[Federal Register Volume 59, Number 117 (Monday, June 20, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-14792]


[[Page Unknown]]

[Federal Register: June 20, 1994]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 435 and 436

[MB-47-P]
RIN 0938-AF64

 

Medicaid Program; Requirements for Enrollment in or Payment for 
Certain Employer Group Health Plans

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would amend our regulations to require 
States to provide, as a condition of Medicaid eligibility, for 
mandatory enrollment of certain Medicaid eligibles in employer-based 
group health plans determined cost-effective by States under guidelines 
approved by HCFA, and require States to pay all premiums, and all 
deductibles, coinsurance, and other cost-sharing obligations under 
these group health plans for items and services otherwise covered under 
the approved Medicaid State plans. In addition, the proposed rule would 
provide for Medicaid payment of premiums for certain individuals who 
are entitled to elect COBRA continuation coverage (see Public Law 99-
272 and section 601 of the Employee Retirement Income Security Act 
(ERISA)) under a group health plan provided by an employer with 75 or 
more employees.
    This rule would conform our regulations to sections 4402 and 4713 
of the Omnibus Budget Reconciliation Act of 1990.

DATES: Written comments will be considered if we receive them at the 
appropriate address, as provided below, and must be received no later 
than 5 p.m. on August 19, 1994.

ADDRESSES: Mail written comments (original and three copies) to the 
following address: Health Care Financing Administration, Department of 
Health and Human Services, Attention: MB-47-P, P.O. Box 7518, 
Baltimore, Maryland 21207-0518.
    If you prefer, you may deliver your written comments (original and 
three copies) to one of the following addresses:

Room 309-G, Hubert H. Humphrey Building, 200 Independence Ave., SW., 
Washington, DC 20201, or
Room 132, East High Rise Building, 6325 Security Boulevard, Baltimore, 
Maryland 21207.

    Due to staffing and resource limitations, we cannot accept comments 
by facsimile (FAX) transmission.
    In commenting, please refer to file code MB-47-P. Written comments 
received timely will be available for public inspection as they are 
received, beginning approximately 3 weeks after publication of this 
document, in Room 309-G of the Department's offices at 200 Independence 
Ave., SW., Washington, DC on Monday through Friday of each week from 
8:30 a.m. to 5 p.m. (phone: 202-690-7890).
    If you wish to submit written comments on the information 
collection requirements contained in this proposed rule, you may submit 
written comments to: Laura Oliven, HCFA Desk Officer, Office of 
Information and Regulatory Affairs, Room 3001, New Executive Office 
Building, Washington, DC 20503.

FOR FURTHER INFORMATION CONTACT: Mark Ross, (410) 966-5855.

SUPPLEMENTARY INFORMATION:

I. Background

    Medicaid is the Federally assisted State program authorized under 
title XIX of the Social Security Act (the Act) to provide medical care 
to persons of limited means. Among these persons are those individuals 
who receive financial assistance under title IV-A (Aid to Families of 
Dependent Children (AFDC)), and title XVI (Supplemental Security Income 
(SSI)) and mandatory State supplements (SSP) and in the territories 
title XVI (Old-Age Assistance (OAA), Aid to the Blind (AB), Aid to the 
Permanently and Totally Disabled (APTD), Aid to the Aged, Blind or 
Disabled (AABD)). Each State determines the scope of its program, 
within limitations and guidelines established by the law and the 
implementing regulations at 42 CFR part 430 et seq. Each State submits 
a State plan that, when approved by HCFA, provides the basis for 
granting Federal funds to cover part of the expenditures incurred by 
the State for medical assistance and the administration of the program.
    Section 1902(a) of the Act specifies the eligibility requirements 
that individuals must meet in order to receive Medicaid. Other sections 
of the Act describe the eligibility groups in detail and specify 
limitations on what may be paid for as ``medical assistance.''

II. Legislative Changes and Discussion of Regulatory Provisions

A. Medicaid Payments for Medicaid Eligibles Under Group Health Plans

1. Statutory Provisions
    Under section 1905(a) of the Act, States may pay health insurance 
premiums on behalf of eligible recipients. In such cases, the insurer 
is liable to pay for benefits covered under its plan but Medicaid 
continues to pay for services covered under the Medicaid plan (but not 
covered under the insurer's plan). In addition, State payment of a 
health insurance premium must not have the effect of limiting a 
recipient's rights under Medicaid (for example, freedom of choice among 
providers). Section 4402(a)(2) of the Omnibus Budget Reconciliation Act 
of 1990 (OBRA '90), Public Law 101-508, enacted on November 5, 1990, 
added section 1906 to title XIX of the Act to require States to 
provide, as a condition of Medicaid eligibility, for mandatory 
enrollment of certain Medicaid eligibles in employer-based group health 
plans determined to be cost-effective under guidelines established by 
the Secretary. This provision applies to the 50 States and the District 
of Columbia and includes any State providing Medicaid to its recipients 
under an experimental, pilot, or demonstration project under the waiver 
authority of section 1115 of the Act. A group health plan is defined 
under section 1906(e)(1) as having the same meaning given the term in 
section 5000(b)(1) of the Internal Revenue Code of 1986, and included 
in the provision of COBRA continuation coverage by a plan under title 
XXII of the Public Health Service Act, section 4980B of the Internal 
Revenue Code of 1986, or title VI of the Employee Retirement Income 
Security Act of 1974 (ERISA).
    In addition to adding section 1906 to the Act, section 4402 of OBRA 
'90 made the following conforming amendments:
     Added a new section 1902(a)(25)(G) to specify that State 
plans must meet the new requirements of section 1906 for enrollment of 
individuals under group health plans (Section 4402(a)(1)).
     Added a new section 1902(e)(11)(A) to allow States to 
continue Medicaid payments of premiums, deductibles, coinsurance, and 
other cost-sharing obligations on behalf of a Medicaid recipient 
required to enroll in a group health plan for a State-defined period of 
up to 6 months after the effective date of the recipient's enrollment, 
even if the enrollee ceases to be eligible for Medicaid during that 
period, but only for services covered under the group health plan.
     Added a new subparagraph (XI) in the matter following 
section 1902(a)(10)(F) to allow Medicaid coverage for the cost of 
premiums, deductibles, coinsurances, and other cost-sharing obligations 
for individuals in cost-effective group health plans without requiring 
the availability of comparable services of the same amount, duration 
and scope to any other individuals (Section 4402(d)(1)).
     Revised section 1903(u)(1)(D)(iv) to specify that in 
determining the amount of erroneous excess payments for purposes of 
Federal financial participation (FFP), HCFA will not include any error 
with respect to Medicaid payments made in violation of section 1906 of 
the Act (Section 4402(b)).
     Revised section 1905(a) by adding language to indicate 
that ``medical assistance'' may include expenditures for Medicare cost-
sharing and premiums under Part B for individuals who are eligible for 
medical assistance and are AFDC, SSI, OAA, AB, APTD, or AABD recipients 
or SSP beneficiaries and are eligible for medical assistance made 
available to individuals described in section 1902(a)(10)(A); and, 
except in the case of individuals 65 years of age or older and disabled 
individuals entitled to Medicare who are not enrolled under Medicare 
Part B, other insurance premiums for medical or any other type of 
remedial care or cost.
     Revised section 1903(a)(1) to delete the reference to 
Medicaid expenditures for Medicare cost-sharing and premiums under Part 
B. This language was added to section 1905 of the Act in the definition 
of medical assistance.
    Section 4402 of OBRA '90 has also undermined the legal basis of 
Pottgeiser v. Sullivan, 906 F.2d 1319 (9th Cir. 1990). In Pottgeiser, 
the United States Court of Appeals for the Ninth Circuit affirmed a 
lower court's ruling that the definition of ``medical assistance'' 
under section 1905(a) of the Act did not include the payment of medical 
insurance premiums. We note that the Ninth Circuit issued its 
Pottgeiser decision on June 25, 1990. However, section 4402 of OBRA '90 
subsequently amended section 1905(a) of the Act to include the payment 
of medical insurance premiums expressly within the definition of 
``medical assistance.'' Therefore, we regard section 4402 of OBRA '90 
as superseding legislation, which effectively nullifies any legal 
effect of Pottgeiser.
2. Identification of Cost-Effective Plans
    Section 1906(a)(1) requires States to implement guidelines that are 
established by the Secretary to identify cases in which enrollment of a 
Medicaid eligible individual in a group health plan (in which the 
individual is otherwise eligible to be enrolled) is cost-effective. In 
section 1906(e)(2) of the Act, the term ``cost-effective'' means the 
cost of paying the premiums and cost-sharing obligations under a group 
health plan is likely to be less than the cost of providing services 
covered under the State plan.
    To determine cost-effectiveness, we would require States to use the 
cost-effectiveness methodology included in their approved State plan. 
States are required to use either the methodology described in 
Sec. 3910.11 of the State Medicaid Manual (HCFA Pub. 45-3), or an 
alternative methodology that could be supported by documentation 
furnished by a State. The State's alternative methodology, at a 
minimum, must include factors accounting for the employee's premiums, 
coinsurance, deductibles, and other cost-sharing obligations under the 
group health plan. It must compare these factors to the State's average 
Medicaid expenditures for an equivalent set of services for an 
individual with similar characteristics.
    To comply with the section 1906 requirement that the Secretary 
establish cost-effectiveness guidelines, we are restating the 
information contained in the State Medicaid Manual as an example of an 
acceptable methodology that a State must include in its State plan.
    Our guidelines consist of the following steps:
    Step 1--Policy Information. The agency obtains information on all 
group health plans available to the Medicaid recipient. The Medicaid 
recipient is responsible for providing the State with all the necessary 
plan information and reporting changes with respect to plan benefits. 
This information must include the effective date of the policy, any 
exclusions to enrollment, the services covered under the policy, the 
employee's share of premiums paid to the health plan and other costs 
that may be necessary for enrollment in the plan.
    Step 2--Average Medicaid Costs. Using the Medicaid Management 
Information System (MMIS), the agency obtains the average total annual 
Medicaid costs of persons having characteristics similar to the 
applicant (age, sex, categorical group and geographic data).
    Step 3--Medicaid Costs for Included Services. The agency determines 
the amount of the total yearly Medicaid expenditures for services 
covered by the specific group health policy. Compute the percentage of 
expenditures for group health plan services to expenditures for 
Medicaid services. Then adjust the average total annual Medicaid costs 
specified in step 2 by this percentage. This is the ``Medicaid average 
covered expense amount.''
    Step 4--Group Health Plan Costs for Included Services. The agency 
adjusts the Medicaid average covered expense amount (amount calculated 
in step 3) for the higher prices employer plans typically pay. The 
agency may use a single State-specific factor derived from experience 
with third party liability (TPL) claims or use group health plan 
specific information. Alternatively, the agency may use a national 
average factor which HCFA supplies and updates periodically. The 
Medicaid covered expense is multiplied by this factor to produce an 
estimated covered expense as recognized by the employer health plan. 
This is the ``health plan cost.''
    Step 5--Adjustment for Coinsurance and Deductible Amounts. The 
health plan cost (amount from step 4) is multiplied by an average 
employer health insurance payment rate to obtain the ``employer 
recognized covered expense'' amount. The agency derives the average 
employer health insurance payment rate from State specific tables, if 
available, or group health plan specific information. Alternatively, 
for State agency use, HCFA supplies and periodically updates national 
tables. This health insurance average payment rate number will vary in 
relation to the amount of the average employer recognized covered 
expense.
    Step 6--Administrative Costs. The agency accounts for any 
additional Medicaid administrative costs incurred in processing the 
group health information by determining the average increase in cost 
per recipient. These costs may include all up-front administrative 
costs associated with the implementation of this provision. These costs 
must be amortized over a 5-year period.
    Step 7--Cost-Effectiveness Calculation. Compare the costs under the 
group health plan to those costs under Medicaid. This comparison is as 
follows:

Group Health Plan

     Subtract the employer recognized covered expense (step 5) 
from the health plan cost (step 4) (the figure obtained is the proxy 
for deductibles, coinsurance and limitations within group health 
plans);
     Add the employee's share of premiums paid (step 1); and
     Add the additional administrative costs (step 6) (the 
figure obtained is the total State costs under the group health plan).

Medicaid Expenditures

     Subtract the total State costs, obtained above, from the 
Medicaid average covered expense amount (step 3).
     Cost-effectiveness is achieved if costs calculated under 
the group health plan are lower than costs calculated for the same 
services under Medicaid. (See example on determining cost-
effectiveness.)

    Note: When non-Medicaid eligible family members are enrolled in 
group health plans in order to enroll the Medicaid eligible family 
member, do not include the deductible, coinsurance, and other cost-
sharing obligations for non-Medicaid eligible family members in 
calculations.

    To illustrate implementation of the cost-effectiveness guidelines, 
we include the following example:

Example of Cost-Effectiveness Guidelines

    Step 1--Policy Information. Obtain information on all group health 
plans available to the Medicaid recipient. This information must 
include the effective date of the policy, exclusions to enrollment, the 
covered services under the policy and the employee's share of premiums 
paid to the health plan.

Individual:
    Ms. Smith, age 25, AFDC, county X.
    Daughter, age 6, AFDC, county X.
Group Health plan:
    Effective date 1/1/91.
    No exclusions.

Six Covered Services--Hospital Inpatient, Hospital Outpatient, 
Physician Services, Clinic, Laboratory and X-ray, and Prescription 
Drugs.
    Premiums: $840.00 yearly.

    Step 2--Average Medicaid Costs. Using the Medicaid Management 
Information System (MMIS), obtain the average total costs per person 
per year for Medicaid services to persons having characteristics 
similar to the applicant (age, sex, Medicaid eligibility category and 
geographic data).
MMIS Data:

                                                                        
                                                                        
                                                                        
25 year old female, AFDC, county X......................  =    $1,550.00
6 year old female, AFDC, county X.......................  =     1,250.00
                                                            ------------
    Total Medicaid Expenses.............................       $2,800.00
                                                                        

    Step 3--Medicaid Costs for Included Services. Determine the amount 
of the total yearly Medicaid expenditures for the services covered by 
the specific group health plan.
    Ten services offered under the State plan:

Inpatient Hospital
Clinic--
SNF and Home Health
Physician Service
Physical Therapy
Outpatient Hospital
Laboratory and X-ray
EPSDT
Family Planning Services
Prescription Drugs

    Six services offered under the group health plan:

Inpatient Hospital
Clinic--
Physician Services
Outpatient Hospital
Laboratory and X-ray
Prescription Drugs

    Here, the services covered by the group health plan are the most 
frequently used services under both the group health plan and under the 
Medicaid State plan. For purposes of this example, these six services 
happen to comprise 82 percent of the Medicaid costs in the example 
State. On an average annual basis, the costs to Medicaid of providing 
the six services offered under the group health plan are:

                                                                        
                                                                        
                                                                        
Ms. Smith's expenses at 82%................................    $1,271.00
Daughter's expenses at 82%.................................     1,025.00
                                                            ------------
Medicaid average covered expense amount....................    $2,296.00
                                                                        

    Step 4--Group Health Plan Costs for Included Services. Adjust the 
Medicaid average covered expense amount (amount from step 3) for the 
higher prices employer plans typically pay. Use either a single State 
specific factor derived from experience with TPL, group health plan 
specific information, or a national factor supplied by HCFA. For the 
purpose of this example, 1.3 was used as a factor. The Medicaid covered 
expense is multiplied by this factor to produce an estimated covered 
expense as recognized by the employer plan.

                                                                        
                                                                        
                                                                        
Medicaid average covered expense amount....................    $2,296.00
National average factor....................................        x 1.3
                                                            ------------
The health plan cost.......................................   $2,984.00 
                                                                        

    Step 5--Adjustment for Coinsurance and Deductible Amounts. The 
health plan cost (amount from step 4) is multiplied by an average 
employer health insurance payment rate to obtain the employer 
recognized covered expense amount. Derive the average employer health 
insurance payment rate from State specific tables, national tables, or 
group health plan specific information. Assume the number is 75 percent 
for the purpose of this example. This average payment rate number will 
vary in relation to the amount of average employer recognized covered 
expense. 

                                                                        
                                                                        
                                                                        
Costs to health plan for services..........................    $2,984.80
Average employer payment rate (75%)........................        x .75
                                                            ------------
Employer recognized amount.................................   $2,238.60 
                                                                        

    Step 6--Administrative Costs. Account for any additional Medicaid 
administrative costs incurred in processing the group health 
information by determining the average increase in cost per recipient. 
These costs may include all up-front administrative costs associated 
with the implementation of this provision. These costs must be 
amortized over a 5-year period. 

                                                                        
                                                                        
                                                                        
Increased cost to process information......................       $50.00
Number of recipients.......................................         x .2
                                                            ------------
Additional administrative costs............................      $100.00
                                                                        

    Step 7--Cost-Effectiveness Calculation. Compare the costs under the 
group health plan to those costs under Medicaid.

                                                                        
                                                                        
                                                                        
Group health plan cost (step 4)............................    $2,984.80
Employer recognized covered expense (step 5)...............   -2,238.60 
                                                            ------------
Proxy for deductible, coinsurance and limitations within                
 types of services covered under the group health plan.....      $746.20
Employee's premiums (step 1)...............................       840.00
Additional admin. costs (step 6)...........................     +100.00 
                                                            ------------
    Total State costs......................................   $1,686.20 
                                                                        

    Cost-effectiveness is achieved if the State's additional 
expenditures under the group health plan are likely to be lower than 
the State's expenditures for services under Medicaid. 

                                                                        
                                                                        
                                                                        
Medicaid average covered expense amount (step 3)...........    $2,296.00
Total State costs..........................................   -1,686.20 
                                                            ------------
    Savings from group health plan.........................     $609.80 
                                                                        

3. Condition of Eligibility
    Under section 1906(a)(2) of the Act, an otherwise Medicaid eligible 
individual who is also eligible to enroll in an employer-based group 
health plan, which the State determines under the Secretary's 
guidelines to be cost-effective, must enroll in the group health plan 
as a condition of his or her continued eligibility for Medicaid. We 
interpret this requirement to mean that if a Medicaid recipient is 
currently enrolled in a non-employer-based health plan and is also 
eligible to enroll in a cost- effective employer-based group health 
plan, the recipient must enroll in the cost-effective group health plan 
to maintain his or her Medicaid eligibility. However, continued 
enrollment in the non-employer-based plan is not mandatory. This 
requirement must be met at the time of determination of initial 
eligibility or, for current Medicaid recipients, at the time of an 
eligibility redetermination with certain exceptions as provided by the 
statute. If more than one cost-effective group health plan is 
identified by the State, the individual has the option of enrolling in 
the cost-effective plan of his or her choice.

    Note: If an individual meets the plan enrollment requirements 
and the request is denied by the plan, he or she will have met the 
conditions of this provision.

    Under section 1906(b)(1) of the Act, the Secretary (and, 
consequently, States) must take into account that an individual may 
only be eligible to enroll in group health plans at limited times (open 
season) and only if other individuals (not necessarily eligible for nor 
entitled to medical assistance under the State plan) are also enrolled 
in the group health plan simultaneously.
    If the availability for enrollment in the group health plan and 
eligibility to Medicaid benefits do not coincide, the State should have 
a procedure in place for recontacting individuals prior to the next 
enrollment period. The Medicaid recipient will be entitled to receive 
Medicaid services pending that recipient's application to enroll in the 
group health plan during the next open season.
    Although enrollment in a cost-effective group health plan is a 
condition of Medicaid eligibility, an individual's disenrollment from a 
group health plan is permissible under these circumstances: (1) The 
State reevaluates the cost-effectiveness of the group health plan 
during the State's redetermination of the individual's eligibility, (2) 
the group health plan is no longer available, for example, due to the 
individual leaving employment or changing jobs, or (3) the individual 
was enrolled through a spouse who is no longer willing to enroll the 
individual.
    Section 1906(a)(2) requires every individual entitled to receive 
Medicaid to apply for enrollment in a cost- effective group health plan 
as a condition of initial or continued eligibility for Medicaid. 
However, under section 1906(b)(2), enrollment in the group health plan 
is not a condition of initial or continued Medicaid eligibility for a 
child if a parent fails to enroll that child. We also note that where a 
Medicaid eligible spouse (for example, a wife) cannot apply for 
enrollment in her husband's group health plan if her husband fails to 
enroll her, she will not lose eligibility for Medicaid by virtue of his 
failure to enroll her. This is because the section 1906(a)(2) 
requirements do not apply to a Medicaid eligible spouse who does not 
have the independent ability to apply for enrollment in a cost- 
effective group health plan.
4. Services Covered
    Under section 1906(c)(2) of the Act, an individual's enrollment in 
a group health plan does not change the individual's eligibility for 
benefits under the State plan. However, under section 1902(a)(25), 
Medicaid is a payer of last resort with respect to services covered 
under the group health plan. In other words, the group health plan's 
payment is considered primary to any Medicaid payments. The State must 
pay for services covered under the State plan which are not otherwise 
included in the group health plan under the terms and conditions 
applicable to all other Medicaid recipients. States must establish 
their own procedures to pay for Medicaid services that are not included 
under the group health plan.
    We recognize that some providers that participate in group health 
plans may not be Medicaid-participating providers. Of course, States 
should always encourage all providers to participate in Medicaid. 
However, in the interest of State flexibility, we are offering several 
options that States may elect to resolve problems that may arise from 
non-Medicaid-participating providers furnishing services to Medicaid 
recipients.
    First, States that deem providers to be Medicaid-participating 
providers merely through the submission of a bill for services to the 
State Medicaid agency (as is currently permitted for qualified Medicare 
beneficiaries) may similarly do so for providers in cost-effective 
group health plans. In lieu of this voluntary provider arrangement, 
States could require that all providers in a cost-effective group 
health plan bill States directly for residual charges on services 
provided to Medicaid recipients. In other words, States may deem all 
providers in cost-effective group health plans to be Medicaid- 
participating providers by billing the State directly for any care or 
services provided under the group health plan, which are otherwise 
covered under the State Medicaid plan, but which are not fully paid by 
the group health plan.
    Alternatively, States may ascertain what percentage of providers in 
a group health plan participate in Medicaid, and incorporate that 
percentage into the determination of whether a group health plan is 
cost-effective. If the State determines that fewer than a certain 
percentage (specified by the State) of all providers in a group health 
plan are not Medicaid-participating providers, the group health plan 
would not be cost-effective.
    If either of these options is not feasible for a State, we will 
allow a State to reimburse recipients directly in the event a recipient 
is billed directly for any care or services provided under the group 
health plan, which are otherwise covered under the State Medicaid plan, 
but which are not fully paid by the group health plan. We will allow 
States to pay recipients directly where a State demonstrates that 
failure to do so would render section 1906 of the Act a nullity. A 
situation in which the provisions of section 1906 could not be 
effectuated but for direct payment to recipients presents extraordinary 
circumstances sufficient to justify direct payment to recipients. Under 
any of these scenarios, a State would have to pay for all cost-sharing 
obligations, even if such costs are above the State's usual Medicaid 
rate for services provided to Medicaid recipients.
    In addition, the State agency must pay for an eligible enrollee's 
premiums for a group health plan determined cost- effective, and for 
all deductibles, coinsurance, and other cost-sharing obligations under 
the group health plan for items and services otherwise covered under 
the State plan, under section 1906(a)(3). Further, when a non-Medicaid 
eligible family member must first be enrolled in a group health plan in 
order for the Medicaid eligible member to receive coverage, section 
1906(c)(1)(B) provides that where it is determined to be cost-effective 
(taking into account payment of all such additional premiums), Medicaid 
payment is available for the premiums (but no other forms of cost-
sharing) of the non-Medicaid eligible member.
5. Payment Procedures
    As noted above, the State must treat payment for services covered 
under the group health plan as a third party liability under section 
1902(a)(25) of the Act. Where Medicaid must participate in cost-sharing 
for deductibles and coinsurance, the State is required to reimburse all 
cost-sharing at the employer-based group health plan payment rate. The 
State is not required to pay for the nominal cost-sharing amounts 
otherwise permitted under section 1916 of the Act which are the 
recipient's responsibility.
    Section 1902(e)(11) of the Act provides States with the option to 
continue payments to the group health plan on behalf of a Medicaid 
recipient after the recipient ceases to be eligible for Medicaid for a 
maximum period of 6 months from the effective date of the recipient's 
required enrollment in the group health plan under section 1906(a). A 
State electing this option must include this provision in its State 
plan, and should specify the length of the applicable period.
6. Federal Financial Participation
    Section 1906(c)(1) specifies that, for purposes of section 1903(a) 
of the Act, FFP is available as ``medical assistance'' for all 
premiums, deductibles, coinsurance and other cost-sharing obligations 
under the group health plan for services covered under the State plan. 
However, if the State imposes nominal cost sharing under section 1916 
of the Act, payment of such amounts are the recipient's responsibility 
and are not paid for under section 1906. Therefore, FFP is not 
available for the nominal cost-sharing amounts otherwise permitted 
under section 1916 of the Act.
    If a non-Medicaid eligible family member must be enrolled in the 
group health plan in order to obtain coverage for the Medicaid 
eligible, FFP is available for premiums only (but not for any other 
cost-sharing expenses) for the non-Medicaid eligible family member(s) 
as payment for medical assistance for the eligible individual.
    If a Medicaid recipient's group health plan offers a wider array of 
services than those services covered under the State plan, no FFP is 
available for the deductibles, coinsurance and other cost-sharing 
obligations for non-covered services. For States that elect to cover 
individuals during the optional period allowed under section 
1902(e)(11), FFP would be restricted to the individual's premiums and 
appropriate deductibles and coinsurance for services provided to the 
individual under the group health plan, and would not be available for 
payment for any other items and services covered by the State plan.
    If a Medicaid recipient is currently enrolled in a non-employer-
based health plan and is also eligible to enroll in a cost-effective 
group health plan, the recipient must enroll in the cost-effective 
group health plan to maintain his or her Medicaid eligibility. If 
enrollment in both health plans remains cost-effective, FFP is 
available for the premiums of the non-employer-based plans specified in 
section 1905(a) of the Act. However, continued enrollment in the non-
employer-based plan is not mandatory.

    Note: Many cost-effective prepaid type group health plans (for 
example, health maintenance organizations (HMOs)), impose strict 
requirements on care and services that are reimbursed under the 
plan. These requirements may include use of certain providers 
exclusively and/or prior authorization for the need for care or 
services. If an enrollee receives services which are not in 
compliance with plan requirements, and the group health plan 
consequently refuses reimbursement for services usually covered by 
the plan, under section 1902(a)(17)(B) of the Act, FFP would not be 
permitted for any service that is generally available to the 
recipient without cost.
7. Determination and Redetermination of Eligibility
    Our rules concerning determination and redetermination of 
eligibility for the 50 States and the District of Columbia are found in 
42 CFR part 435, subpart J. These rules are not affected by this 
proposed rule.
8. Changes in the Regulations
    We propose to amend part 435 (Eligibility in States, the District 
of Columbia, the Northern Mariana Islands, and America Samoa) as 
follows:
(a) Eligibility Requirements
     We would revise Sec. 435.3, Basis, to add new bases for 
part 435 resulting from amendments to title XIX of the Act by section 
4402 of OBRA '90. Section 1902(e)(11) concerns the 6-month maximum 
optional enrollment period in a cost-effective group health plan. 
Section 1903(u)(1) concerns treatment of erroneous payments made in 
violation of section 1906 of the Act. Section 1905(a) concerns 
expenditures for Medicare cost-sharing and premiums under Part B. 
Section 1906 concerns the requirement that Medicaid eligibles enroll in 
group health plans determined to be cost-effective under guidelines 
established by the Secretary.
     Section 435.10, State plan requirements, would be revised 
to specify that State plans must require that, as a condition of 
eligibility, individuals must enroll in group health plans where the 
State agency determines it is cost-effective to pay for that 
individual's premiums, deductibles and other cost-sharing obligations, 
using guidelines established by the Secretary. The plan also must 
comply with the requirements in a new Sec. 435.186, Medicaid payment 
for recipients enrolled in cost-effective group health plans. In that 
new section, we would require that the State pay for all premiums, and 
deductibles, coinsurance and other cost-sharing obligations (other than 
nominal copayments permitted under section 1916 of the Act) for 
Medicaid recipients for items and services covered under the State 
plan. We would require the State to pay premiums only for a non-
Medicaid recipient when that person must enroll in a group health plan 
in order for the Medicaid eligible individual to be enrolled, and only 
when the State determines it to be cost-effective to do so. We would 
require the State to treat the group health plan as a third party 
resource in accordance with third party liability requirements 
specified in Sec. 433.138, except that FFP would be available in 
expenditures for services provided to recipients who were eligible in 
the month in which services were provided as provided under 
Sec. 435.1002.
     A new Sec. 435.611, Limitation of payment for special 
groups of individuals, would be added to specify the exceptions and 
conditions of eligibility (of individuals otherwise eligible for 
Medicaid), for enrollment and payment of premiums, deductibles, 
coinsurance, and other cost-sharing obligations for items and service 
in a group health plan.
(b) Federal Financial Participation
    Section 435.1002 would be revised to provide for FFP in 
expenditures for payment of premiums, deductibles, coinsurance, and 
other cost-sharing obligations on behalf of a recipient enrolled in a 
cost-effective group health plan, on behalf of individuals who are no 
longer eligible but deemed eligible under the 6-month enrollment option 
and for premiums for individuals who must be enrolled.

B. COBRA Continuation Coverage

1. Statutory Provisions
    The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA 
'85), Public Law 99-272, requires an employer with 20 or more employees 
that offers a group health plan to offer employees the opportunity to 
elect continuation coverage under that plan after certain qualifying 
events (explained more fully below), that ordinarily result in loss of 
such coverage. This provision is popularly known as COBRA continuation 
coverage.
    Section 4713 of OBRA '90 amended title XIX of the Social Security 
Act by adding a new section 1902(a)(10)(F) and a new section 1902(u) to 
specify an additional group of individuals who may be eligible for a 
limited Medicaid benefit payment of COBRA premiums for insurance 
coverage. These provisions allow a State Medicaid agency the option to 
pay the group health insurance premiums for certain individuals who are 
entitled to elect COBRA continuation coverage. However, this provision, 
unlike the 20-employee requirement in COBRA '85, only applies to group 
health plans provided by employers with 75 or more employees.
    The term ``qualifying event'' with respect to any covered employee, 
is defined by section 601 of ERISA, as amended by section 4980B of the 
Internal Revenue Code of 1986, to mean any of the following events 
which, but for the continuation coverage, results in a loss of coverage 
of a qualified beneficiary: death of the covered employee; termination 
for reasons other than an employee's misconduct, or reduction of hours, 
of the covered employee's employment; divorce or legal separation of 
the covered employee from the employee's spouse; entitlement of the 
employee under Medicare (title XVIII of the Act); cessation of a 
dependent child to meet the applicable ``dependent child'' requirements 
of the group health plan; or with respect to retirees, a filing by an 
employer for protection under Title 11 of the United States Bankruptcy 
Code of 1978, as amended, 11 U.S.C. Sec. 101 et seq.
    Section 1902(a)(10)(F), as added by section 4713 of OBRA '90, 
provides States with the option of making medical assistance available 
for COBRA premiums, as defined in section 1902(u)(2), for qualified 
COBRA continuation beneficiaries (CCBs), as defined in section 
1902(u)(1) of the Act. Section 1902(u)(1) defines a CCB as an 
individual who meets the following requirements:
     He or she is entitled to elect COBRA continuation 
coverage;
     He or she has income that does not exceed 100 percent of 
the official Federal poverty line applicable to a family of the size 
involved;
     He or she has resources which do not exceed twice the 
maximum amount of resources that an individual may have to be eligible 
for benefits under the Supplemental Security Income (SSI) program, as 
determined under section 1613 of the Social Security Act; and
     The State has determined that the likely savings in 
Medicaid expenditures resulting from enrollment in COBRA continuation 
coverage is expected to exceed the cost of the COBRA premiums.
    With respect to the cost-effectiveness determination for CCBs, 
States must determine that likely Medicaid expenditures on individuals 
would be higher (if the individuals were not enrolled in the COBRA 
plan) than the cost the State would pay in COBRA continuation premiums. 
In other words, the State must determine that enrolling the individuals 
in COBRA continuation coverage results in savings in likely Medicaid 
expenditures that exceed the cost of paying the COBRA premiums. This 
requires the State to make a reasonable decision that the individuals 
(or family members that would be covered by the COBRA coverage) are 
likely to become eligible for Medicaid during the COBRA continuation 
period and that enrollment is expected to save money for the Medicaid 
program. This decision would include an assessment of whether the 
individuals would be likely to become Medicaid eligible.
    In contemplating scenarios under which this cost-effectiveness 
could be satisfied, we have identified a number of situations in which 
individuals would appear ``likely'' ultimately to generate Medicaid 
expenditures in the absence of COBRA continuation coverage, even if 
they were not currently Medicaid eligible. This would be true, for 
example, of a COBRA-eligible individual who is HIV positive, and 
accordingly is determined ``likely'' to become Medicaid eligible based 
upon disability, and to incur Medicaid costs that exceed the cost of 
COBRA premiums. A COBRA eligible individual who is not eligible for 
Medicaid may have Medicaid-eligible family members who would be covered 
by a COBRA continuation plan if COBRA premiums were paid by the State. 
In this case, savings in Medicaid expenditures would be likely to 
result from the individual's enrollment even though he or she is not 
Medicaid eligible, nor expected to become Medicaid eligible. Finally, a 
COBRA-eligible individual may be eligible for Medicaid as ``medically 
needy'' upon the satisfaction of some modest ``spend-down'' 
requirement. In such a case, it may well be reasonable for the State to 
conclude that ``likely'' Medicaid expenditures would exceed the cost of 
paying COBRA continuation premiums that would have the effect of 
precluding the individual from incurring expenses sufficient to make 
him or her Medicaid eligible.
    Section 1902(u)(2) defines the term ``COBRA premiums'' as the 
applicable premium imposed with respect to COBRA continuation coverage. 
Section 1902(u)(3) defines COBRA continuation coverage as coverage 
under a group health plan provided by an employer with 75 or more 
employees provided under title XXII of the Public Health Service Act, 
section 4980B of the Internal Revenue Code of 1986, or title VI of the 
Employee Retirement Income Security Act of 1974.
    Clause (XI) in the matter following section 1902(a)(10)(F), as 
amended by section 4713(a)(1)(D) of OBRA '90, requires that medical 
assistance available to an individual defined in section 1902(u)(1) who 
is eligible for medical assistance only because of section 
1902(a)(10)(F) be limited to medical assistance for COBRA continuation 
premiums (as defined in section 1902(u)(2)).
    Section 1905(a)(x), as added by section 4713(b) of OBRA '90 amends 
the definition of medical assistance to include the new group of 
individuals described in section 1902(u)(1) who may be eligible for 
Medicaid through payment of premiums for COBRA continuation insurance 
coverage.
    Section 1902(u)(4) specifies that, for individuals who may qualify 
for Medicaid payment for COBRA continuation coverage and who are 
receiving an optional State supplementary payment, the State must apply 
an income standard (as determined under section 1612 of the Act) of no 
more than 100 percent of the Federal poverty level applicable to a 
family of the size involved. In determining income, except for costs 
described under section 1612(b)(4)(B)(ii) of the Act for certain 
functionally disabled individuals, the State must exclude costs 
incurred for medical care and for any other type of remedial care under 
this provision.
    Because individuals identified in section 1902(u)(4) are by 
definition already eligible for Medicaid, we are unaware of the 
relevance of this provision to individuals eligible under section 
1902(a)(10)(F). Moreover, we are unaware of anything in the legislative 
history of section 4713 which indicates what Congress intended to 
accomplish by this provision.
2. Eligibility Conditions
    In interpreting the provisions of section 1902(u)(1), we propose to 
require that a CCB must also meet the existing general non-financial 
requirements or conditions of eligibility for medical assistance 
contained in our regulations in 42 CFR part 435. These general 
requirements include, for example, the filing of an application for 
Medicaid (Sec. 435.907), furnishing a social security number 
(Sec. 435.910), providing citizenship and residency information 
(Secs. 435.406 and 435.408), and assigning rights to third party 
payments to the State Medicaid agency (Sec. 435.604). However, these 
individuals do not have to meet the categorical requirements of either 
the SSI or AFDC programs. An individual who is otherwise eligible for 
Medicaid under the State plan may also be eligible as a CCB. An 
individual who is eligible for Medicaid as a CCB as well as under some 
other Medicaid eligibility group may choose, as specified in 
Sec. 435.404, to have eligibility determined only under one category. 
However, the individual is not required to make such a choice. The 
individual is entitled to have eligibility determined under all 
categories for which he or she may qualify.
    If an individual does not specifically and voluntarily choose to 
have his or her eligibility determined under a specific category, and 
if he or she is eligible both as a CCB and under another group in the 
State plan, the individual is designated as being eligible both as a 
CCB and the other group for which he or she is eligible.
3. Determination of Financial Eligibility
    In determining the income and resource eligibility for CCBs under 
section 1902(u)(1)(B) and (C), we would require the State to use the 
income and resources methodologies of the SSI program under sections 
1612 and 1613 of the Act, respectively. By methodologies, we mean the 
methods for determining the individual's countable income and 
resources, that is, the amounts that may be considered to be available 
to the individual.
4. Determination and Redetermination of Eligibility
    The rules for timely determination of eligibility and periodic 
redetermination of eligibility set forth in existing Secs. 435.911 and 
435.916 would apply to determinations and redeterminations of CCB 
eligibility. Specifically, Sec. 435.911 requires the State to establish 
time standards for determining eligibility, and inform the applicant of 
what they are. Section 435.916 requires the State agency to redetermine 
Medicaid eligibility, with respect to circumstances that may change, at 
least every 12 months or when it has knowledge of changes that may 
affect eligibility, and requires States to have procedures for 
recipients to report changes that may affect their eligibility.
    Section 1902(f) States may use more restrictive eligibility 
criteria than are used by the SSI program in determining eligibility 
for CCBs.
5. Effective Date for Payment of Premiums as Medical Assistance
    An individual's effective date for Medicaid payment of COBRA 
premiums under sections 1902(a)(10)(F) and 1902(u) can be no earlier 
than January 1, 1991, the effective date of section 4713 of OBRA '90. 
The individual's effective date of eligibility date is based on the 
date of application and the date on which all eligibility criteria, 
including election of COBRA continuation coverage, are met. CCBs are 
subject to the existing policy of up to 3 months retroactive 
eligibility as specified in Sec. 435.914.
6. Federal Financial Participation
    FFP is available for medical assistance for COBRA premiums to 
individuals who are entitled to elect COBRA continuation coverage.
7. Changes in the Regulations
    We propose to amend part 435 (Eligibility in States, the District 
of Columbia, the Northern Mariana Islands, and American Samoa) and part 
436 (Eligibility in Guam, Puerto Rico, and the Virgin Islands) as 
follows: Eligibility Requirements.
    Sections 435.10 and 436.10 would be revised and new Secs. 435.240 
and 436.274 would be added to specify criteria for determining COBRA 
continuation coverage.
Federal Financial Participation
    Sections 435.1002 and 436.1002 would be revised to provide for FFP 
in expenditures for medical assistance on behalf of CCBs for COBRA 
premiums.
Conforming Changes
    We would also make conforming changes to Secs. 435.2, 435.3, 
435.400, 435.600, 436.2, 436.400 and 436.600.

III. Regulatory Impact Statement

    We generally prepare a regulatory flexibility analysis that is 
consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 
through 612), unless the Secretary certifies that a proposed regulation 
would not have a significant economic impact on substantial number of 
small entities. Individuals and States are not included in the 
definition of small entity.
    In addition, section 1102(b) of the Act requires the Secretary to 
prepare a regulatory impact analysis for any final rule that may have a 
significant impact on the operations of a substantial number of small 
rural hospitals. Such analysis must conform to the provisions of 
section 603 of the RFA. For purposes of section 1102(b) of the Act, we 
define a small rural hospital as a hospital with fewer than 50 beds 
located outside a Metropolitan Statistical area.
    Although these regulations do not themselves have a significant 
impact on the general economy, the statutory provisions on which they 
are based are expected to have an impact. In particular, we have 
determined that the part of the regulation dealing with section 4402 of 
OBRA '90 has the following savings impact for the Medicaid program: 

                        Federal and State Savings                       
                         [Dollars in Millions]                          
------------------------------------------------------------------------
                               FY 1994    FY 1995    FY 1996    FY 1997 
------------------------------------------------------------------------
Federal.....................       $130       $140       $150       $160
State.......................        100        105        110        115
                             -------------------------------------------
  Total.....................        230        245        260       275 
------------------------------------------------------------------------

    We used the following methodology to estimate these savings. We 
used data from the Current Population Survey (CPS) and the National 
Medical Expenditure Survey (NMES) to estimate the fraction of Medicaid 
recipients having access to employer-sponsored insurance (ESI) but not 
currently enrolled in it: about 3 percent for children and \1/2\ 
percent for adults (including the disabled). We assumed that about 75 
percent of these individuals would be subject to the group health 
enrollment requirements. In addition, we assumed that ESI premiums 
rates are based on utilization which is 80 to 90 percent of that of 
Medicaid enrollees for adults and children and 30 to 40 percent of 
these premiums on average. Employee cost-sharing was estimated at 20 
percent, and the ratio of Medicaid to employer plan recognized charges 
was assumed to be about two-thirds.
    At present, we do not have the data to estimate the impact of 
section 4713 of OBRA '90 regarding optional Medicaid payment of group 
health plan premiums for COBRA continuation beneficiaries. Although 
this legislation creates a new eligibility group, we do not believe a 
significant number of individuals would become eligible. Further, this 
provision is optional for the States. To the extent these individuals 
become eligible for Medicaid, we believe this provision would reduce 
expected future Medicaid costs through continued coverage by employer 
group health plans in lieu of Medicaid coverage for a period of up to 
29 months.
    The Secretary certifies that this proposed rule will not have a 
significant economic impact on a substantial number of small entities 
and will not have a significant impact on the operation of a 
substantial number of small rural hospitals. We have, therefore, not 
prepared a regulatory flexibility analysis.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

IV. Collection of Information Requirements

    Sections 435.10 and 436.10 of these proposed rules contain 
information collection requirements that are subject to review by the 
Office of Management and Budget (OMB) under the authority of the 
Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.). We estimate 
that any State plan amendments required by these provisions will take a 
total of not more than 50 hours total. A notice will be published in 
the Federal Register when approval is obtained. Organizations and 
individuals desiring to submit comments on the information collection 
and recordkeeping should direct them to the OMB official whose name 
appears in the ADDRESSES section of this preamble.

V. Response to Public Comments

    Because of the large number of items of correspondence we normally 
receive on a proposed rule, we are unable to acknowledge or respond to 
them individually. However, we will consider all comments that we 
receive by the date and time specified in the COMMENT PERIOD section of 
this preamble to the final rule.

List of Subjects

42 CFR Part 435

    Aid to families with dependent children, Grant programs--health, 
Medicaid, Reporting and recordkeeping requirements, Supplemental 
security income (SSI), Wages.

42 CFR Part 436

    Aid to families with dependent children, Grant programs--health, 
Guam, Medicaid, Puerto Rico, Supplemental Security Income (SSI), Virgin 
Islands.

    Note: We have reprinted in the following proposed regulations 
text certain provisions included in a final rule with comment period 
that was published in the Federal Register on January 19, 1993 (58 
FR 4908). The January 19, 1993 rule made numerous changes to the 
organization and numbering of the Medicaid regulations. Therefore, 
we have reprinted the provisions in order to set forth appropriate 
text for the provisions of this proposed rule. The effective dates 
for the January 19 final rule have been delayed (58 FR 9120, 
February 19, 1993; 58 FR 44457, August 23, 1993; and 59 FR 8138, 
February 18, 1994). If at the time we issue the final rule for these 
proposed regulations, the reprinted text has been revised or is not 
in effect, we will make appropriate changes to ensure that the 
existing CFR text is reflected.

    42 CFR chapter IV, subchapter C would be amended as follows:
    A. Part 435 is amended as set forth below:

PART 435--ELIGIBILITY IN THE STATES, DISTRICT OF COLUMBIA, THE 
NORTHERN MARIANA ISLANDS, AND AMERICAN SAMOA

    1. The authority citation for part 435 continues to read as 
follows:

    Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).

    2. Section 435.2 is revised to read as follows:


Sec. 435.2  Purpose and applicability.

    (a) Eligibility and coverage in general. This part sets forth, for 
the 50 States, the District of Columbia, the Northern Mariana islands, 
and American Samoa--
    (1) The eligibility provisions that a State plan must contain;
    (2) The mandatory and optional groups of individuals to whom 
Medicaid is provided under a State plan;
    (3) The eligibility requirements and procedures that the Medicaid 
agency must use in determining and redetermining eligibility, and 
requirements it may not use;
    (4) The availability of FFP for providing Medicaid and for 
administering the eligibility provisions of the plan; and
    (5) Other requirements concerning eligibility determinations, such 
as use of an institutionalized individual's income for the cost of 
care.
    (b)-(d) [Reserved]
    (e) Payments on behalf of COBRA continuation beneficiaries. This 
part also sets the requirements for determining COBRA continuation 
beneficiary status, which at State option entitles individuals to have 
Medicaid pay COBRA premiums for continuation coverage in a group health 
plan. These payments are optional in the 50 States, the District of 
Columbia, the Northern Mariana Islands, and American Samoa.
    (f) Payments of premiums, coinsurance, deductibles, and other cost-
sharing obligations on behalf of recipients under group health plans 
where it is cost-effective to do so. This part also sets forth the 
requirement that the State determine as a condition of eligibility that 
an individual must enroll in a group health plan, where the enrollment 
is cost-effective. Enrollment in cost-effective plans is mandatory in 
the 50 States and the District of Columbia.

    3. Section 435.3 is amended by adding the following statements in 
numerical order to read as follows:


Sec. 435.3  Basis.

* * * * *
1902(a)(10)(E)  Makes medical assistance available for payment for 
Medicare cost-sharing (as defined in section 1905(p)) for qualified 
Medicare beneficiaries.
1902(a)(10)(F)  At State option, pay COBRA premiums for individuals who 
are entitled to elect COBRA continuation coverage under a group health 
plan provided by an employer with 75 or more employees.
* * * * *
1902(e)(11)  Optional continued Medicaid eligibility of up to 6 months 
for certain group health plan enrollees.
* * * * *
    1902(u)(1)  Definitions of COBRA continuation beneficiaries.
* * * * *
1903(u)(1)  Allows FFP to be available for erroneous payments made in 
violation of section 1906 of the Act.
* * * * *
1905(a)  Expenditures for Medicare cost-sharing and premiums under Part 
B.
* * * * *
1906  Mandatory enrollment of Medicaid eligibles in cost-effective 
group health plans.
* * * * *
    4. Section 435.10 is revised to read as follows:


Sec. 435.10  State plan requirements.

    (a) General rule. A State plan must provide that the requirements 
of this part are met, and include the specifications required by 
paragraphs (b), (c), (d), and (e) of this section.
    (b) Covered groups. The plan must specify the groups (as described 
in subparts B, C, and D of this part) to whom the State provides 
Medicaid, and the eligibility conditions for individuals in those 
groups.
    (c)-(D) [Reserved]
    (e) Requirements for COBRA continuation coverage. A State may elect 
to provide COBRA continuation coverage. If a State elects to do so, the 
State must--
    (1) Specify that the State must pay all premiums on behalf of 
recipients enrolled in the group health plan as provided in 
Sec. 435.240;
    (2) Specify a methodology for determining the cost-effectiveness of 
an individual's enrollment in a COBRA group health plan. This 
methodology, at minimum, must account for the employee's COBRA 
premiums. It also must compare these costs to the likely Medicaid 
expenditures for the individual. The methodology must also include an 
assessment explaining why the State would be likely to incur Medicaid 
expenditures on behalf of the individual in the absence of enrollment 
in COBRA continuation coverage.
    (3) Treat the COBRA group health plan as a third party resource in 
accordance with the third party liability requirements specified in 
Sec. 433.138, except FFP is available as provided in Sec. 435.1002.
    (4) Specify the basic requirements for payment of group health 
insurance premium expenses on behalf of any individual specified in 
Sec. 435.240.
    (f) Requirements for Medicaid payments for recipients under group 
health plans. In the case of the 50 States and the District of 
Columbia, the agency must specify that it meets the requirements of 
Sec. 435.186 of this part.

    5. The title of subpart B is revised to read as follows:

Subpart B--Mandatory Coverage of the Categorically Needy and for 
Special Groups

    6. A new undesignated center heading and Sec. 435.186 are added at 
the end of subpart B to read as follows:

Eligibility for Special Groups


Sec. 435.186  Medicaid payments for recipients under group health 
plans.

    (a) Scope and applicability. The provisions of this section are 
mandatory in the 50 States and the District of Columbia.
    (b) Basic requirements. The agency must--
    (1) Identify cases in which enrollment of a Medicaid recipient in 
an employer-based group health plan is cost-effective and require, as a 
condition of eligibility, that individuals (or in the case of a child, 
the child's parent) apply for enrollment in such plans, except as 
provided in paragraph (c) of this section;
    (2) Specify a methodology for determining the cost-effectiveness of 
an individual's enrollment in a group health plan that is acceptable to 
HCFA. The agency may--
    (i) Use the methodology established by the Secretary; or
    (ii) Use an alternative methodology, which, at a minimum, must 
include factors accounting for the employee's premiums, coinsurance, 
deductibles, and other cost-sharing obligations under the group health 
plan. It also must compare these factors to the State's average 
Medicaid expenditures for an equivalent set of services for an 
individual in similar circumstances, and may include factors not 
specified in this paragraph, for example, considering recipients' 
diagnosis.
    (3) Include in its Medicaid plan provisions for payment of all 
enrollee premiums necessary for such enrollment, and all deductibles, 
coinsurance, and other cost-sharing obligations for services under the 
State plan for Medicaid recipients enrolled in an employer-based group 
health plan that has been determined by the State to be cost effective;
    (4) Provide for payment for premiums for non-Medicaid eligible 
family members only if the cost-effective employer-based group health 
plan requires enrollment of a non-Medicaid eligible family member as a 
condition for a Medicaid eligible family member to enroll in the group 
health plan;
    (5) Treat the group health plan as a third party resource in 
accordance with third party liability requirements as specified in 
Sec. 435.138, except FFP is available as provided in Sec. 435.1002; and
    (6) Specify that the Medicaid recipient will receive Medicaid 
services pending the submission of the group health plan application 
during the group health plan's next open season.
    (c) Exceptions. The agency may not require, as a condition of 
Medicaid eligibility, that a child enroll in a cost-effective employer-
based group health plan, when the parent of that child fails to enroll 
the child in a group health plan in accordance with paragraph (b)(1) of 
this section.

    7. In Sec. 435.201, the introductory text of paragraph (a) is 
republished, and paragraph (a)(7) is added to read as follows:


Sec. 435.201  Individuals included in optional groups.

    (a) The agency may choose to cover as optional categorically needy 
any group or groups of the following individuals who are not receiving 
cash assistance and who meet the appropriate eligibility criteria for 
groups specified in the separate sections of this subpart:
* * * * *
    (7) Individuals described in section 1902(u)(1) of the Act who are 
entitled to elect COBRA continuation coverage (as specified in 
Sec. 435.240).

    8. A new undesignated center heading and Sec. 435.240 are added at 
the end of subpart C to read as follows:

Options for Coverage of Special Groups Who Have Limited Eligibility


Sec. 435.240  COBRA continuation beneficiaries.

    (a) Scope and applicability. The provisions of this section are 
optional in the 50 States, the District of Columbia, the Northern 
Mariana Islands, and American Samoa.
    (b) Basic requirements. The agency that elects this option must 
include in its Medicaid State plan the payment of group health 
insurance premiums on behalf of any individual who--
    (1) Is entitled to elect COBRA continuation coverage as defined in 
paragraph (c) of this section;
    (2) Has resources, as determined in accordance with the SSI 
methodology at section 1613 of the Act, that do not exceed twice the 
maximum amount established for SSI eligibility for that individual;
    (3) Has income, as determined in accordance with the SSI 
methodology at section 1612 of the Act, that does not exceed 100 
percent of the Federal poverty guidelines (as defined by the Office of 
Management and Budget, and revised and published annually by the 
Department of Health and Human Services) applicable to a family of the 
size involved; and
    (4) The State has determined that COBRA continuation coverage 
premiums to be paid by the State with respect to enrolling an 
individual are expected to be less than the likely Medicaid 
expenditures on behalf of the individual in the absence of enrollment.
    (c) Definitions. As used in this subpart--
    COBRA continuation coverage means coverage under a group health 
plan provided by an employer with 75 or more employees under title XXII 
of the Public Health Service Act, section 4980B of the Internal Revenue 
Code of 1986, or title VI of the Employee Retirement Income Security 
Act of 1974.
    COBRA premiums means the applicable premium imposed with respect to 
COBRA continuation coverage.
    (d) Determination of COBRA continuation coverage--
    (1) Except as provided in paragraph (d)(2) of this section, States 
must use the SSI methodologies in sections 1612 and 1613 of the Act to 
determine income and resource eligibility for COBRA continuation 
benefits.
    (2) States that have exercised their option under section 1902(f) 
of the Act may use more restrictive income and resource standards, 
methodologies, and criteria in determining eligibility for COBRA 
continuation coverage.
    (3) States may not apply more liberal income and resource 
methodologies under section 1902(r)(2) of the Act to this group.
    (e) Services available to COBRA continuation beneficiaries--(1) A 
COBRA continuation beneficiary (CCB) who is not otherwise eligible for 
Medicaid (that is, does not belong to any other eligibility group 
covered under the State plan) is only eligible to have Medicaid pay 
premiums specified under the COBRA plan on his or her behalf.
    (2) A CCB who belongs to one of the other eligibility groups 
covered under the Medicaid State plan may also be eligible for the full 
range of Medicaid services provided under the State plan to members of 
the other group to which the CCB belongs.

    9. In Sec. 435.301, the introductory text of paragraph (b) and 
(b)(2) are republished, paragraphs (b)(2)(vi) through (ix) are added 
and reserved and paragraph (b)(2)(x) is added to read as follows:


Sec. 435.301  General rules.

* * * * *
    (b) If the agency chooses this option, the following provisions 
apply:
* * * * *
    (2) The agency may provide Medicaid to any of the following groups 
of individuals:
* * * * *
    (vi)-(ix) [Reserved]
    (x) Individuals described in section 1902(u)(1) of the Act who are 
entitled to elect COBRA continuation coverage (Sec. 435.240).

    10. Section 435.400 is revised to read as follows:


Sec. 435.400  Scope.

    This subpart prescribes general requirements for determining 
eligibility of categorically and medically needy individuals and of 
special groups of individuals with limited eligibility specified in 
subparts B, C, and D of this part.

    11. In Sec. 435.600 the introductory text is republished and 
paragraph (a) is revised to read as follows:


Sec. 435.600  Scope.

    This subpart prescribes: (a) General financial requirements and 
options for determining the eligibility of categorically and medically 
needy individuals and of special groups of individuals specified in 
subparts B, C, and D of this part. Subparts H and I prescribe 
additional financial requirements.
* * * * *
    12. A new Sec. 435.611 is added to read as follows:


Sec. 435.611  Limitation of payment for special groups of individuals.

    (a)(1) Except as provided in paragraph (a)(2) of this section, a 
State agency must require, as a condition of eligibility, that 
individuals otherwise entitled to Medicaid (or in the case of a child, 
the child's parent) apply for enrollment in a group health plan, where 
such enrollment is determined to be cost-effective.
    (2) The agency may not require, as a condition of Medicaid 
eligibility, that a child enroll in a cost-effective employer-based 
group health plan if the parent of that child fails to enroll the child 
in a cost-effective group health plan in accordance with paragraph 
(a)(1) of this section.
    (b) A Medicaid recipient must--(1) As a condition of eligibility, 
enroll in the group health plan described in paragraph (a)(1) of this 
section to obtain or maintain his or her Medicaid eligibility; and
    (2) Meet the general Medicaid eligibility requirements for State 
residence, assignment of rights to third party payments, and furnishing 
of his or her social security number, as set forth, respectively in 
Secs. 435.403, 435.604, and 435.910.

    13. Section 435.1002 is amended by adding and reserving paragraphs 
(c) and (d) and adding a new paragraph (e) to read as follows:


Sec. 435.1002  FFP for services.

* * * * *
    (c)-(d) [Reserved]
    (e) FFP is available in expenditures for--
    (1) Payment of COBRA premiums under group health plans, in 
accordance with this part 435.
    (2) Payment of premiums, deductibles, coinsurance, and other cost-
sharing obligations under group health plans on behalf of a recipient 
in accordance with this part 435.
    (3) Payment of premiums under group health plans on behalf of 
individuals enrolled in a group health plan for a period defined by the 
State of up to 6 months after enrollment (beginning on the date an 
individual becomes Medicaid eligible in Sec. 435.186) even if the 
enrollee ceases to be eligible for Medicaid during that period, but 
only for services covered under the group health plan.
    B. Part 436 is amended as set forth below:

PART 436--ELIGIBILITY IN GUAM, PUERTO RICO, AND THE VIRGIN ISLANDS

    1. The authority citation for part 436 continues to read as 
follows:

    Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).

    2. Section 436.2 is amended to add the following statements in 
numerical order to read as follows:


Sec. 436.2  Basis.

* * * * *
1902(a)(10)(E)  Makes medical assistance available for payment for 
Medicare cost-sharing described in section 1905(p) for qualified 
individuals.
1902(a)(10)(F)  At State option, pay COBRA premiums for individuals who 
are entitled to elect COBRA continuation coverage under a group health 
plan provided by an employer with 75 or more employees.
* * * * *
1902(u)(1)  Definition of COBRA continuation beneficiaries.
* * * * *
    3. Section 436.10 is revised to read as follows:


Sec. 436.10  State plan requirements.

    (a) General rule. A State plan must provide that the requirements 
of this part are met, and include the specifications required by 
paragraphs (b), (c), (d), and (e) of this section.
    (b) Covered groups. The plan must specify the groups (as described 
in subparts B, C, and D of this part) to whom the State provides 
Medicaid, and the eligibility conditions for individuals in those 
groups.
    (c)-(d) [Reserved]
    (e) Payments on behalf of COBRA continuation beneficiaries. A State 
may elect to provide COBRA continuation coverage. If a State elects to 
do so, the plan must--
    (1) Specify that the State may pay all premiums on behalf of 
recipients enrolled in the group health plan as provided in 
Sec. 436.274;
    (2) Specify a methodology for determining the cost-effectiveness of 
an individual's enrollment in a COBRA group health plan. This 
methodology, at minimum, must account for the employee's COBRA 
premiums. It also must compare these costs to the likely Medicaid 
expenditures for the individual. This methodology must also include an 
assessment explaining why the State would be likely to incur Medicaid 
expenditures on behalf of the individual in the absence of enrollment 
in COBRA continuation coverage.
    (3) Treat the COBRA group health plan as a third party resource in 
accordance with the third party liability requirements specified in 
Sec. 433.138, except FFP is available as provided in Sec. 436.1002.
    (4) Specify the basic requirements for payment of group health 
insurance premium expenses on behalf of any individual specified in 
Sec. 436.274.

    4. The title of subpart C is revised to read as follows:

Subpart C--Options for Coverage as Categorically Needy and for 
Special Groups

    5. A new undesignated center heading and Sec. 436.274 are added at 
the end of subpart C to read as follows:

Limited Eligibility for Special Groups


Sec. 436.274  COBRA continuation beneficiaries.

    (a) Scope and applicability. The provisions of this section are 
optional in Guam, Puerto Rico, and the Virgin Islands.
    (b) Basic requirements. The agency that elects this option must 
include in its Medicaid State plan the payment of group health 
insurance premiums on behalf of any individual who--
    (1) Is entitled to elect COBRA continuation coverage as defined in 
paragraph (c) of this section;
    (2) Has resources, as determined in accordance with the SSI 
methodology at section 1613 of the Act, that do not exceed twice the 
maximum amount established for SSI eligibility for that individual;
    (3) Has income, as determined in accordance with the SSI 
methodology at section 1612 of the Act, that does not exceed 100 
percent of Federal poverty guidelines (as defined by the Office of 
Management and Budget, and revised and published annually by the 
Department of Health and Human Services) applicable to a family of the 
size involved; and
    (4) The State has determined that the COBRA continuation coverage 
premiums to be paid by the State with respect to enrolling an 
individual are expected to be less than the likely Medicaid 
expenditures on behalf of the individual in the absence of enrollment.
    (c) Definitions. As used in this subpart--
    COBRA continuation coverage means coverage under a group health 
plan provided by an employer with 75 or more employees under title XXII 
of the Public Health Service Act, section 4980B of the Internal Revenue 
Code of 1986, or title VI of the Employee Retirement Income Security 
Act of 1974.
    COBRA premiums means the applicable premium imposed with respect to 
COBRA continuation coverage.
    (d) Determination of COBRA continuation coverage--(1) States must 
use the SSI methodologies at sections 1612 and 1613 of the Act to 
determine income and resource eligibility for COBRA continuation 
benefits.
    (2) States may not apply more liberal income and resource 
methodologies under section 1902(r)(2) of the Act to this group.
    (e) Services available to COBRA continuation beneficiaries--(1) A 
COBRA continuation beneficiary (CCB) who is not otherwise eligible for 
Medicaid (that is, does not belong to any other eligibility group 
covered under the State plan) is only eligible to have Medicaid pay 
premiums specified under the COBRA plan on his or her behalf.
    (2) A CCB who belongs to one of the other eligibility groups 
covered under the Medicaid State plan may also be eligible for the full 
range of Medicaid services provided under the State plan to members of 
the other group to which the CCB belongs.

    6. In Sec. 436.301, the introductory text of paragraphs (b) and 
(b)(2) is republished, paragraphs (b)(2)(vi) through (ix) are added and 
reserved, and a new paragraph (b)(2)(x) is added to read as follows:


Sec. 436.301  General rules.

* * * * *
    (b) If the agency chooses this option, the following provisions 
apply:
* * * * *
    (2) The agency may provide Medicaid to any or all of the following 
groups of individuals:
* * * * *
    (vi)--(ix) [Reserved]
    (x) Individuals described in section 1902(u)(1) of the Act who are 
entitled to elect COBRA continuation coverage (Sec. 436.274).

    7. Section 436.400 is revised to read as follows:


Sec. 436.400  Scope.

    This subpart prescribes general requirements for determining 
eligibility of categorically and medically needy individuals and of 
special groups of individuals with limited eligibility specified in 
subparts B, C, and D of this part.

    8. In Sec. 436.600 the introductory text is republished and 
paragraph (a) is revised to read as follows:


Sec. 436.600  Scope.

    This subpart prescribes:
    (a) General financial requirements and options for determining the 
eligibility of categorically and medically needy individuals and of 
special groups of individuals with limited eligibility specified in 
subparts B, C, and D of this part. Subparts H and I prescribe 
additional financial requirements.
* * * * *
    9. Section 436.1002 is amended by adding and reserving paragraphs 
(c) and (d) and adding a new paragraph (e) to read as follows:


Sec. 436.1002  FFP for services.

* * * * *
    (c)-(d) [Reserved]
    (e) FFP is available in expenditures for medical assistance on 
behalf of COBRA continuation beneficiaries for COBRA premiums, in 
accordance with Secs. 436.10 and 436.274.

(Catalog of Federal Domestic Assistance Program No. 93.778, Medical 
Assistance Program)

    Dated: August 24, 1993.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.

    Approved: December 3, 1993.
Donna E. Shalala,
Secretary.

    Editorial note: This document was received by the Office of the 
Federal Register on June 14, 1994.

[FR Doc. 94-14792 Filed 6-17-94; 8:45 am]
BILLING CODE 4120-01-P