Social Security Programs in the United States

care is reasonable, necessary, and provided in the most appropri-

ate setting. The PROs are composed of groups of practicing

physicians. To receive Medicare payments, a hospital must have

an agreement with a Peer Review Organization.

Administration

The Health Care Financing Administration, an agency of the

Department of Health and Human Services, is responsible for

setting policy and administering the Medicare program. The day-

to-day operational work of the program is performed under con-

tract by commercial insurance companies and nonprofit insurers,

such as the Blue Cross and Blue Shield plans. These organiza-

tions have the responsibility for reviewing and processing benefit

claims and making payments to the health care providers. The

Social Security Administration does the initial determination of

Medicare entitlement. It also provides certain claims-taking and

record maintenance services its network of field offices. SSA also

provides computer support for the Medicare program.

Medicaid

Title XIX of the Social Security Act (part of the Social Security

Amendments of 1965) established the Medicaid program to

provide medical and health related services for individuals and

families with low incomes through direct payment to suppliers of

the program. Medicaid is the largest source of funds for medical

care and related services to our Nation’s poorest people.

Participation is optional; but all States and the District of

Columbia have Medicaid programs. Puerto Rico, Guam, the

Northern Mariana Islands, American Samoa, and the Virgin

Islands also have some participation in Medicaid. (These other

jurisdictions are included when the word “States” is used.)

Medicaid is a cooperative endeavor between each State and

the Federal Government, and is financed by shared Federal and

State funds. Each Medicaid policy and program plan is also a

joint endeavor. Within broad national guidelines established by

Federal statutes, regulations, and policies each of the States

(1) establishes its own eligibility standards; (2) determines the

type, amount, duration, and scope of ser vices; (3) sets the r ate of

payment for services; and (4) administers its own program.

Medicaid policies for eligibility and ser vices are therefore com-

plex, and vary considerably from State to State and within each

State over time.

In 1995, more than 36 million persons received Medicaid

services. Total outlays amounted to $159.5 billion ($85.5 billion in

Federal and $66.3 billion in State funds). Of the total amount,

$120 billion was for vendor payments; $14 billion for premium

MEDICAID

payments (for example, to HMOs and Medicare); and $19 billion

was for payments to disproportionate share hospitals.

Eligibility

and Coverage

Once eligibility for Medicaid is determined, coverage generally

is retroactive to the third month prior to application. Medicaid cover-

age generally stops at the end of the month in which a person no

longer meets the criteria of any eligibility group.

Low income is only one test for Medicaid eligibility; assets and

resources also are tested against established thresholds deter-

mined by each State. For instance, Medicaid rules for the treatment

of income and resources of married couples when one spouse

requires nursing home care and the other remains living at home

are intended to prevent the impoverishment of the spouse remain-

ing in the community. Before the institutionalized person’s money is

used to pay for the cost of institutional care, a minimum monthly

maintenance needs allowance is deducted for bringing the income

of the spouse living in the community up to a moderate level; and a

State-determined level of resources is preserved.

Within Federal guidelines, States have broad discretion in

determining which groups their Medicaid programs will cover and

the financial criteria for eligibility. States must cover “categorically

needy” individuals (which usually includes recipients of SSI and

families with dependent children receiving cash assistance, as well

as other mandatory low-income groups such as pregnant women,

infants, and children with incomes less than specified percent of

the Federal poverty level) and certain low-income Medicare

beneficiaries.

Mandatory Eligibility Groups

States are required to provide Medicaid coverage for certain

individuals who receive federally assisted income-maintenance

payments, as well as for related groups not receiving cash pay-

ments. The following (effective July 1997) displays the mandatory

Medicaid eligibility groups:

• Recipients of AFDC.

• Recipients of TANF. (In those States with TANF programs, those

individuals who would have met the State’s AFDC program’s

eligibility requirements under rules in effect on July 16, 1996

generally are eligible.)

• Children under age 6 who meet the State’s AFDC financial

requirements or whose family income is at or below 133% of the

Federal poverty level.

• Pregnant women whose family income is below 133% of the

Federal poverty level (services are limited to pregnancy,

complications of pregnancy, delivery, and 3 months of post-

partum care).

• Certain Medicare beneficiaries.

HEALTH INSURANCE AND HEALTH SERVICES

• SSI recipients (or aged, blind, or disabled individuals in States

that apply more restrictive eligibility requirements).

• Recipients of adoption assistance and foster care under Title

IV-E of the Social Security Act.

• Special protected groups (typically individuals who lose their

cash assistance from AFDC or SSI due to earnings from work

or increased Social Security benefits, but who may keep

Medicaid for a period of time).

• All children born after September 30, 1983, in families with

incomes at or below the Federal poverty level who are under

age 19. (This phases in coverage, so that by the year 2002, all

poor children under age 19 will be covered).

Medicare Beneficiaries.—

Medicaid provides help for certain

Medicare beneficiaries. This assistance allows low-income benefi-

ciaries to maintain full Medicare coverage.

There are three groups who receive at least some help from

the Medicaid program: (1) QMBs (Qualified Medicare Beneficia-

ries)—persons who have incomes at or below 100% of the Fed-

eral poverty level and resources at or below 200% of the SSI limit.

(The QMB group includes those who are fully eligible for Medicaid

also.) For QMBs, the State pays the Medicare cost sharing ex-

penses subject to the limits that States may impose on payments

rates. (2) SLIMBs (Specified Low-Income Medicare Beneficia-

ries)—persons who meet all QMB requirements except that their

incomes are slightly higher. For those persons, the State plan

pays only the Medicare Part B premium. (3) QDWIs (Qualified

Disabled and Working Individuals)—persons who were formerly

qualified as disabled Medicare beneficiaries but whose incomes

exceed the maximum for that program because they returned to

work (despite their disability) and thus they are no longer eligible

for monthly Social Security benefits. Medicaid must pay the

Medicare Part A premium for QDWIs whose income does not

exceed 200% of the Federal poverty level.

Optional Eligibility Groups

States also have the option of providing Medicaid coverage

for certain other “categorically related” groups of persons receiv-

ing Federal matching monies. These optional groups share the

characteristics of the mandatory groups, but the eligibility criteria

are somewhat more liberally defined. These “permissible” groups,

for whom Federal matching monies are allowed, include:

• Infants up to age 1 and pregnant women not covered under

the mandatory rules whose family income is no more than

185% of the Federal poverty level guidelines. (The exact

percentage is set by each State.)

• Children under age 21 who meet the AFDC income and

resources requirements.

MEDICAID

• Recipients of State supplementary payments.

• Individuals who would be eligible if institutionalized, but who are

receiving care under home and community based services

waivers.

• Institutionalized individuals eligible under a special income level

(the amount is set by each State—up to 300% of the SSI

Federal benefits rate).

• Tuberculosis (TB) infected persons who would be financially

eligible for Medicaid at the SSI level. (Eligibility is only for TB-

related ambulatory services and drugs.)

• Certain aged, blind, or disabled adults who have incomes above

those requiring mandatory coverage, but below the Federal

poverty level.

• “Medically needy” persons.

Medically Needy.—

These persons would be eligible for Medic-

aid under one of the mandatory or optional groups, except that their

income and/or resources are above the eligibility level set by the

State. Medically needy income levels are higher than the regular

Medicaid eligibility levels; thus, persons may qualify immediately, or

may “spend down” by incurring medical and/or remedial care ex-

penses that cause them to be at or below their State’s level for this

medically needy program.

The medically needy program does not have to be as extensive

as the program for the categorically eligible groups, and may be

quite restrictive in rules as to who is covered and/or as to what

services are offered. Federal matching monies are available. How-

ever, if a State elects to have any medically needy program, there

are Federal requirements that certain groups and certain services

must be included. Children under age 19 and pregnant women

must be covered; and prenatal and delivery care for pregnant

women, and ambulatory care for children must be provided. A

State may elect to provide eligibility to certain additional groups,

and may elect to provide certain additional services. In 1995, 43

States elected to have a medically needy program, and provided

at least some services for at least some medically needy recipients.

The remaining States utilized the “special income level” option

(above) to assist other low-income persons who are aged and

institutionalized.

Recent Changes

to Eligibility Requirements

Welfare reform legislation enacted in 1996 (The Personal

Responsibility and Work Opportunity Reconciliation Act) will

change Medicaid eligibility requirements as States implement the

new legislation. Many noncitizens (who might otherwise qualify for

Medicaid) entering the country on or after August 22, 1996, are not

eligible. However, the States have the option to continue coverage

HEALTH INSURANCE AND HEALTH SERVICES

for most noncitizens who were already receiving Medicaid and to

receive Federal matching funds.

The new legislation also eliminates the AFDC cash assis-

tance program and replaces it with a block grant program called

Temporary Assistance for Needy Families (TANF). However,

families who met the AFDC eligibility criteria prior to welfare

reform will usually continue to be eligible for Medicaid.

In most States, individuals who are eligible for SSI are also

eligible for Medicaid. The law will result in some children losing

SSI. Many of the children affected will still continue to be covered

under Medicaid because they meet other Medicaid eligibility

criteria.

Services

In order to receive Federal matching funds, the State pro-

grams must offer certain

basic

services. Within broad Federal

guidelines, the States determine the amount and duration of

services offered under their programs. They may limit, for ex-

ample, the days of hospital care or the number of physician visits

covered. However, some restrictions apply: Limits must result in a

sufficient level of services to reasonably achieve the purpose of

the benefits. Limits on required (nonoptional) services may not

discriminate among beneficiaries based on medical diagnosis or

conditions.

With certain exceptions, the States must allow Medicaid

recipients freedom of choice among participating providers of

health care services. States may pay for the services through

Basic Medicaid Services

• Inpatient hospital services

• Outpatient hospital services

• Prenatal care

• Vaccines for children

• Physician services

• Nursing facility services for individuals aged 21 or older

• Home health care for persons eligible for skilled

nursing services

• Family planning services and supplies

• Rural health clinic services

• Laboratory and X-ray services

• Pediatric and family nurse-practitioner services

• Federally qualified health center (FQHC) services and

ambulatory and services of an FQHC that would be available

in other settings.

• Nurse-midwife services

• Early and periodic screening, diagnosis, and treatment

(EPSDT) services for children under age 21

MEDICAID

various prepayment arrangements, such as an HMO. In general,

States are required to provide comparable services to all categori-

cally needy eligible persons.

The States may also receive Federal funding for providing other

approved optional services. There are currently 34 optional services

which may be provided with Federal support. The most common of

these are diagnostic services, prescription drugs and prosthetic

devices, clinic services, nursing facility services for the aged and

disabled, intermediate care facilities for the mentally retarded,

optometrist services and eyeglasses, rehabilitation and physical

therapy services, and transportation services.

Additionally, States may also pay for home and community

based care to certain persons with chronic impairments. Another

option allows eight States (as a demonstration project) to pay for

community supported living arrangement services for persons with

mental retardation or a related condition.

Payment

for Services

Medicaid operates as a vendor payment program, with pay-

ments made directly to providers who must accept the Medicaid

reimbursement level as payment in full. Each State has broad

discretion in determining (within federally imposed upper limits and

specific restrictions) the reimbursement methodology and resulting

rate for services, with two exceptions: For institutional services,

payment may not exceed amounts that would be paid under Medi-

care payment rates; and for hospice care services, rates cannot be

lower than Medicare rates.

States may impose nominal deductibles, coinsurance, or

copayments on some Medicaid recipients. However, certain recipi-

ents are excluded: pregnant women, children under age 18, hospi-

tal or nursing home patients who are expected to contribute most of

their income to institutional care, and categorically needy HMO

enrollees. Emergency services and family planning services are

exempt from copayments for all recipients.

The amount of total Federal outlays for Medicaid has no set

limit (cap); rather, the Federal Government must match (at a prede-

termined percentage) the mandatory services plus the optional

services the State decides to provide, and matches (at the appro-

priate administrative rate) necessary and proper administrative

costs.

In 1995, total Medicaid payments averaged $3,311 per recipi-

ent. However, many Medicaid recipients require relatively small

expenditures per person per year. For example, data indicate that

Medicaid vendor payments for over 17 million children under age 21

averaged $1,047 per child. Other groups have very large expendi-

tures per person. Over 151,000 recipients requiring ICF/MR care

had average vendor payments of more than $68,600 per person

(plus the cost of other services and acute care provided outside of

HEALTH INSURANCE AND HEALTH SERVICES

the ICF/MR facility). Medicaid pays the medical costs of approxi-

mately 50% of persons with AIDS. A relatively small number of

patients requiring very specialized and intensive medical care (for

example, very premature babies and severely burned victims) can

have expenses amounting to $4,000 per person per day. A few

persons with continuing, extensive medical care needs (for ex-

ample, high spinal cord or massive brain injuries) can require

$100,000 of Medicaid vendor payments per person per year after

year for decades.

Medicaid’s compound rate of growth is projected to be 7.5%

per year. If current expenditure trends continue, total payments

(Federal and State) could increase to $230 billion by the year 2000.

Number of Medicaid recipients and total and average vendor

payment amounts, by eligibility category and type of service,

fiscal year 1995

Category and service

Number of

recipients (in

thousands)

Total

payments

(in millions)

Average

payment