income parents of dependent children

3. Purpose of Title XIX Medicaid
Federal Purpose Statement-
"For the purpose of enabling each State, as far as practicable under the conditions in such State, to furnish (1) medical assistance on behalf of families with dependent children and of aged, blind, or disabled individuals, whose income and resources are insufficient to meet the costs of necessary medical services, and (2) rehabilitation and other services to help such families and individuals attain or retain capability for independence or self-care, there is hereby authorized to be appropriated for each fiscal year a sum sufficient to carry out the purposes of this subchapter. The sums made available under this section shall be used for making payments to States which have submitted, and had approved by the Secretary, State plans for medical assistance.“ (emphasis added) See 42 U.S.C. §1396.

4. Designation of a Single State Agency
Each state, via its Legislature, “elects to participate” in this program and designates a “Title XIX Single State Agency”
The Designated State agency must have authority over policy and administration of the program and regulatory powers
Use of Interdepartmental Service Agreements
Delegation of administrative activities to public or private entities
State Attorney General certification of requisite authority
Once a state elects to participate, the right to benefits under the program is considered an entitlement unless and until such time as the State may withdraw from the federal program

5. What Does Entitlement Mean ?
Entitlement means
All “eligible individuals” must be provided “covered benefits” - these terms must be defined in State statute or in promulgated regulations
Once determined eligible, individuals (a.k.a., “enrollees”, “members”, “recipients” and “beneficiaries”) have the right to covered benefits and this right is treated as a “property right” under the due process clause of the United States Constitution
“Due process” requirements - the single state agency must provide
Notice and a right to “fair hearing” for applicants denied eligibility; and
Prior notice and hearing before termination or reduction in benefits
Agency Hearing Decisions are subject to further appeal in Courts

6. What Does Entitlement Mean? (continued)
Definition of eligible individuals and covered benefits; i.e., scope and medical necessity criteria, controls the magnitude of expenditure liabilities in a Medicaid program, not state appropriation limits
Access to good quality data for forecasting caseload and utilization trends is essential to managing state spending and program liabilities
The ability to modify scope of benefits or eligibility criteria through regulation, as opposed to legislation, may be a critical tool for managing Medicaid spending
Caseload caps and waiting lists for services are not permitted, except within program components operating under an federally – approved “waiver” of the standard federal statutory and regulatory terms.

8. Federal Oversight of Medicaid
Centers for Medicare and Medicaid (CMS) is the federal agency authorized to promulgate regulations, further defining and detailing the federal statutory provisions enacted by Congress
The GAO or the federal Secretary of HHS’ own OIG can also review or audit any State’s operation of Medicaid and recommend action to CMS
State participation is voluntary, but once a State “elects to participate,” it must operate its program in accordance with these regulations in order to obtain FFP
Courts: State and Federal courts will enforce these statutory and regulatory obligations with respect to a participating state unless the state formally announces its withdrawal from the Title XIX program
Federal agency is not bound by state court rulings on federal law and regulatory interpretations (some conflicts arise)

9. Medicaid: Federal and State Roles
The state and federal governments share the costs of the program
Congress appropriates federal funding and establishes a formula for setting a “Federal Medical Assistance Percentage (FMAP)” for each participating State
A State’s FMAP is the portion of that State’s costs that is reimbursed by the federal government
2008 FMAPs range from 50.00% to 75.84%, depending on the State’s per capita income compared to the national average; 50% is minimum
Administrative expenditures are matched at 50% for all states
Enhanced match for some expenditures; e.g., IT development (90%); skilled medical professionals if employed by the state (75%); family planning (100%)
Minimum coverage, eligibility and program operational features are mandated by federal law
Many additional optional program elements also federally funded

10. Medicaid: Federal and State Roles
Federal Role
Prescribe mandatory and optional program parameters
Approve or deny terms of and amendments to State Plans and Waivers
Provide funding, called Federal Financial Participation (FFP) at applicable FMAP rate
Provide technical assistance and guidance to states – regional offices
Perform compliance reviews and audits
State Role
Delineate program policies concerning service scope and eligibility criteria within discretion permitted by federal parameters
Provide funding, called State Financial Participation
Maintain the State Plan, the Cost Allocation Plan, any Waiver documents with the federal oversight agency, i.e., regional and central office, CMS
Administer (operate) the state program of medical assistance in accordance with federal rules; i.e., maintain provider contracts, manage eligibility and payment systems, manage federal reporting and relations, etc.

11. Categorical and Financial Eligibility
Individuals must meet one of the categorical criteria
SSI or SSI- related: aged, blind or disabled
TANF or TANF-related: dependent child or parent of a dependent child
Individuals must meet a financial need test, including income and asset limits and “counting” rules
Some assets are countable, some non-countable
Some income is “disregarded” or exempt from counting rules of financial need based on income-needy test
Mandated eligibility for SSI and TANF eligibles
Optional coverage for groups with higher incomes and the “medical needy”, whose medical costs allow “spend-down” eligibility

12. Federal Limits on Scope of Benefits
“Mandatory or Required” Services
“Optional” Services
Inpatient hospital
Outpatient hospital
Early and periodic screening, diagnostic, and treatment (EPSDT) services for < age 21
Family planning and supplies
Physician; and dental medical and surgical services
Laboratory and x-ray services
Rural and federally-qualified health center (FQHC) services
Home health
Nurse midwife and nurse practitioner (if state law allows)
Nursing facility (NF) for ages 21 and over
Transportation to services
Prescription drugs
Clinic services
Dental services, dentures
Physical therapy and rehab services
Prosthetic devices, eyeglasses
Primary care case management
Diagnostic, screening and prevention > 21
Intermediate care facilities for the mentally retarded (ICF/MR) services
Inpatient psychiatric in IMDs for individuals age 65 and older
Home and community-based services
Personal care services
Private duty nursing
Hospice services

13. Medical Service Requirements
Sufficiency
Sufficient in “amount, duration and scope” (ADS) to “reasonably achieve its purpose”;
May not deny mandatory service solely on the basis of diagnosis, type of illness or condition
May limit based on medical necessity or utilization control
Comparability of Amount, Duration and Scope
Generally, ADS of services to categorically needy may not be less than that available to the medically needy; and ADS of services to individuals within the categorically needy group must be equal and those available to individuals within the “medically” needy group must be equal.
Statewide operation
The Medicaid State Plan must be in effect throughout the State
Cost-sharing – nominal only, except for NF services

14. Program Expenditures and State Plans
To qualify for federal funding (FFP) for program expenditures each State must submit a State Plan to CMS and keep it current through amendments
The State Plan describes the State policies that govern medical services or “program” expenditures and demonstrates or provides assurances that those policies are in compliance with governing federal law
The document is extensive (can be more than 800 pages) and must describe mandatory and optional program features of the State’s program, including:
Program administration
Eligibility criteria and covered populations
Services covered and services limits
Delivery systems and provider qualifications
Provider reimbursement methodologies
The State Plan and subsequent amendments are reviewed and approved by CMS, often only after extensive questions, responses from states and negotiation

15. “Waivers” of standard Title XIX terms
Section 1915(b): "waivers to promote cost-effectiveness and efficiency"
Also known as "Freedom of Choice" Waivers
Needed wherever choice of provider will be restricted
No longer needed for most managed care approaches
Section 1115: Demonstration Project waiver to "promote objectives of [Title XIX]"
For implementation any program or eligibility feature not within Title XIX rules
Must promote the general purposes of Title XIX (see Statement, supra)
Must meet a budget neutrality test
"Terms and Conditions” detail how a State may use any waivers granted
Section 1915(c): Home and Community-Based Services waivers
Expanded support services are covered to prevent "institutionalization"
Available for disabled individuals and seniors who need supports
States often subject to litigation under the Americans with Disabilities Act
Caseload caps and limits on “entitlement” are permitted under waivers

16. Medicaid Administrative Expenditures
Administrative expenditures include costs of activities necessary for the proper, effective and efficient operation of the medical assistance program, including for example:
Eligibility determinations and provider payment functions
Operational or clinical quality control, ensuring access to services
Ensuring Medicaid is “payer of last resort”; i.e., TPL and COB
Managing utilization of services and cost effectiveness
Program monitoring, analysis and evaluation
Program and policy development, planning
Federal reporting, FFP claiming costs, responses to federal inquiries
Cost Allocation Plan (CAP), and amendments to keep it current, provide basis for claiming FFP for administrative costs and expenditures
Administrative expenditures made by other state agencies or local government may be claimed if included in CAP and certified as a qualifying expenditure

17. Summary of Key Elements for FFP
For Medicaid Program Expenditures, FFP is available for
A covered medical or support service …provided to
A person determined eligible for Medicaid program… by
A qualified and participating provider of the covered service…paid for at
An approved rate and methodology …using
A state or other non-federal local funds source
as all of the above are described in the State Plan or, if applicable, Waiver documents
For Medicaid Administrative Activities, FFP is available for
Activities necessary for the proper and efficient operation of the program, if
Included or described in the state’s Cost Allocation Plan and/or State Plan, or
Included in approved Waiver documentation for activities not otherwise federally reimbursable under the statutory terms of the Title XIX
Keep the State’s State Plan, Waiver documents (if any) and Cost Allocation Plan up to date with changes in state programmatic and financial practices

18. Citations to Governing Federal Laws
Federal Statutory provisions
42 U.S.C. section 1396 et seq.
42 U.S.C. section 1315
aka, Section 1115 of the Social Security Act: Demonstration Project waivers
Federal regulatory provisions
42 C.F.R. Parts 430 – End
Including, also, Part 457 – SCHIP regulations
20 C.F.R. Part 416 (related disability rules)

19. Contact Information
Jean C. Sullivan, J.D. Director, Center for Health Law and Economics (CHLE) Associate Vice Chancellor, Commonwealth Medicine University of Massachusetts Medical School Website: Office : (508) or (617)