House Energy & Commerce Committee Issues Report to Extend Funding for Children’s Health Insurance Program (Part 1 of 2)

WASHINGTON, Oct. 22 -- The House Energy and Commerce Committee issued a report (H.Rpt. 115-358) on legislation (H.R. 3921) to extend funding for the Children's Health Insurance Program. The report was advanced by Rep. Greg Walden, R-Ore., on October 19.

Excerpts of the report follow:

Purpose and Summary

H.R. 3921 was introduced on October 3, 2017, by Representative Michael C. Burgess (R-TX). The bill extends federal funding for the Children's Health Insurance Program (CHIP) for fiscal year (FY) 2018 through FY 2022, eliminates the FY 2018 reductions in Medicaid Disproportionate Share Hospital (DSH) allotments, and provides funding for Puerto Rico's Medicaid program for FY 2018 through the end of calendar year 2019.

Background and Need for Legislation

The Children's Health Insurance Program is a means-tested federal-state program that provides health coverage to targeted low-to-moderate income children and pregnant women who have annual income above Medicaid eligibility levels. CHIP is jointly financed by the federal government and states, and the states are responsible for administering CHIP.

In FY 2015, 8.4 million children received CHIP-funded coverage. Spending for FY 2015 totaled $13.7 billion ($9.7 billion in federal funds and $4.0 billion in state funds). About 40 percent of participants (3.4 million) were children under the age of 19 in separate CHIP programs, 56 percent (4.7 million) were children in Medicaid-expansion CHIP programs, and just under 4 percent (0.3 million) were unborn children in separate CHIP programs. States may also provide CHIP-funded coverage to pregnant women. In FY 2015, states electing this option covered 4,200 pregnant women.

CHIP spending is reimbursed by the federal government at a matching rate higher than Medicaid's. CHIP's enhanced federal medical assistance percentage (E-FMAP) varies by state, historically ranging from 65 percent to 81 percent, compared to 50 percent to 73 percent for children in Medicaid. Federal CHIP allotments are provided to states annually, with amounts based on each state's recent CHIP spending increased by a growth factor. States have two years to spend each allotment, with unspent funds available for redistribution to other states. In addition to redistribution funds, federal CHIP contingency funds are available to qualifying states that exhaust their CHIP allotments.

Section 2101 of the Affordable Care Act increased the CHIP E-FMAP by 23 percent from October 1, 2016 through September 30, 2019. Therefore, under current law, the CHIP matching rate ranges from 88 percent to 100 percent through FY 2019. In FY 2017, 12 states have E-FMAPs at 100 percent. However, the Patient Protection and Affordable Care Act (ACA) did not include additional or extended funding for CHIP, so Congress had to extend funding in MACRA. The ACA also required states to maintain income eligibility levels for CHIP through September 30, 2019, as a condition for receiving payments under Medicaid (notwithstanding the lack of corresponding federal appropriations for FY 2018 and FY 2019). This provision is referred to as the "Maintenance of Effort" (MOE) requirement.

Under the CHIP program, the federal government sets basic requirements for CHIP, but states have the flexibility to design their version of CHIP within the federal government's basic framework. As a result, there is significant variation across CHIP programs. Currently, state upper-income eligibility limits for children range from a low of 175 percent of the federal poverty level (FPL) to a high of 405 percent of FPL. However, roughly 90 percent of CHIP enrollees are at or below 250 percent FPL. States may also extend CHIP coverage to pregnant women when certain conditions are met. While individuals who meet Medicaid program criteria (including the criteria for Medicaid-expansion state CHIP programs) are entitled to Medicaid coverage, there is no individual entitlement to coverage in separate state CHIP programs.

On September 30, 2017, the FY 2017 funding for the Children's Health Insurance Program expired. After the expiration of FY 2017 funds, and until the provision of FY 2018 funds, states may use redistributed funds and unspent FY 2017 allotments to continue to provide health coverage. States could eventually exhaust all federal CHIP funding, although this has not occurred since the enactment of the current allotment structure in the Children's Health Insurance Program Reauthorization Act of 2009 (CHIPRA). However, without the FY 2018 federal funding, states could start to exhaust these funds as early as November. Before the exhaustion of program funds in each state, states are required to notify CHIP enrollees that their coverage will be terminated, and states would eventually have to terminate their CHIP programs. The majority of children currently enrolled in CHIP would be eligible for health coverage in Medicaid, the Exchanges, or employer-sponsored coverage. However, not all children would be insured and children and families could face higher cost-sharing, less access to quality pediatric providers, and other challenges in other coverage sources. Previous analysis from U.S. Government Accountability Office (GAO) and the Medicaid and CHIP Payment and Access Commission (MACPAC) has demonstrated that CHIP offers higher quality, more affordable coverage for children relative to Exchange coverage. Additionally, since CHIP is funded by federal and state governments, it is generally more cost-effective for the federal government to provide health coverage to children through CHIP than through Exchange coverage.

Committee Action

On Wednesday, June 23, 2017, the Subcommittee on Health held a hearing entitled "Examining the Extension of Safety Net Health Programs." The purpose of this hearing was to examine the extension of funding for two federal safety net health programs, the Community Health Center Fund and the State Children's Health Insurance Program. Witnesses included:

Michael Holmes, CEO, Cook Area Health Services;

Jami Snyder, Associate Commissioner for Medicaid/SCHIP Services, Health and Human Services Commission, State of Texas; and

Cindy Mann, Partner, Manatt Health.

On October 4, 2017, the full Committee on Energy and Commerce met in open markup session and ordered H.R. 3921, as amended, favorably reported to the House by a vote of 28 yeas and 23 nays.

Committee Votes

Clause 3(b) of rule XIII requires the Committee to list the record votes on the motion to report legislation and amendments thereto. The following reflects the record votes taken during the Committee consideration:

Oversight Findings and Recommendations

Pursuant to clause 2(b)(1) of rule X and clause 3(c)(1) of rule XIII, the Committee held a hearing and made findings that are reflected in this report.

New Budget Authority, Entitlement Authority, and Tax Expenditures

Pursuant to clause 3(c)(2) of rule XIII, the Committee finds that H.R. 3921 would result in no new or increased budget authority, entitlement authority, or tax expenditures or revenues.

Congressional Budget Office Estimate

Pursuant to clause 3(c)(3) of rule XIII, the following is the cost estimate provided by the Congressional Budget Office pursuant to section 402 of the Congressional Budget Act of 1974:

U.S. Congress,

Congressional Budget Office,

Washington, DC, October 19, 2017.

Hon. Greg Walden,

Chairman, Committee on Energy and Commerce,

House of Representatives, Washington, DC.

Dear Mr. Chairman: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 3921, the HEALTHY KIDS Act of 2017.

If you wish further details on this estimate, we will be pleased to provide them. The CBO staff contact is Robert Stewart.

Sincerely,

Keith Hall,

Director.

Enclosure.

H.R. 3921--HEALTHY KIDS Act of 2017

Summary: H.R. 3921 would extend federal funding for the Children's Health Insurance Program (CHIP) for five years, increase Medicaid funding for Puerto Rico and the Virgin Islands, and change policies that require other sources of health coverage to pay claims before Medicaid. The bill also would modify payments to hospitals that treat a disproportionate share of uninsured and Medicaid patients and require states to count lottery winnings as income for purposes of determining Medicaid eligibility. Finally, H.R. 3921 would make adjustments to Medicare premium subsidies for higher- income individuals.

On net, CBO estimates that implementing the legislation would reduce the deficit by $1.1 billion over the 2018-2027 period. Because enacting H.R. 3921 would affect direct spending and revenues, pay-as-you-go procedures apply.

CBO estimates that enacting H.R. 3921 would not increase net direct spending or on-budget deficits in one or more of the four consecutive 10-year periods beginning in 2028.

H.R. 3921 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act (UMRA).

Estimated cost to the Federal Government: The estimated budgetary effect of H.R. 3921 is shown in the following table. The costs of this legislation fall within budget function 550 (health).

(TABLE OMITTED)

Notes: Components may not add to totals because of rounding; CHIP = Children's Health Insurance Program; DSH = payments to hospitals that treat a disproportionate share of uninsured and Medicaid patients. aAll off-budget effects would come from changes in Social Security revenues.

Basis of estimate: For this estimate, CBO assumes that H.R. 3921 will be enacted near the start of calendar year 2018.

Children's Health Insurance Program

H.R. 3921 would extend funding for CHIP through 2022, change the federal matching rate in 2020, and extend certain eligibility requirements. CBO and JCT estimate that enacting this legislation would increase federal spending by $14.9 billion and revenues by $6.7 billion, for a net cost of $8.2 billion over the 2018-2027 period, relative to CBO's baseline.

Extension of Funding. The bill would provide a total of $118.5 billion for CHIP allotments to states over five years. The net cost of the extension described above ($8.2 billion) is substantially less than the amount of funding provided for three reasons. First, pursuant to the rules that govern CBO's baseline, certain expiring programs, including CHIP, are assumed to continue in the baseline beyond their scheduled expiration dates. In accordance with those rules and the structure of CHIP financing in 2017, CBO assumes the continuation of $5.7 billion of CHIP funding in each year over the 2018-2027 period. CBO's estimate of CHIP spending under this bill is net of that spending already assumed in the baseline.

Second, the increase in spending for CHIP would be partially offset by reductions in the net costs of federal subsidies provided for other forms of health insurance, including Medicaid, insurance purchased through the health insurance marketplaces established under the ACA, and employment-based health insurance. Those reductions would occur because most of the people who would receive coverage through CHIP as a result of enacting H.R. 3921 would otherwise receive federally-subsidized coverage under current law. Specifically, CBO estimates that of the approximately six million children who would be covered by CHIP under H.R. 3921:

About 40 percent would be covered by Medicaid under current law. Thus, enacting H.R. 3921 would reduce federal Medicaid spending by $15.1 billion during the 2018-2027 period relative to CBO's baseline.

About 25 percent would receive subsidies for private health insurance purchased through the marketplaces under current law. Children in families with income between 138 percent and 400 percent of the poverty guidelines who are not eligible for Medicaid would generally qualify for subsidies to purchase health insurance through the marketplaces if they do not have access to employment-based coverage through a parent. If H.R. 3921 is enacted, CBO estimates those subsidies would be $20 billion lower over the 2018-2027 period because those children would enroll in CHIP instead of purchasing coverage through the marketplaces. The estimated decrease in subsidies for coverage purchased through marketplaces comprises a $19.2 billion reduction in outlays and a $0.7 billion increase in revenues.

About 25 percent would participate in employment-based health insurance under current law, because some parents with offers of family coverage through an employer will choose to enroll their children in such plans. Under H.R. 3921, CBO and JCT estimate that revenues would be $3.8 billion higher over the 2018-2027 period because parents who would no longer enroll their children in health insurance through their employer would receive less of their income in nontaxable health benefits and more in taxable wages.

Fewer than 10 percent would be uninsured under current law and some would be subject to the penalty associated with the individual mandate. Enacting H.R. 3921 would reduce federal revenues associated with collecting that penalty by less than $50 million over the 2018-2027 period.

Finally, the net cost of the extension is less than the $118.5 billion that would be provided by H.R. 3921 because CBO does not expect that all of the appropriated funds would be spent.

Enhanced Federal Matching Rate. Under current law, a 23 percentage point increase in the CHIP federal matching rate that went into effect in 2016 will expire after 2019. The average matching rate would return to historical levels of about 70 percent beginning in 2020. Under H.R. 3921, states would receive an 11.5 percentage point increase in the matching rate in 2020 and the matching rate would return to historical levels beginning in 2021. CBO estimates that approximately $2 billion of the net cost of H.R. 3921 is due to this provision.

Maintenance of Eligibility Levels Requirement. Under current law, states are required to maintain CHIP eligibility levels, methodologies, and procedures as they were on March 23, 2010 through September 30, 2019. CBO expects that, under current law, some states would lower CHIP eligibility levels and/or impose more restrictive eligibility procedures (such as waiting periods) beginning in 2020, which would reduce the number of children eligible for CHIP.

H.R. 3921 would mostly extend this requirement through 2022. Instead of the requirement applying to all children, beginning in 2020 it would be limited to children in families with income below 300 percent of the poverty guidelines. It would also apply to children in families with income above 300 percent of the poverty guidelines who do not have access to an offer of employer-sponsored insurance through a family member. (Because the vast majority of children in CHIP are in families with incomes below 300 percent of the poverty guidelines, CBO estimates that continuing this requirement, as modified by H.R. 3921, would affect at least 98 percent of children who would be enrolled in CHIP if the current requirement were fully extended through 2022.)

CBO expects that more children would enroll in CHIP under H.R. 3921 because of the extension of the eligibility requirements that are scheduled to expire in 2019. Overall, the cost to the federal government of covering these children in CHIP would be less than the average cost of covering them in the marketplaces and employment-based insurance. As a result, CBO estimates that this provision would reduce the estimated net cost of extending CHIP funding through 2022 by about $700 million.

Demonstration Programs. The bill would provide $200 million of funding for the Childhood Obesity Demonstration Project, the Pediatric Quality Measures Program, and outreach activities to children that aim to increase enrollment in Medicaid and CHIP. Based on historical spending patterns for similar activities, CBO estimates that those provisions would increase outlays by approximately $200 million over the 2018-2027 period.

Modifying reduction in Medicaid DSH allotments

Under current law, allotments are made to states for payments to hospitals that treat a disproportionate share of uninsured and Medicaid patients (DSH allotments). In 2017 states received $12 billion in allotments. DSH allotments are increased each year by the percent change in the consumer price index and then will be adjusted by scheduled cuts between 2018 and 2025. Those cuts begin at $2 billion in 2018 and grow by $1 billion per year until they reach $8 billion in 2024 and 2025. H.R. 3921 would eliminate the $2 billion reduction for 2018 and add $8 billion in allotment cuts to 2026 and 2027. On net, CBO estimates that this provision would reduce direct spending by $193 million over the 2018-2027 period. The level of savings is smaller than the net change to the DSH allotments because some states do not spend all of their DSH allotments and because CBO expects that by 2026 states will have adjusted to the reduced DSH allotments of prior years and will not spend substantially more for DSH in 2026 and 2027 than what is projected to be spent in 2025. As a result, CBO estimates that the additional $8 billion in allotment cuts added to 2026 and 2027 would only lead to a modest reduction in DSH spending in those years.

Puerto Rico and the Virgin Islands Medicaid payments

Over the 2018 and 2019 period, H.R. 3921 would increase the total amount of block grant funding available to Puerto Rico under the Medicaid program, by more than $1 billion, and increase the funds available to the U.S. Virgin Islands by approximately $30 million. In total, CBO estimates the provision would increase direct spending by $1,040 million over the 2018-2027 period relative to CBO's baseline.

Medicaid third party liability

The bill would make several changes to policies in Medicaid that require other sources of health coverage, or third parties, to pay claims under their policies before Medicaid will pay for the care of an enrollee. On net, those changes are expected to reduce direct spending by $3.7 billion over the 2018-2027 period.

Under current law, if a state is aware that a Medicaid enrollee has potential third-party coverage, the state must reject a provider's claim until it has been submitted to the third party. If a state identifies a third party after a claim is paid, the state must seek reimbursement from the third party. For certain services, states are required to pay first or to pay Medicaid claims even if a third party is likely liable and then seek to recoup that payment from the third party. Currently, states must pay those claims within 30 days. However, beginning in 2018, states will have 90 days to make such payments. Any amounts recouped by the states from third parties must be shared with the federal government at the same rate as the federal government reimburses states for Medicaid services. Based on administrative data from the Department of Health and Human Services, CBO estimates that less than 10 percent of adults and children have other private or public sources of coverage. In fiscal year 2016, states collected and returned to the federal government over $870 million in reimbursements from third parties for such claims.

Two provisions of the bill would amend current standards for paying claims that fall under the exception to states paying first. Beginning in fiscal year 2018 the bill would delay, for two years, policies that allow states to wait up to 90 days before paying claims that fall under the exception. In fiscal year 2020 the bill also would eliminate the requirement for states to pay first for services for prenatal care, preventive pediatric, and for individuals on whose behalf child support enforcement is being carried out. On net, CBO expects that these provisions would increase the amount paid for services by third parties and reduce the amount paid by Medicaid. In total, CBO estimates these provisions would reduce direct spending by $6.6 billion over the 2018-2027 period.

H.R. 3921 also would amend the definition of other sources of health coverage to exclude worker's compensation and property and auto insurers. In fiscal year 2016, collections from these insurers accounted for approximately 30 percent of total reimbursements from third parties. CBO estimates that excluding these insurers from liability would increase direct spending by $2.8 billion over the 2018-2027 period.

Finally, the bill would allow states to keep a larger percentage of payments recouped from third parties who provide coverage to individuals who were made eligible for Medicaid under the Affordable Care Act (ACA). This provision would provide an incentive for states to increase their efforts to recoup payments. However, CBO expects that few individuals made eligible under the ACA have coverage from a liable third party and, as a result, recoveries would not increase recoveries enough to offset the cost of allowing states to keep a greater share of the recoveries. On net, CBO estimates that the provision would increase direct spending by $60 million over the 2018-2027 period.

Treatment of lottery winnings

Under current law, most non-disabled adults who apply for Medicaid and have substantial funds in a bank account could still qualify for Medicaid because the eligibility rules do not permit assets tests (an asset test counts the resources, such as savings accounts, that applicants may have available to them beyond their earnings and other income). Similarly, while most current enrollees who gain substantial lump sum income must report that income to their state Medicaid agencies, which would cause most to lose their coverage, those individuals could reapply again the next month once the lump sum income would be treated as an asset.

H.R. 3921 would require states to treat monetary winnings from lotteries and other lump sum forms of income such as from gambling, legal judgements, and inheritances as income for purposes of determining Medicaid eligibility. For amounts less than $80,000, these types of income would be countable as income for Medicaid eligibility purposes in the month received. For each $10,000 increment of income above $80,000, the amounts would be divided into equal monthly installments for up to 120 months ($90,000 in income would be divided over two months, $100,000 in income over three months, and so on). As a result, the bill would reduce Medicaid spending by preventing some individuals from receiving Medicaid benefits for the applicable period of time.

Based on lottery data from the state of Michigan, additional information collected from lottery industry groups, and the relatively low probability of low-income individuals receiving large sums from lotteries, gambling, legal judgements, and inheritances, CBO estimates that the number of people who would lose Medicaid because of H.R. 3921 would be modest, ranging from 16,000 to 18,000 in most years of the budget window. Assuming the typical per capita cost for Medicaid adults (which ranges from an estimated $4,600 in 2018 to $6,800 in 2027), CBO estimates that this provision would reduce direct spending by $612 million over the 2018-2027 period.

Medicare premium subsidies

Under current law, an income-related monthly adjustment amount (IRMAA) is applied to basic premiums for Medicare enrollees in parts B (which covers physicians' and other outpatient services) and D (which covers outpatient prescription drugs) with relatively high income. The income thresholds for the higher premiums are divided among four brackets, which are frozen through 2019. The lowest bracket is set at $85,000 for single beneficiaries or $170,000 for married couples filing joint tax returns. The thresholds will increase by about 2 percent in 2020 and will be indexed after that for general price inflation. H.R. 3921 would modify the income thresholds for the highest premium bracket (80 percent) and create an additional bracket (100 percent) beginning in calendar year 2018. The new bracket would be set at $500,000 for single beneficiaries and $875,000, or 1.75 times the single beneficiary's amount, for married couples filing jointly. Beneficiaries earning more than those amounts would be required to pay a combined basic premium and IRMAA that will cover 100 percent of the expected costs for an average enrollee. In addition, this section would also change the rate of increase by about 5 percent for the 100 percent premium bracket beginning in 2027. CBO estimates that this section would save $5.8 billion over the 2018-2027 period.

Pay-As-You-Go considerations: The Statutory Pay-As-You-Go Act of 2010 establishes budget-reporting and enforcement procedures for legislation affecting direct spending or revenues. The net changes in outlays and revenues that are subject to those pay-as-you-go procedures are shown in the following table. Only on-budget changes to outlays or revenues are subject to pay-as-you-go procedures.

CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 3921, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON ENERGY AND COMMERCE ON OCTOBER 4, 2017

(TABLE OMITTED)

Increase in long-term direct spending and deficits: CBO estimates that enacting the legislation would not increase net direct spending or on-budget deficits in any of the four consecutive 10-year periods beginning in 2028.

Intergovernmental and private-sector impact: H.R. 3921 contains no intergovernmental or private-sector mandates as defined in UMRA.

Estimate prepared by: Federal Costs: Kate Fritzsche, Emily King, Jamease Kowalczyk, Lisa Ramirez-Branum, Robert Stewart, Rebecca Yip, and the staff of the Joint Committee on Taxation; Intergovernmental and private-sector impact: Amy Petz.

Estimate approved by: Holly Harvey, Deputy Assistant Director for Budget Analysis.(i.e., eliminating the FY 2017 reductions and extending the reductions to FY 2025) and increasing the aggregate reduction amounts from $35.1 billion to $43.0 billion.

Section 105 would further amend the reductions by eliminating the FY 2018 cuts and offsetting the federal cost of this policy by extending the reductions to FY 2026 and FY 2027.

Section 106. Puerto Rico Medicaid payments

Section 106 would make available from October 1, 2017, through December 31, 2019, $880 million for Puerto Rico's Medicaid program. It would also make an additional $120 million available for that period if the Financial Oversight and Management Board for Puerto Rico certifies by a majority vote that the Puerto Rico Medicaid program has taken reasonable and appropriate steps to:

Reduce Medicaid fraud, waste, and abuse;

Implement strategies to reduce unnecessary, inefficient, or excessive Medicaid spending; and

Improve the use and availability of Medicaid data for program operation and oversight; and improve the quality of care and patient experience for Medicaid enrollees.

Section 106 would also provide a temporary increase in the growth rate of the annual funding ceiling and provide a 90 percent federal matching rate for both state expenditures related to the operation of a state Medicaid fraud control unit and for costs attributable to compensation or training of skilled professional medical personnel, and staff directly supporting such personnel. Finally, this provision also requires additional reporting to the Financial Oversight and Management Board for Puerto Rico.

TITLE II--OFFSETS

Section 201. Medicaid third party liability

Section 201 takes several steps to modernize and improve Medicaid third party liability.

Under current law, if a beneficiary has another source of payment for health services or items covered by Medicaid, that source should pay up to the extent of its liability before Medicaid does. These other sources of payment are referred to as third parties. Third party liability (TPL) refers to the legal obligation of third parties (e.g., certain individuals, entities, insurers, or programs) to pay part or all of the expenditures for medical assistance furnished under a Medicaid state plan to a Medicaid beneficiary. When private third parties--such as health insurers--pay for health care services instead of Medicaid, savings accrue not only to states, but also to the federal government.

Today, millions of Medicaid beneficiaries have additional health insurance through third-party sources. For example, some adults may be covered by employer-sponsored private health insurance even though they also qualify for Medicaid. Children similarly may be eligible for Medicaid while also being covered as a dependent on a parent's private health plan. Individuals age 65 and older may receive private coverage from a former employer or purchase such coverage to supplement their Medicare coverage. According to work by GAO and HHS Office of Inspector General (OIG), it is common for Medicaid beneficiaries to have one or more additional sources of coverage for health care services. A January 2015 GAO report estimated that in 2012, 7.6 million Medicaid enrollees (13.4 percent) had private health insurance. A January 2013 HHS OIG report found that "from 2008 to 2010, an estimated 15 percent (approximately 6.8 million) of Medicaid beneficiaries had employer-sponsored health insurance annually"--and the number is likely even higher when other sources of coverage are considered. GAO also noted that the number of Medicaid enrollees with private health insurance has increased with the expansion of Medicaid under the ACA. Using a projection from 2012 Census data, GAO estimated that "about 868,000 of the projected seven million new enrollees in 2014 would be expected to have private insurance."

Currently, most Medicaid claims are paid using a cost- avoidance approach. Cost-avoidance occurs when states do not pay providers for services until other coverage has paid to the extent of its liability, rather than paying up front and recovering costs later. After a state has verified other coverage, it must generally seek to ensure that health care providers' claims are directed to the responsible party. When states recognize claims as belonging to beneficiaries who have other insurance, they will deny payment and return the claims to providers, who are then required to bill and collect payment from any liable third parties. If states have electronic claims processing systems, they can automatically deny payment when claims enter their systems. Federal regulations generally require states to use cost-avoidance when probable TPL is established.

There is an exception to the types of Medicaid claims that can be paid using cost-avoidance strategies. The Social Security Act requires that states pay and chase claims instead of using cost-avoidance when the service is prenatal care, the service is preventive pediatric care, or coverage is through a parent whose obligation to pay support is enforced by the states' child enforcement agency. Without the ability to use cost-avoidance strategies, states must use a "pay-and-chase" method. This refers to when states pay providers for submitted claims and then attempt to recover payments from liable third parties.

This barrier to states' wider use of cost-avoidance strategies has the effect of increasing federal and state Medicaid spending. Based on available data, if states were allowed to use cost-avoidance strategies more broadly, they could save billions of dollars. HHS OIG found that:

[C]ost-avoidance is the most cost-effective way to ensure that Medicaid is the payer of last resort. When states avoid costs, they do not pay money upfront or spend resources on recovery. Once states deny payment and notify providers of a liable third party, providers should bill future claims to the third party first, rather than the states.

According to GAO, "states have substantially improved their TPL identification and recovery efforts [sic] in recent years, generating significant savings for the federal government as well as for themselves." GAO explained:

Substantial increases in TPL cost savings in recent years highlight that improvements to TPL efforts, such as heightened attention to coverage identification, can substantially improve TPL cost avoidance and recoveries. The scale of the cost savings to Medicaid at both federal and state levels through the identification of coverage through, and payment of services by, private health insurance--reportedly nearly $14 billion in 2011--underscores the potentially significant return on investment that may be gained from continued TPL improvement efforts and attention to resolving remaining gaps in state access to available coverage data.

States' reported cost-avoidance savings accounted for most third party liability growth and total savings between 2001 and 2011. States' reported savings from cost-avoidance grew 117 percent, from $33 billion to $70 billion, between 2001 and 2011. Cumulatively, states reported that they avoided paying $512 billion from 2001 to 2011--an amount roughly equivalent to what the entire Medicaid program cost federal and state taxpayers last year.

What follows is a review of the specific provisions of this section.

Section 201(a)(1) delays a provision from the Bipartisan Budget Act of 2013 related to Medicaid Amendments Relating to Beneficiary Liability Settlements from October 1, 2017 to October 1, 2019. Congress has previously delayed this provision on a bipartisan basis. The provision would take effect on September 30, 2017, and apply with respect to claims generated or filed after that date.

Section 201(a)(2) clarifies the definitions applicable to third party liability. Under current law, states must fulfill numerous obligations with respect to third parties, including:

(1) collecting information sufficient to enable the state to pursue claims against third parties at the time of Medicaid eligibility determinations and redeterminations;

(2) submitting to the Secretary of the Department of Health and Human Services a plan for pursuing third parties, which is to be monitored as part of the Secretary's review of the state's mechanized claims processing system;

(3) seeking reimbursement from third parties where liability is found to exist after the state Medicaid agency has paid for a service;

(4) limiting beneficiaries' financial liability for services for which third parties are liable;

(5) prohibiting Medicaid providers from denying services to beneficiaries because of a third party's potential liability; and,

(6) ensuring, through state law, that to the extent to which Medicaid has already paid for an item or service for which a third party is liable, the beneficiary's right to payment from the third party is considered to be assigned by the beneficiary to the state.

Current law also imposes obligations on states to ensure that TPL rules are followed in states' arrangements with health insurers and regulation of health insurers. The statute does not define health insurer, but instead includes two substantially identical lists of types of health insurers.

Section 201(a)(2) would substitute the terms third party and health insurer with one term, responsible third party and define the term, responsible third party.

Section 201(a)(2)(B) would, with respect to each of the state's duties concerning third parties and health insurers, replace the applicable term with responsible third party.

Section 201(a)(3) would remove the special treatment of certain types of care and payments under Medicaid third party liability rules. Currently, under Medicaid law regulations, states are generally required to use cost- avoidance for third party liability. If a state has established the probable liability of a third party for a service at the time a provider files a claim for payment, the state must reject the claim and return it to the provider. The state may pay the claim only after the state receives confirmation from a provider or a third party resource indicating the extent of third party liability. However, there are two exceptions to this rule: (1) the state may not withhold Medicaid payment pending determination of third party liability, but instead must pay the full amount of the provider's claim and then seek reimbursement from any liable third party, if the claim is for prenatal care or for preventive pediatric care, including services under Medicaid's early and periodic screening, diagnosis, and testing (EPSDT) benefit; and (2) with respect to Medicaid services provided to any child on whose behalf child support enforcement is being carried out, the state is required to make full payment for the service, without regard to the rule set forth above, if the third party liability is derived from the parent whose obligation to pay child support is being enforced, and if a third party has not paid a provider's claim within 30 days after the services are furnished.

Section 201(a)(3) would repeal the requirement that state Medicaid programs must use a "pay and chase" approach when seeking payment from third parties for such Medicaid claims. The policy rationale for this prohibition on states using cost- avoidance for these claims can be understood in the concern articulated in the conference report for the Consolidated Omnibus Budget Reconciliation Act of 1985. At the time, the concern was that "the administrative burdens associated with third party liability collection efforts not discourage participation in the Medicare program by physicians and other provider of preventative pediatric and prenatal care, since the beneficiaries in need of such services already have difficulty finding quality providers in many communities." This restriction may have been appropriate in the mid-1980s. At that time, much of Medicaid program's claims billing and administrative processes were paper-based and transactions occurred routinely through mailing hard copies of documents through the U.S. postal service. Most pregnant women and children were also enrolled in fee-for-service Medicaid programs where claims were processed directly by the state program.

Today, more than 30 years later, the Medicaid program looks dramatically different. Women and children enrolled in Medicaid programs today generally have good access to quality providers. Pregnant women and children constitute a large percentage of beneficiaries enrolled in the program and the bulk of these populations are served through Medicaid managed care organizations. Because managed care organizations receive a capitated payment for an enrollee, in addition to current federal requirements regarding provider networks and patient access, such organizations also generally have an incentive to ensure patients receive timely preventative and primary care that keeps patients healthy. Research published by GAO in 2015 found that "Medicaid enrollees report having access to care that is generally comparable to that of privately insured individuals." Other research bears out similar conclusions. GAO's research did not identify administrative burdens related to Medicaid billing requirements were among the top concerns states identified when they were asked to identify factors that affected providers' participation in Medicaid. Additionally, although GAO noted that some patient populations (such as certain non-pregnant adults) in some states have faced challenges accessing some types of providers (such as mental health providers and dentists). Research from GAO and other entities identifies a range of policy tools and payment levers states can use to help increase provider participation in Medicaid. Moreover, states have successfully used cost- avoidance approaches in Medicaid third party liability with claims for other populations without harming access to care.

Medical billing systems also look dramatically different than they did more than 30 years ago. Since the 1980s, there have been tremendous advances across the health care system in medical billing, as electronic billing systems, digital transactions, online verification systems, and other technologies have significantly transformed standard Medicaid reimbursement and third party liability practices. Technological advances have resulted in tangible efficiencies for state Medicaid programs. A 2013 HHS OIG report examining Medicaid third party liability claims found that "electronic systems improved the efficiency with which [states] were able to identify beneficiaries with third-party insurance. This improved efficiency resulted from: (1) conducting online verification of coverage and (2) having electronic data- matching agreements with third parties." Electronic systems helped states identify third parties more efficiently, which helped states save money. For example, verifying coverage online through a third-party web site is quicker than phoning or faxing a third party. The OIG report also noted that states found using third party liability clearinghouse--vendors with electronic agreements with many insurance companies--was beneficial to improve efficiency and reduce unnecessary spending. As the OIG report explained, "states pay clearinghouses to match coverage information for beneficiaries against a clearinghouse's collection of data."

Data-matching agreements also increase efficiency because they allow states to check for third-party insurance for many beneficiaries at one time. As the OIG report elaborated, "in these cases, states share their Medicaid enrollment with third parties, which then compare states' lists to their covered individuals and produce a report of all matches for states." Using electronic systems increased states' efficiency in avoiding costs and recovering payments. Electronic claims occur when providers submit claims electronically for services provided to Medicaid beneficiaries to states for payment. Electronic billing occurs when states send their invoices for reimbursement to third parties via electronic means. Both technologies help save money because automated processes replace manual processes. For example, as the OIG report highlights, when electronic claims from providers are transmitted directly to states' claim management processing systems, claim reviews, third party liability checks, and cost- avoidance activities happen automatically, rather than manually. By improving the third party payments owed to providers so they are paid accurately and quickly, these reforms may actually help improve providers' experience in the Medicaid program.

The Committee has consulted with a number of nonpartisan Medicaid policy experts and program analysts in developing and advancing this reform to Medicaid third party liability rules. Based on a careful review of existing Medicaid research from a range of entities (including GAO, HHS OIG, and MACPAC), as well as conversations with nonpartisan experts, current or former Medicaid directors, and others, the Committee believes this is a responsible step that will remove a statutory barrier. This targeted modernization of the program recognizes how the Medicaid program and medical billing has dramatically changed over the past 30 years and will result in improved efficiencies for state Medicaid programs without negatively impact access to care.

Section 201(a)(4) clarifies the roles of health insurers with respect to third party liability.

Section 201(a)(4)(A) would clarify both the role of Medicaid managed care entities (and other health insurers) in furnishing Medicaid benefits under contract with the state, as well as the role of health insurers as responsible third parties.

Where states provide Medicaid services through a contract with a health insurer, the contract would be required specify (1) whether the state is delegating to the health insurer all or some of its right of recovery from responsible third parties for items or services for which Medicaidpayment has been made; and (2) whether the state is transferring to the health insurer all or some of the assignment to the state of beneficiaries' right to payment by third parties.

wherein addition, if a state elects either of the two options set forth in subparagraph (E), the state must provide assurances to the Secretary that the state laws referred to in SSA 1902(a)(25)(I) would confer on the health insurer the same authority that the state would otherwise have with respect to the four requirements relating to the state's dealings with health insurers on third party liability matters outlined in subparagraph (I). For example, health insurers that are responsible third parties would be required to provide information regarding their coverage of Medicaid beneficiaries to the health insurer that has contracted with the state to furnish Medicaid services and has contractually agreed to carry out third party liability responsibilities.

Section 201(a)(4)(B) would require that reimbursements made by responsible third parties to a health insurer under contract with the state would be treated as overpayments, just as such reimbursements would be treated if paid by the responsible third party directly to the state.

Section 201(a)(5) would clarify the scope of the third party liability obligations that states must impose on health insurers.

Section 201(a)(5)(A) and (B) would ensure that services furnished under waivers of the Medicaid state plan are subjected to the same third party liability requirements as Medicaid state plan services, and clarify that health insurers, as a condition of doing business in a state, must accept any state's right of recovery of third party liability (not merely the right of the state Medicaid agency in the state in which the service is rendered).

Section 201(a)(5)(B) would further require health insurers as responsible third parties to accept, as a valid authorization for the furnishing of an item or service to a Medicaid-eligible individual, an authorization made on the individual's behalf pursuant to Medicaid rules.

Section 201(a)(5)(C) would require health insurers to provide the required response to a state's inquiries regarding claims submitted to the health insurer within 60 days.

Section 201(a)(5)(D) would require states to require health insurers, in addition to agreeing not to deny a claim submitted by the state solely on the basis of the date of submission of the claim, or the type or format of the claim form, also to not deny a claim submitted by the state merely on the ground of failure to obtain prior authorization.

Section 201(a)(6) would provide that, with respect to expenditures for Medicaid services provided to a member of the newly eligible group in 2017 and subsequent years, the Secretary, in determining the amount of the federal overpayment to the state relating to a third party liability recovery (i.e., the federal share of the state's overpayment to the provider), would apply the state's standard FMAP rate, rather than the newly eligible FMAP rate. This creates a useful financial incentive for states seeking third party liability reimbursements for this patient population.

Section 201(b) addresses a state's failure to comply with the third party liability requirements. In general, the Centers for Medicare and Medicaid Services (CMS) has the authority to disallow federal participation in states' Medicaid expenditures in specific instances where CMS determines that the expenditure does not comply with the state plan or federal Medicaid requirements.

This section would provide that, beginning in 2021, if a state fails to comply with the third party liability requirements with respect to each calendar quarter of a year, the Secretary may reduce the FMAP by 0.1 percentage point (one- tenth of one percent) for calendar quarters of each subsequent year in which the state also fails to comply. The reduction would be cumulative for the period of consecutive years that a state fails to comply. For various populations, the Secretary could choose to implement the FMAP reduction earlier, including applying the penalty provision beginning in 2019 if a state fails to comply with third party liability requirements with respect to medical assistance furnished to members of the newly eligible population, or to non-expansion individuals. Non- expansion individuals would be defined as Medicaid beneficiaries who are (1) not under 19 years of age; (2) not 65 years of age or older; and (3) not eligible for Medicaid on the basis of being blind or disabled. The Secretary could choose to apply the penalty provision beginning in 2020 if a state fails to comply with third party liability requirements with respect to medical assistance furnished to (1) certain individuals who are under age 21 (or at the state's option, under the age of 20, 19, or 18), (2) certain individuals 65 years of age or older, or (3) certain blind individuals.

Section 201(c) would provide that states must require health insurers to provide to the state, upon request, information concerning Medicaid beneficiaries or Medicaid- eligible individuals to determine during what period the individual was covered by the health insurer. The same requirements must also be imposed on health insurers with respect to CHIP beneficiaries or eligible individuals.

Section 201(d) would require that the education and training included in the Medicaid Integrity Program include training on the liability of responsible third parties. It would require that, as part of this education and training, the Secretary: (1) publish information on its website concerning third party liability best practices; (2) monitor states' efforts to asses third party liability and analyze the challenges posed by such assessment; (3) distribute to state Medicaid agencies information relating to these efforts and challenges; and (4) provide guidance to state Medicaid agencies concerning state oversight of third party liability efforts by Medicaid managed care plans.

Section 201(e) would require the Secretary, in consultation with the states, to develop and make available to states a model uniform reporting field that states may use for the purposes of reporting to CMS through the Transformed Medicaid Statistical Information System (T-MSIS) or within Form CMS-64, information identifying responsible third parties and other information relevant to the state's third party liability obligations.

Under current law, CMS makes quarterly Medicaid grants to the states and the amount of the grant is determined on the basis of information submitted by the state to CMS in quarterly estimate and quarterly expenditure reports. States are required to submit Form CMS-64, the Quarterly Medicaid Statement of Expenditures, within 30 days after the end of each quarter. The Form CMS-64 contains a schedule relating to aggregate TPL collections and cost avoidance.

Section 201(f) sets an effective date for the Medicaid third party liability reforms. Except as otherwise specified, section 201 would take effect on October 1, 2019, and apply to Medicaid and state CHIP services provided after that date. If, under a state Medicaid plan or state CHIP plan, state legislation would be needed in order for the state to meet a specific statutory requirement under section 201, then the requirement would be deemed to take effect on the first day of the first calendar quarter beginning after the close of the first regular session of the state legislature beginning after enactment.

Section 202. Treatment of lottery winnings and other lump-sum income for purposes of income eligibility under Medicaid

Section 202 would specify how a state must treat qualified lottery winnings and lump sum income for purposes of determining an individual's income-based eligibility for a state Medicaid program. Specifically, a state shall include such winnings or income as income received: (1) in the month in which it was received, if the amount is less than $80,000; (2) over a period of two months, if the amount is at least $80,000, but less than $90,000; (3) over a period of three months, if the amount is at least $90,000, but less than $100,000; and (4) over an additional one-month period for each increment of $10,000 received, not to exceed 120 months.

An individual whose income exceeds the applicable eligibility threshold due to qualified lump-sum income shall continue to be eligible for medical assistance to the extent that the state determines that denial of eligibility would cause undue medical or financial hardship. With respect to an individual who loses eligibility due to qualified lump-sum income, a state must provide specified notice and assistance related to the individual's potential enrollment in a qualified health plan under the Patient Protection and Affordable Care Act.

Section 203. Adjustments to Medicare Part B and Part D premium subsidies for higher-income individuals

The portion of the Medicare Part B and Part D premium that a beneficiary pays is based on the beneficiary's income. Section 203 would increase the percentage that Medicare beneficiaries with modified adjusted gross income (MAGI) above $500,000 ($875,000 for a couple filing jointly) from 80 percent to 100 percent.

Currently, beneficiaries that have incomes of $160,001 and above ($320,001 and above for a couple), subsequent to changes made in MACRA, pay 80 percent of their premium costs for Medicare Parts B and D. Individuals making between $160,001 and $500,000 per year (couples filing jointly below $875,000) would remain in the 80 percent bracket, but individuals making above $500,000 would be in a new 100 percent bracket. Additionally, the language would index these higher amounts for inflation after 2027.

Congress has previously increased Medicare premiums on higher income seniors in various pieces of legislation, including the Medicare Modernization Act, the Patient Protection and Affordable Care Act, and the Medicare Access and CHIP Reauthorization Act. Further income relating of Medicare premiums has been supported by members of Congress from both parties in legislative proposals.

In addition, President Obama's FY 2013, FY 2014, FY 2015, FY 2016, and FY 2017 Budget proposals envisioned that Medicare beneficiaries would pay up to 90 percent of their premium costs if they were in the top income bracket under his proposal. President Obama also supported increasing income relating for individuals making below $214,000 a year, whereas this policy only increases income relating for individuals above $500,000 a year.

It is estimated that in 2015, fewer than 500,000 Medicare beneficiaries had incomes over $214,000. This legislative provision would more than double that income threshold. As a result, CBO estimates that the policy would impact less than one percent of Medicare beneficiaries--the very wealthiest seniors who are at the top of the income distribution for Medicare beneficiaries. In addition, the income level of $500,000 is 4,145 percent of FPL for an individual, and an income level of $875,000 is 5,387 percent FPL for a family of two. Based on consultation with non-partisan experts, if this policy is enacted, seniors with annual income of $500,000 or more would pay about $100 more per month for Medicare.

The Committee believes this is a reasonable approach to provide low income children access to affordable, high-quality health coverage.

Continues with Part 2 of 2

TARGETED NEWS SERVICE: Myron Struck, editor; 703/304-1897; [email protected]; http://www.targetednews.com