Medicaid Demonstration Waivers: Lack of Opportunity for Public	 
Input during Federal Approval Process Still a Concern (24-JUL-07,
GAO-07-694R).							 
                                                                 
States provide health care coverage to about 60 million 	 
low-income individuals through Medicaid, a joint federal and	 
state program established under title XIX of the Social Security 
Act (the Act). Title XIX of the Act established parameters under 
which states operate their Medicaid programs, such as requiring  
states to cover certain services for certain mandatory groups of 
individuals such as low-income children; pregnant women; and	 
aged, blind, or disabled adults. The Secretary of Health and	 
Human Services (HHS), however, possesses authority to allow	 
states to depart from these requirements under certain		 
conditions. Under section 1115 of the Act, the Secretary may	 
waive certain Medicaid requirements and authorize Medicaid	 
expenditures for experimental, pilot, or demonstration projects  
that are likely to assist in promoting Medicaid objectives.	 
Medicaid section 1115 demonstration projects vary in scope, from 
targeted demonstrations, which are limited to specific services  
and populations, to comprehensive demonstrations, which affect	 
Medicaid populations statewide, cover a broad range of services, 
and account for the majority of a state's Medicaid expenditures. 
Since 1982, the Secretary has approved comprehensive		 
demonstration projects in a number of states, including Arizona, 
Florida, Hawaii, Oregon, Tennessee, and Vermont. Since our 2002  
report, and our subsequent 2004 report on 1115 demonstration	 
approvals, HHS has continued to review and approve waivers of	 
federal requirements for new comprehensive demonstration	 
proposals. At Congress's request, we reviewed recently approved  
comprehensive demonstrations, including the process HHS used to  
obtain public input on these proposals. This correspondence	 
addresses (1) implications for beneficiaries of recently approved
comprehensive Medicaid demonstrations and (2) the extent to which
the Secretary ensured opportunities for public input during the  
approval process. Our review encompassed recently approved	 
comprehensive demonstration programs in two states, Florida and  
Vermont. These were the two demonstration programs meeting our	 
criteria of (1) being approved by HHS from July 2004 (when we	 
last reviewed HHS-approved section 1115 demonstrations) through  
December 2006 and (2) being comprehensive, including accounting  
for greater than 50 percent of the state's Medicaid expenditures.
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-694R					        
    ACCNO:   A73208						        
  TITLE:     Medicaid Demonstration Waivers: Lack of Opportunity for  
Public Input during Federal Approval Process Still a Concern	 
     DATE:   07/24/2007 
  SUBJECT:   Beneficiaries					 
	     Federal law					 
	     Federal/state relations				 
	     Health care programs				 
	     Medicaid						 
	     Program evaluation 				 
	     State-administered programs			 
	     Policy evaluation					 
	     Health care reform 				 
	     Florida						 
	     Vermont						 

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GAO-07-694R

   

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July 24, 2007

The Honorable Henry A. Waxman
Chairman
Committee on Oversight and Government Reform
House of Representatives

The Honorable John D. Dingell
Chairman
Committee on Energy and Commerce
House of Representatives

The Honorable Frank J. Pallone, Jr.
Chairman
Subcommittee on Health
Committee on Energy and Commerce
House of Representatives

The Honorable Sherrod Brown
United States Senate

Subject: Medicaid Demonstration Waivers: Lack of Opportunity for Public
Input during Federal Approval Process Still a Concern

States provide health care coverage to about 60 million low-income
individuals through Medicaid, a joint federal and state program
established under title XIX of the Social Security Act (the Act). Title
XIX of the Act established parameters under which states operate their
Medicaid programs, such as requiring states to cover certain services for
certain mandatory groups of individuals such as low-income children;
pregnant women; and aged, blind, or disabled adults.^1 The Secretary of
Health and Human Services, however, possesses authority to allow states to
depart from these requirements under certain conditions. Under section
1115 of the Act, the Secretary may waive certain Medicaid requirements and
authorize Medicaid expenditures for experimental, pilot, or demonstration
projects that are likely to assist in promoting Medicaid objectives.
Medicaid section 1115 demonstration projects vary in scope, from targeted
demonstrations, which are limited to specific services and populations, to
comprehensive demonstrations, which affect Medicaid populations statewide,
cover a broad range of services, and account for the majority of a state's
Medicaid expenditures.^2 Since 1982, the Secretary has approved
comprehensive demonstration projects in a number of states, including
Arizona, Florida, Hawaii, Oregon, Tennessee, and Vermont.

^1See Social Security Amendments of 1965, Pub. L. No. 89-97, S 121, 79
Stat. 286, 343-352 (1965) (adding new sections 1901-1905 and amending
sections 1109, 1115 of the Social Security Act, codified, as amended, at
42 U.S.C. SS 1309, 1315, 1396-1396d).

In 1994, the Department of Health and Human Services (HHS) established in
the Federal Register the department's policies and procedures for
evaluating Medicaid section 1115 demonstration^3 proposals, including
processes for soliciting public input at both the state and federal
levels.^4 At the state level, for example, states were expected to post
notice of proposals in major newspapers, hold public hearings about the
proposal, or take certain other steps to solicit public input. At the
federal level, HHS indicated that it would notify interested organizations
when it received a demonstration proposal; publish monthly notices of all
new and pending demonstration proposals in the Federal Register; allow for
a 30-day comment period after new proposals were received; acknowledge, if
feasible, receipt of comments; and refrain from approving or disapproving
proposals until at least 30 days after proposals were received.

In July 2002, we reported that HHS had not consistently provided an
opportunity at the federal level for the public to learn about and comment
on pending demonstrations in accordance with its 1994 policy.^5 We
concluded that public input was important at the federal level in part
because approved demonstrations represent federal policy that may have
influence beyond a single state. A federal-level process also provides
more visibility and transparency for all affected and interested parties,
including Congress. Because HHS disagreed with our recommendation that the
agency provide for a federal public input process--indicating instead that
it planned to post notice of proposed (pending) and approved
demonstrations to its Web site--we suggested that Congress consider
requiring the Secretary to improve the public notification and input
processes at the federal level to ensure that individuals affected by
section 1115 demonstrations have an opportunity to review and comment on
proposals before they are approved. Congress has not yet enacted
legislation that responds to this recommendation.

^2For the purposes of this report, we use the Department of Health and
Human Services' (HHS) Center for Medicare & Medicaid Services (CMS)
definition that "comprehensive Medicaid section 1115 demonstrations"
include those that affect a broad range of services for Medicaid
populations statewide; in addition, we add the criterion that the
comprehensive demonstrations we reviewed account for greater than 50
percent of a state's Medicaid expenditures.

^3For purposes of this report, we refer to "Medicaid section 1115
demonstrations," "section 1115 demonstrations," "demonstration projects,"
and "demonstrations" interchangeably.

^4In September 1994, HHS published in the Federal Register its policy on
public participation during the demonstration approval process. At the
federal level, HHS's policy stated that the department would post notice
of pending demonstrations in the Federal Register; notify organizations
that request information; and acknowledge, if feasible, comments received.
At the state level, HHS's policy expected states to facilitate public
involvement in developing demonstration proposals, such as by holding
public hearings, convening commissions with open public meetings, enacting
state legislation regarding the demonstrations, or posting information in
newspapers. See Medicaid Program; Demonstration Proposals Pursuant to
Section 1115(a) of the Social Security Act; Policies and Procedures, 59
Fed. Reg. 49,249 (Sept. 27, 1994).

^5GAO, Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver
Projects Raise Concerns, GAO-02-817 (Washington, D.C.: July 12, 2002).

Since our 2002 report, and our subsequent 2004 report on 1115
demonstration approvals,^6 HHS has continued to review and approve waivers
of federal requirements for new comprehensive demonstration proposals. At
your request, we reviewed recently approved comprehensive demonstrations,
including the process HHS used to obtain public input on these proposals.
This correspondence addresses

           o implications for beneficiaries of recently approved
           comprehensive Medicaid demonstrations and

           o the extent to which the Secretary ensured opportunities for
           public input during the approval process.

Our review encompassed recently approved comprehensive demonstration
programs in two states, Florida and Vermont. These were the two
demonstration programs meeting our criteria of (1) being approved by HHS
from July 2004 (when we last reviewed HHS-approved section 1115
demonstrations) through December 2006 and (2) being comprehensive,
including accounting for greater than 50 percent of the state's Medicaid
expenditures.^7 To assess the reliability of HHS information on states'
Medicaid expenditures, we reviewed HHS documentation on the collection of
and quality assurance activities related to the data and interviewed
knowledgeable HHS officials, and determined the data to be reliable for
our purposes. To assess implications for beneficiaries of the Florida and
Vermont demonstrations, we reviewed HHS's and states' documents, including
proposals for these demonstrations and approved demonstrations' terms and
conditions,^8 and federal and state laws; we also interviewed state and
HHS officials, including officials from CMS.^9 To examine public input
processes, we reviewed certain federal and state laws and guidance;
interviewed HHS and state officials; interviewed representatives from
national, state, and local stakeholder groups; reviewed information posted
by HHS on its Web site; and reviewed documentation of public meetings and
written responses to public comments. (See enc. I for a list of
stakeholder groups interviewed for this correspondence.) Because the
Florida and Vermont demonstrations were in their early implementation
phase during our review, we focused our assessment largely on determining
implications for Medicaid beneficiaries under the terms of the states'
demonstrations as approved by HHS. We did not, however, consider
implications of these demonstrations with respect to other aspects of
federal oversight of the Medicaid program.^10 We conducted our review from
June 2006 through June 2007 in accordance with generally accepted
government auditing standards.

^6GAO, Medicaid Waivers: Recent HHS Approvals of Pharmacy Plus
Demonstrations Continue to Raise Cost and Oversight Concerns, GAO-04-480
(Washington, D.C.: June 30, 2004).

^7Our findings from HHS's approval of these two states' demonstrations
cannot be generalized to HHS's approval of other states' demonstrations.
We used this criterion for purposes of our assessing HHS's process as it
was applied in these particular cases of importance. These cases we
considered important because the majority of the state's Medicaid spending
was governed by the terms of the demonstration.

^8For each demonstration it approves, HHS approval documents may include a
demonstration approval letter, a demonstration fact sheet, the terms and
conditions of the demonstration, and a description of waiver and
expenditure authorities granted by the Secretary for the demonstration.
The state documents its acceptance of HHS's approval with an approval
acceptance letter. A demonstration's terms and conditions describe general
requirements of the demonstration program, such as benefits, eligibility,
populations covered, cost-sharing requirements, enrollment, evaluation,
and allocated budget.

^9Although HHS has delegated the administration of the Medicaid program,
including the approval of section 1115 demonstrations, to CMS, we refer to
HHS throughout this report because section 1115 demonstration authority
ultimately resides with the Secretary, and, accordingly, other HHS
components are involved in the review and approval of these
demonstrations.

Results in Brief

Recently approved Medicaid section 1115 demonstrations in Florida and
Vermont have mixed implications for beneficiaries in terms of coverage and
eligibility. The demonstrations are implementing different methods for
administering each state's Medicaid program and, as of March 2007, had
been under way less than 8 months in Florida and less than 18 months in
Vermont. Consequently, the actual effect of the demonstrations on
beneficiaries was not yet known.

           o Florida's demonstration program. Approved by HHS in October 2005
           and launched in July 2006, Florida's demonstration program is
           designed to give Medicaid beneficiaries more options in selecting
           health care plans and benefits. In the initial phase of the
           demonstration, certain Medicaid beneficiaries in two counties are
           required to enroll in managed care benefit plans. Managed care
           plans compete for Medicaid beneficiaries by offering different
           coverage options, including customized benefits, subject to
           certain limitations. For example, some plans could offer
           supplemental coverage for nonemergency dental benefits or
           over-the-counter pharmaceuticals not offered by other health
           plans. If beneficiaries do not choose a plan, they are
           automatically enrolled into a plan by the state, and coverage can
           be limited to emergency medical services and nursing home level
           care for beneficiaries for up to 30 days pending beneficiaries'
           enrollment in a managed care plan. Unlike many other previous
           Medicaid managed care systems, managed care plans in Florida have
           the authority to design benefit packages subject to approval by
           the state. Medicaid beneficiaries are notified about changes in
           their benefits from year to year and are responsible for
           determining whether plans continue to meet their health care
           needs. Medicaid beneficiaries may also voluntarily "opt out" of
           Medicaid coverage altogether and use a state-paid Medicaid premium
           toward their costs to enroll in an employer-sponsored insurance
           plan or--if they are self-employed--in a commercial benefit plan.
           In making this choice, however, these individuals, including
           mandatory Medicaid beneficiaries,^11 would no longer be entitled
           to mandatory Medicaid benefits; for example, children would no
           longer be entitled to mandatory comprehensive screening and
           treatment benefits if their parents enrolled in an
           employer-sponsored or commercial benefit plan that did not provide
           these benefits. Medicaid beneficiaries can choose a new benefit
           plan each year. If they opt out of Medicaid but later desire to
           enroll in one of Florida's Medicaid demonstration managed care
           plans, they need to wait for a qualifying event or open enrollment
           period before reenrolling. Initially implemented in a two-county
           area, the components of the demonstration are planned for
           statewide implementation by June 2010.^12

           o Vermont's demonstration program. Approved by HHS in September
           2005 and launched the following month, Vermont's demonstration
           created a single, state-operated managed care organization to
           cover virtually all of the state's Medicaid population.^13 The
           demonstration is designed to contain costs; to improve system
           accountability and quality of care; and, by potentially delivering
           services to Medicaid beneficiaries for less and reinvesting
           savings, to allow the state to serve more of its uninsured
           population. As a condition of approval, HHS required that the
           state be at risk for paying any costs for the demonstration beyond
           an established spending limit; however, the state has additional
           flexibility beyond traditional Medicaid requirements to change
           benefits, increase cost-sharing requirements, and alter
           eligibility for nonmandatory Medicaid beneficiaries. For example,
           the state is authorized to change the covered benefit package
           offered to certain groups of beneficiaries, such as nonmandatory
           groups that previously received Medicaid coverage at the state's
           option, without additional HHS approval as long as the changes
           result in no more than a 5 percent increase or decrease each year
           from the prior year's total Medicaid expenditures.

^10In a separate letter to the Secretary of Health and Human Services, we
discuss concerns about the consistency of the Florida and Vermont
demonstrations with federal law. See B-309734, July 24, 2007.

^11Mandatory Medicaid beneficiaries are those individuals who must be
covered under a Medicaid program, such as children under age 6 in families
with incomes at or below 133 percent of the federal poverty level and
pregnant women whose family income is below 133 percent of the federal
poverty level. (See enc. II for a summary of mandatory Medicaid benefits,
eligibility requirements, and cost-sharing limits.)

Officials in both states took steps to obtain public input in line with
HHS's 1994 policy, but HHS did not provide opportunity for public input at
the federal level once the proposals were received or post the states'
proposals on its Web site before approving them. Instead, HHS relied on
Florida and Vermont officials to obtain and respond to public comments.
Both states provided opportunities for public input--for example, by
holding public hearings and posting drafts of the demonstration proposal
on the states' Web sites. Even so, stakeholders in each state and at the
national level said they lacked access to specific information about
aspects of the proposals that directly affected beneficiaries or lacked
sufficient time to review and comment on the proposals. In Vermont, for
example, the state's Medical Care Advisory Committee, established by the
state to facilitate consumer input in state Medicaid policy, voted against
approval of the demonstration proposal because members said they lacked
sufficient time and information to understand the proposal. In Florida,
stakeholders said that information about the demonstration proposal
provided during public meetings was insufficient for adequately
understanding implications and that, upon request, state officials did not
provide key documents related to the demonstration, such as budget and
demographic information related to the proposal. At the federal level,
organizations representing individuals aged 50 and above, children and
families, and other Medicaid beneficiaries affected by the Florida and
Vermont demonstrations said that HHS did not post the proposals to its Web
site or provide them with timely information about the demonstrations upon
request. Unless Congress and HHS take actions in response to the matters
for congressional consideration and recommendations to HHS presented in
our July 2002 report, it appears likely that HHS will continue to approve
waivers for comprehensive demonstration proposals--with potentially
significant implications for program beneficiaries--without adequate
opportunity for public input.

In commenting on a draft of this report, HHS said the department continues
to disagree with our recommendation that the Secretary provide for an
improved public input process at the federal level. HHS said that
sufficient opportunities are available at the state level and that a new
federal-level requirement could create legal challenges that would delay
HHS's and states' implementation of innovative demonstrations. We disagree
with HHS's contention that its current policies and practices allow for
sufficient public input. For example, stakeholders reported they lacked
access to specific information about the proposals during the public input
process. Also, HHS told us in 2002 that it planned to post proposed
demonstrations on its Web site, but has not since established this policy
in a written form in HHS guidance,^14 and has not followed this practice
in the case of recently approved demonstrations in Florida and Vermont.
Furthermore, HHS did not explain or provide a basis for its contention
that allowing for federal input could create legal challenges. Therefore,
we disagree with HHS's suggestion that a public process should be limited
in order to avoid legal challenges. Because of long-standing concerns with
inadequate opportunities for public input in the process and because a
notice-and-comment period at the federal level would provide for a more
open and transparent process for all parties, we maintain our earlier
recommendation that Congress consider requiring the Secretary to institute
such a process.

^12Florida's demonstration is expected to expand to five counties in 2007
and to expand statewide by 2010.

^13Populations not covered by the state managed-care organization include
individuals enrolled in the state's long-term care demonstration and the
State Children's Health Insurance Program (SCHIP).

We also provided a copy of a draft of this report to Florida and Vermont.
Florida stated that our draft report did not provide an accurate
representation of the demonstration structure as it selectively
represented certain aspects of Florida's demonstration and omitted or
underemphasized other innovative and integral aspects of the program. We
maintain that our report accurately describes the major components of
Florida's demonstration. We did, however, update the report to discuss a
component of the demonstration that Florida said was important,
specifically, information on a financial benefit to encourage healthy
behaviors; about $34,000 had been used by beneficiaries as of March 2007.
Vermont, while disheartened that some stakeholders noted that the state's
public input process was somehow weak or not well rounded, stated that our
draft report was thorough, thoughtful, balanced, and complete.

Background

Medicaid is one of the largest programs in federal and state budgets. In
fiscal year 2005, the most recent year for which complete information is
available, total Medicaid expenditures were an estimated $317 billion.
States pay qualified health providers for a broad range of covered
services provided to eligible beneficiaries. The federal government
reimburses states for its share of these expenditures. The federal
matching share of each state's Medicaid expenditures for services is
determined under a formula defined under federal law and can range from 50
to 83 percent.^15 Each state administers its Medicaid program in
accordance with a state Medicaid plan, which must be approved by HHS.^16
Traditional Medicaid programs represent an open-ended entitlement, meaning
the state will enroll all individuals who are eligible for Medicaid, and
both the state and the federal government will pay, without limitation,
their share of state expenditures for people covered under a state's
approved Medicaid plan.

^14When asked for a copy of its policy, HHS officials clarified that the
expectation that waiver applications be posted on the Web site is not
contained in formal HHS policy guidance, but in performance plans for
certain CMS division managers.

^15See Social Security Act SS 1903(a)(1), 1905(b) (codified, as amended,
at 42 U.S.C. SS 1396b(a)(1), 1396d(b)). States with lower per capita
income typically receive higher federal matching shares.

^16A state Medicaid plan details the fundamental characteristics of a
state's program such as the mandatory and optional populations a state's
program serves; the amount, scope, and duration of mandatory and optional
services the program covers; and the rates of and methods for calculating
payments to providers.

States have considerable flexibility in designing their Medicaid programs,
but under federal Medicaid law, states generally must meet certain
requirements for which benefits are to be provided and who is eligible for
the program, and states may impose only nominal deductibles, coinsurance,
or co-payments on some Medicaid beneficiaries for certain services.^17 For
example, states are required to cover certain services, such as physician,
hospital, and nursing facility services, as well as early and periodic
screening, diagnostic, and treatment (EPSDT) services for children (under
the age of 21). States can receive federal matching payments to cover
certain optional services, such as prescription drugs, vision, and dental
services, but if they do so, they must generally provide the same benefits
to all covered beneficiaries. Groups of individuals that states are
required to cover under the state plan are known as "mandatory"
populations, and states may choose to provide Medicaid coverage to
additional optional groups of individuals.^18 Generally, optional Medicaid
beneficiary groups share characteristics similar to the mandatory groups,
but have higher incomes and states may cover these individuals under a
state plan. Expansion eligibility groups are those individuals who do not
fall under statutorily defined Medicaid eligibility categories but whom
states are able to cover under a section 1115 demonstration.

Under section 1115 of the Social Security Act, the Secretary has authority
to waive certain federal Medicaid requirements and authorize Medicaid
expenditures for experimental, pilot, or demonstration projects that are
likely to assist in promoting Medicaid objectives.^19 States have used the
flexibility granted through section 1115 to implement major changes to
existing state Medicaid programs. For example, some states have used
Medicaid section 1115 demonstrations to introduce mandatory managed care
for their Medicaid beneficiaries; other states have expanded Medicaid
coverage to additional populations or services.

Recognizing that people who may be affected by a demonstration project
"have a legitimate interest in learning about proposed projects and having
input into the decision-making process," HHS established procedures in a
1994 Federal Register notice for both a federal- and a state-level public
notice-and-comment process.^20 At the state level, the requirements of
this policy have remained essentially unchanged since the notice was
issued on September 27, 1994. In directing states to facilitate public
involvement and input during the development of proposed demonstrations,
the notice describes a variety of ways that states may create
opportunities for public input, such as holding public hearings, convening
commissions with open public meetings, enacting state legislation
regarding the demonstrations, or posting information about demonstration
proposals in newspapers. HHS's policy also instructs states to include in
their formal 1115 demonstration proposals a brief narrative describing the
process used to obtain public input.^21 In the 1994 notice, HHS indicated
that it would post notice of new and pending demonstrations in the Federal
Register; allow for a 30-day comment period; notify certain organizations
of the receipt of demonstration proposals; acknowledge, if feasible,
comments made; and refrain from approving or disapproving proposals until
at least 30 days after proposals were received.

^17See Social Security Act SS 1902(a)(10)(A), 1905(a), 1916, 1916A
(codified, as amended, at 42 U.S.C. SS 1396a(a)(10)(A), 1396d(a), 1396o,
1396o-1).

^18Social Security Act S 1902(a) (10)(A)(i), (ii) (codified, as amended,
at 42 U.S.C. 1396a(a)(10)(A)(i), (ii)). In 2006, income thresholds for
Medicaid eligibility as a percent of the federal poverty level in Florida
were 200 percent for infants, 133 percent for children age 1-5, 100
percent for children age 6-19, 185 percent for pregnant women, 22 percent
for nonworking parents, and 58 percent for working parents. In Vermont,
income thresholds in 2006 were 300 percent for infants and children up to
age 19, 200 percent for pregnant women, 185 percent for nonworking
parents, and 192 percent for working parents. The federal poverty level
for a family of four in 2006 was $20,000.

^19Social Security Act S 1115 (codified, as amended, at 42 U.S.C. S 1315).

^2059 Fed. Reg. at 49,250-251.

Demonstrations in Florida and Vermont Have Mixed Implications for
Beneficiaries, but Actual Effects Are Unknown

Recently approved demonstrations in Florida and Vermont implement
different methods for administering each state's Medicaid program and have
potentially wide-ranging implications for beneficiaries. In Florida, for
example, beneficiaries have greater flexibility to choose among different
benefit plans, but could face the loss of some benefits, limits on covered
services, or additional cost-sharing requirements, and beneficiaries could
face up to 30 days with limited coverage before being enrolled in a
managed care benefit plan. Vermont may use savings from managed care
operations to fund additional health care initiatives, but the state is at
financial risk should demonstration costs exceed the approved spending
limit, with uncertain implications for beneficiaries should that happen.
Because the demonstrations were in early stages of implementation at the
time of our review, the actual effect on beneficiaries of their various
components was not yet known.

Florida's Demonstration Provides Beneficiaries More Choice, but
Beneficiaries Assume Risk for Their Choice of Plans, under Which Benefits
Could Be Limited

Florida's demonstration proposal, which Florida submitted and HHS approved
in October 2005, gives beneficiaries a more active role in determining
their health care by requiring them to choose from a number of managed
care plans in their area. Under the demonstration, HHS gave authority to
the state to develop and pay risk-adjusted premiums^22 to managed care
plans that cover beneficiaries, and to establish an annual maximum benefit
limit for adults.^23 The state in turn is requiring most beneficiaries,
including aged and disabled persons and certain families and children,^24
to choose from a number of managed care plans offering a variety of
benefit packages (beneficiaries are automatically enrolled in a plan if
they do not make a choice), or they can opt out of Medicaid and enroll in
employer-sponsored benefit plans or, in the case of those who are
self-employed, in commercial benefit plans. By choosing a benefit plan or
opting out of Medicaid to purchase employer-based or commercial insurance,
however, beneficiaries may also experience reduced benefits or increased
cost sharing such as co-payments or deductibles. Florida's demonstration
program began in July 2006 in two counties, Broward and Duval, and is
scheduled to expand statewide by 2010.

^21In addition to HHS's 1994 policy, a May 3, 2002, letter issued by HHS
to state Medicaid directors reiterated that the public should continue to
be involved in the development of demonstrations and that HHS will
continue to review demonstrations to ensure that states are following
public-notice procedures. The letter stated that the states have
responsibility for providing opportunity for public input, for example,
through public forums, legislative hearings, placement of information on
the state's Web site with a link for public comments, or distribution of
draft proposals for comment. Letter to state Medicaid directors 02-007
(May 3, 2002), available at
http://www.cms.hhs.gov/SMDL/SMD/list.asp#TopOfPage (downloaded Feb. 15,
2007).

^22Florida calculates risk-adjusted premiums for Medicaid beneficiaries
based on eligibility groups, age, and gender for a specific geographic
area and then adjusts for risks associated with health status.

^23For plans accepting risk for comprehensive coverage only, the plan
would be responsible for care up to a $50,000 limit per beneficiary. Once
the plan reaches $50,000, the state reimburses the plan at 95 percent of
the state's current Medicaid fee-for-service rate for costs accrued up to
the $550,000 annual maximum benefit limit for nonpregnant adults. For
plans accepting risk for both comprehensive and catastrophic care, the
plan is responsible for care of nonpregnant adults up to the $550,000
annual maximum benefit limit.

Selected features of the Florida demonstration and implications for
beneficiaries include the following:

           o Managed care plans have flexibility to offer state-approved
           benefit plans tailored to specific groups of beneficiaries:
           Participating managed care plans can vary the amount, duration,
           and scope of benefits offered to individual beneficiaries who
           share demographic characteristics or who have varying levels of
           medical need, and they can drop or impose cost sharing on certain
           services as long as the required cost sharing is within those
           limits approved for services under the state Medicaid plan.
           According to state officials, managed care plans must provide the
           same level of coverage available under the state plan with respect
           to children under age 21 and pregnant women.^25 Managed care plans
           are encouraged to compete for enrollees by offering customized
           benefit packages--for example, by including additional services or
           lower cost sharing--targeted to specific populations. To ensure
           that all benefit plans offer sufficient coverage, the state must
           approve all benefit packages offered to Medicaid beneficiaries.^26
           Managed care plans participating in the demonstration as of March
           2007^27 offered similar plans, in that they each covered certain
           basic Medicaid benefits, such as hospital inpatient and outpatient
           services, ambulance services, and maternity services. However,
           some participating plans offered beneficiaries additional
           services, such as adult dental benefits, over-the-counter pharmacy
           benefits, and frail- or elder-care services that were not offered
           by other plans. Some plans limited beneficiaries to 60 lifetime
           visits for home health services--consistent with Florida's
           state-plan-required coverage--while others expanded this service
           to 210 visits annually per beneficiary. Several plans had no
           limits on the amount or cost of prescription drugs a beneficiary
           may use, while others limited the number of monthly prescriptions
           that beneficiaries were allowed or the annual covered cost for
           prescription drugs. Nearly half of the plans required
           beneficiaries to pay some form of co-payments, while the remaining
           plans did not have co-payment requirements. Whereas before the
           demonstration all beneficiaries meeting the same eligibility
           requirements received the same benefits as covered under the state
           Medicaid plan, under the demonstration, Medicaid beneficiaries
           could enroll in a participating plan based on the particular
           benefit package offered by managed care plans, much as they would
           in the commercial insurance market. In addition, unlike many other
           previous Medicaid managed care systems, managed care plans may
           change benefit packages annually with state approval. After
           beneficiaries are notified each year about changes in their
           benefits, they are responsible for determining whether their plans
           continue to meet their health care needs. Under the demonstration,
           beneficiaries can remain with the same plan or can choose a new
           plan each year during a designated open enrollment period.
           Beneficiaries need to review their plans each year to ensure that
           they understand how benefits may be changing.

           o Beneficiaries can have the state contribute towards the purchase
           of available employer-sponsored insurance or commercial health
           insurance and voluntarily opt out of Medicaid: Under Florida's
           demonstration, beneficiaries can choose to "opt out" of Medicaid
           and have the state use their Medicaid premium toward paying the
           costs of employer-sponsored health insurance or, if they are
           self-employed, towards individually purchased commercial health
           insurance. HHS has authorized the state to pay for such costs up
           to the state-established Medicaid premium and receive federal
           matching payments for these expenditures. Although
           employer-sponsored or commercial benefit plans must meet minimum
           state licensing standards, these plans are not subject to benefit
           package requirements applicable to plans participating in the
           demonstration and, therefore, may offer fewer benefits than plans
           participating in the demonstration. Also, these plans may have
           greater cost-sharing requirements, such as deductibles,
           co-payments, and higher monthly premiums than those the state
           would allow for plans participating in the demonstration.^28 By
           choosing to opt out of Medicaid, beneficiaries from mandatory
           populations could receive fewer benefits through
           employer-sponsored health plans. For example, children of parents
           who opt out and who previously had comprehensive Medicaid coverage
           for a broad range of EPSDT services could potentially have their
           benefits reduced. Medicaid beneficiaries who opt out of Medicaid
           have 90 days to choose to enroll instead in a Medicaid managed
           care plan. After 90 days, the beneficiary must remain with the
           employer-sponsored insurance and can make no further changes,
           including enrolling in a Florida Medicaid managed care plan, until
           the next employer-sponsored open enrollment period, unless the
           enrollee no longer has access to employer-sponsored coverage. If a
           beneficiary loses eligibility for participation in the
           employer-sponsored plan, the state has a process for "opting back
           in" to a Medicaid managed care plan.

           o Choice counselors will assist beneficiaries with choosing
           benefit plans or with opting out of Medicaid, but beneficiaries
           must assume risk for their choices: Through the mandatory
           enrollment of beneficiaries into managed care plans that they
           choose, Florida's demonstration emphasizes individual involvement
           in selecting from benefit plan options, and the state expects to
           gain valuable information about the effects of infusing
           market-based approaches into a public entitlement program. To
           assist beneficiaries with their choices, Florida is providing
           counselors--called "choice counselors"--to provide information
           about choosing a benefit plan and about opting out of Medicaid.
           According to the demonstration's terms and conditions, independent
           choice counselors will provide beneficiaries with information
           about each plan's coverage, benefits and benefit limitations,
           cost-sharing requirements, network and contacts, performance
           measures, results of consumer satisfaction reviews, and access to
           preventive services. Because the choice of benefit plans could
           have significant implications for beneficiaries, how well Florida
           implements choice counseling is critical to beneficiaries'
           understanding their options and making sound choices regarding
           which benefit plan best meets their needs. As of March 2007, it
           was too early to evaluate the effectiveness of choice counselors
           in helping beneficiaries choose benefits plans.

           o Florida may limit retroactive eligibility and benefits for new
           beneficiaries: Under the demonstration, Florida may limit
           eligibility to the date of an individual's Medicaid application
           and need not provide Medicaid coverage for new beneficiaries
           retroactively, that is, for up to 3 months before the date the
           individual applied for assistance. Under the statutory
           requirements for Medicaid, if an applicant is found eligible for
           Medicaid, a state plan must make medical assistance retroactive
           for up to 3 months. HHS approved a waiver of this statutory
           requirement for the demonstration. In addition, Florida could, if
           it chooses, restrict newly eligible beneficiaries' coverage for
           Medicaid services for up to 30 days after a beneficiary is
           determined to be eligible, but before a benefit plan is selected
           or before the state assigns a beneficiary to a benefit plan.
           During this 30-day period, or until a beneficiary selects a
           benefit plan or is assigned to one, Florida can restrict his or
           her care to only emergency medical services and nursing home level
           of care.^29 Florida Medicaid officials, however, informed us that
           pregnant women and children under 21 years of age will continue to
           have retroactive eligibility for up to 3 months prior to the date
           of application,^30 will receive full state plan benefits, and are
           also exempt from receiving limited benefits for up to 30 days
           before they are enrolled in a managed care plan.

^24Specifically, the state is requiring aged and disabled persons
receiving cash assistance under the Supplemental Security Income program
and children and families receiving cash assistance under the Temporary
Assistance to Needy Families program to participate in the demonstration.
The demonstration will initially exclude several special-needs groups
currently receiving Medicaid services, such as foster-care children,
individuals with developmental disabilities, and individuals residing in
nursing homes or psychiatric facilities.

^25In commenting on a draft of this report, Florida indicated that managed
care plans must also provide the same level of coverage available under
the state plan to Supplemental Security Income (SSI) beneficiaries, and
must provide emergency services to all enrollees in the demonstration.

^26To meet requirements of the demonstration, a managed care plan must
cover all the categories of mandatory services, as well as optional
services covered under Florida's state plan when indicated by historical
data. The plan, however, may cover services in differing amount, duration,
and scope as long as the plan can demonstrate that its proposed benefits
are actuarially equivalent to historical utilization levels and are
sufficient to cover the needs of the vast majority of enrollees.

^27As of March 2007, 16 plans were under contract to provide services for
the Florida demonstration.

^28Under the demonstration, HHS approved a waiver of a statutory
requirement that establishes limits on the imposition of cost-sharing on
Medicaid populations and services, thereby allowing the state to authorize
participation by beneficiaries in employer-sponsored or commercial health
plans that may impose cost sharing amounts that exceed such limits.

According to Florida officials, another key component of the demonstration
is the enhanced benefit program to promote healthy behaviors. Under the
program, accounts are established to provide incentives to enrollees for
participating in state-defined activities that promote healthy behaviors.
An individual who participates in certain state-defined activities that
promote healthy behavior is given up to $125 per state fiscal year in
"credits" in an individual enhanced benefit account to use for certain
health-care-related expenditures. As of March 2007, beneficiaries had used
about $34,000 of $1.7 million credited to their accounts under the
program.^31

^29Under the demonstration, HHS approved a waiver of a statutory
requirement that would otherwise have required the state to provide
mandatory benefits to all mandatory and optional Medicaid beneficiaries,
thereby allowing the state to limit coverage, for up to 30 days, pending
enrollment in a managed care organization, to emergency services and
nursing home level of care.

^30In commenting on a draft of this report, Florida said that although HHS
granted a waiver so that the state was not required to provide retroactive
eligibility for up to 90 days prior to the application, the state had not
as of June 2007 implemented this component of the program.

^31In March 2007--the latest month for which data were available--about
$15,000 of $524,000 credited by the state under the program had been used
by Medicaid beneficiaries. About 1,000 of 19,000 enrollees receiving
credits had used them.

Florida began implementation of this demonstration program in July 2006;
however, beneficiaries were not enrolled in benefit plans until September
2006. As of March 2007, more than 165,000 beneficiaries were enrolled in
benefit plans. At the time of our review, the demonstration program was
not yet far enough along to determine the effect on beneficiaries and the
extent to which providing beneficiaries with increased choices, along with
the increased risk associated with those choices, was improving care.

Vermont's Demonstration Grants the State New Flexibility, but Some
Beneficiaries May Have Benefits Reduced and Eligibility Delayed or Denied

Vermont's demonstration, submitted in April 2005 and approved by HHS in
September 2005, provides the state with the flexibility necessary to
administer most of the state's Medicaid program in a more centralized
manner. The demonstration, which began in October 2005, allows the state
to operate its own managed care organization. Under the demonstration, an
office within the state's Medicaid agency was converted to a publicly
operated managed care organization responsible for providing services and
managing costs for most of the state's Medicaid program.^32 The
demonstration proposal indicated that changes to the state's Medicaid
program under the demonstration would be transparent to most Medicaid
enrollees in the short term: the demonstration would not change delivery
or coverage of services to beneficiaries.

Selected features of the Vermont demonstration and implications for
beneficiaries and providers include the following:

           o Expected cost savings could enable Vermont to serve more of the
           state's uninsured population: HHS permitted the state to convert
           its Office of Vermont Health Access, which is within the state's
           Medicaid organization, into a single, state-run managed care
           organization. As described in the demonstration proposal, the
           demonstration is designed to put in place a series of health care
           options responsive to priorities supported by the governor and
           state legislature, including improved access to health care for
           Vermont's uninsured, cost containment within Medicaid, and
           improved system accountability and quality of care. Under the
           demonstration, the state is provided flexibility, including the
           ability to use creative payment mechanisms, rather than
           fee-for-service, to pay for services not traditionally
           reimbursable through Medicaid. The state expects the new state-run
           managed care organization to be more efficient. By employing a
           cost-containment strategy, which includes standardizing provider
           reimbursement systems and managing chronic care, the new state
           Medicaid structure and finance arrangement could help state
           officials address Medicaid deficits that had been projected to
           occur in Vermont. Under the demonstration, the state automatically
           enrolled nearly all Medicaid beneficiaries in the new state-run
           managed care organization. In doing so, according to the state's
           Medicaid director, it hoped to introduce chronic-care management
           and disease prevention services for enrollees, such as
           smoking-cessation programs. State officials indicated that savings
           generated by the demonstration could be applied to previously
           state-funded programs, such as those for the state's uninsured.

           o Expenditures for Medicaid services are allowed to increase or
           decrease up to 5 percent annually for nonmandatory beneficiaries:
           Under Vermont's demonstration, HHS provided the state the
           authority to change the benefit package for the nonmandatory
           eligible population as long as the changes result in no more than
           a 5 percent cumulative increase, or decrease, each year in total
           Medicaid expenditures.^33 The state is required to notify HHS of
           any such change in the benefit package but is not required to
           receive HHS approval for the changes. If Vermont's Medicaid
           program incurs financial setbacks or continues to run deficits,
           these beneficiaries could potentially experience a reduction in
           benefits offered by the state, such as the number of prescriptions
           allowed or number of doctor visits permitted each month, as long
           as these reductions do not decrease state expenditures for
           Medicaid by more than 5 percent annually.

           o Optional and expansion Medicaid populations may see an increase
           in their share of costs: Under the demonstration's terms and
           conditions, HHS permitted Vermont to maintain or increase premiums
           and co-payments for services for optional and expansion Medicaid
           populations--as long as such cost sharing for children in optional
           and expansion populations does not exceed 5 percent of a family's
           income. The state is not required to obtain HHS approval for
           changes to premiums and co-payments within the range specified in
           the demonstration's terms and conditions if they do not exceed 5
           percent of a family's gross income for eligible children. The
           state agreed to maintain the state plan co-payments and premium
           provisions for the mandatory population.

           o Optional and expansion Medicaid populations may experience a
           change or delay in eligibility: Under the demonstration's terms
           and conditions, Vermont agreed to maintain eligibility established
           in the demonstration's base year for mandatory beneficiaries but
           was authorized, for optional and expansion populations, to impose
           enrollment caps or eliminate eligibility during the 5-year
           demonstration. The state can limit enrollment and impose waiting
           lists for these groups; however, such changes must be approved by
           HHS.

           o Financing approach limits federal risk but shifts risk to state
           and potentially to all beneficiaries and providers: Another
           component of Vermont's demonstration is a spending limit, which,
           if exceeded, would end federal matching payments for Medicaid
           services paid under the demonstration. By establishing a spending
           limit on federal matching funds, HHS transfers financial risk from
           the federal government to the state, with implications for all
           beneficiaries and providers. If the state experiences an
           unexpected increase in Medicaid beneficiaries or expenditures
           during the demonstration period, it could reach or exceed the
           demonstration's spending limit. The state would then have to
           finance the demonstration using only state funds. Without
           available federal matching funds to continue to cover the
           demonstration's required costs to provide services, options
           available to the state to reduce expenditures could include
           reducing benefits and increasing cost sharing requirements,
           cutting back on populations served, or decreasing provider payment
           rates.

^32In addition to the recently approved comprehensive 1115 demonstration
in Vermont (known as Global Commitment to Health), the Secretary approved
Vermont's Long Term Care demonstration in June 2005. The Long Term Care
demonstration enables the state to provide long-term care beneficiaries
home-and community-based alternatives to institutional or nursing home
care. The Global Commitment to Health and Long Term Care demonstrations
encompass Vermont's entire state Medicaid program, with the exception of
Medicaid Management Information System (MMIS) costs, State Children's
Health Insurance Program (SCHIP) payments, and disproportionate share
hospital (DSH) payments. DSH payments are a form of Medicaid financing
that allows states and HHS to compensate those hospitals that care for a
disproportionate number of low-income Medicaid and uninsured patients in a
state. Unlike other federal Medicaid matching payments, federal Medicaid
DSH payments do not flow to states on an open-ended basis. Instead, these
payments are allocated among states as defined under federal law. States
may claim federal matching funds for DSH payments made to qualifying
hospitals up to these ceilings.

^33Vermont is not obligated to provide state plan services to optional or
expansion beneficiaries but can instead provide coverage as approved by
HHS, which includes inpatient and outpatient hospital services,
physicians' surgical and medical services, laboratory and x-ray services,
and well-baby and well-child care.

Vermont began implementation of this demonstration program in October
2005, and the demonstration proposal indicated that, initially, delivery
of services to beneficiaries would not change. Nearly all Medicaid
beneficiaries were enrolled in the demonstration at the time it was
initiated, and as of December 2006, the latest month in which information
was available, more than 141,000 beneficiaries in Vermont were enrolled.
At the time of our review, the demonstration program was not yet far
enough along to assess the financial effects of the demonstration on
beneficiaries' benefits, coverage, or eligibility, including the accuracy
of the spending projections approved for the demonstration.

States Provided Opportunities for Public Input on Proposals but Details
Were Lacking, and HHS Did Not Provide for Input at the Federal Level

In Florida and Vermont, beneficiaries and other stakeholders had a number
of opportunities at the state level to provide public input and comment
during the development of demonstration proposals. Despite these
opportunities, local stakeholders in each state we spoke to told us that
state officials did not provide sufficient information or time to review
the proposals prior to their submission for federal review and approval.
At the federal level, HHS did not provide formal public notice or the
opportunity to comment. Also, contrary to its stated policy of posting
demonstration proposals on its Web site prior to approval, HHS did not do
so in the case of Florida or Vermont.

Florida and Vermont Provided Opportunities for Public Notice and Comment,
but Stakeholders Reported That Only Limited Information Was Available

Florida and Vermont followed HHS's guidance regarding public notice and
comment, each holding multiple public forums and posting information on
state Web sites and in newspapers. Stakeholders in each state, however,
reported that the information provided was primarily broad concepts,
lacking the specificity they needed to offer constructive comments or ask
meaningful questions. For example, stakeholders said that public documents
did not adequately describe growth trends used to develop the
demonstrations' budgets. In both Florida and Vermont, the state
legislatures were active in soliciting public input and reviewing versions
of the demonstration proposals as they were developed. Stakeholders in
each state, however, reported that they were not given sufficient time to
review the proposals once they were made public and prior to the state
submitting the formal proposal to HHS for review and approval.

Florida's Public Notice-and-Comment Process

Florida Medicaid officials followed HHS's policy for public process at the
state level by conducting stakeholder presentations and posting a draft of
the proposed demonstration on the state's Web site for 30 days during
September 2005. Before submitting a proposal to HHS on October 3, 2005,
the Florida State Medicaid Director and state officials from the Agency
for Health Care Administration (AHCA), the agency responsible for the
state's Medicaid program, made presentations to the public about general
concepts of the demonstration, during which the public could comment as
well as learn about the demonstration. Concerned about the proposal and
the speed at which it was progressing, Florida's legislature had earlier
enacted legislation that authorized AHCA to implement the demonstration,
subject to parameters defined under state law and as approved by HHS. The
state law also required AHCA to post drafts of the section 1115
demonstration proposals on the state's Web site for 30 days for public
comment before submitting it to HHS and to obtain approval from the state
legislature before submitting and implementing the demonstration
proposals.^34 The state legislature also sponsored several public forums
to solicit public input on the proposal.

Some stakeholders we spoke to, including those representing beneficiaries,
reported that information about the proposal was not available, for
example, budget and demographic information and nursing home and
pharmaceutical costs. Two stakeholders representing hospitals and a large
managed care organization in Florida made positive comments about the way
the state created opportunities for public input during the development of
the proposal. However, two state-level organizations--one representing
individuals aged 50 and older and one that provides legal services to
low-income individuals--filed formal public information requests for
material not made available to stakeholders during the development of the
demonstration proposal after these organizations were unable to acquire
documents through other means. In October 2005, soon after the state
submitted its proposal to HHS, the organization that represents
individuals aged 50 and older filed a public-records request to obtain a
copy of a state-sponsored analysis of Medicaid expenditure trends.
Organization officials told us they received the requested analysis, but
only after repeated requests. Another organization--a state-level group
providing legal services to low-income people--after experiencing
difficulty obtaining sufficient information on the proposal from state
Medicaid officials during public meetings, in December 2004 filed a
Freedom of Information Act request with HHS for copies of draft proposals,
state plan amendments related to the demonstration, budget and demographic
information, and correspondence between HHS and state officials. As of
June 2007, 20 months after HHS approved the demonstration proposal in
Florida, the organization had not received the requested documents from
HHS.^35 In addition, stakeholders in Florida expressed concern that the
state's Medical Care Advisory Committee^36 did not participate in the
development of the demonstration proposal because it had not convened
while the demonstration proposal was under development and review.

Vermont's Public Notice-and-Comment Process

Vermont Medicaid officials followed HHS's requirements for public process
at the state level, and the final demonstration proposal submitted to HHS
included a record of public comments and the responses offered by the
state Medicaid officials. Officials from the Vermont Agency of Human
Services and Office of Vermont Health Access, both responsible for
administering the state's Medicaid program, held three public hearings
during which they received public questions and comments. Additionally,
the Vermont legislature made several changes to the proposal before voting
to approve the demonstration. For example, counsel to the legislature
advised the state legislature that HHS would not have authority to approve
a Medicaid demonstration as a block grant, as the governor and state
Medicaid officials had initially proposed. As required under state law,
the Vermont legislature oversees the demonstration by approving any
changes made to demonstration components or financing.^37

^34Fla. Stat. ch. 409.91211 (2006).

^35In commenting on a draft of this report, HHS acknowledged that its
response to this request was pending.

^36Under federal regulations, states are required to establish a Medical
Care Advisory Committee to advise the Medicaid agency about health and
medical care services. This committee must include members of consumer
groups who, along with other members, must have the opportunity to
participate in the development of Medicaid policies and administration,
including furthering the participation of recipient members in the agency
program. In Vermont, the committee is known as the Medicaid Advisory
Board. See 42 C.F.R. S 431.12.

Stakeholders in Vermont also reported difficulties in obtaining sufficient
information on the demonstration proposal, such as the effect of the
demonstration on benefits for beneficiaries and methods the state used to
formulate the demonstration's projected savings. Local stakeholders we
interviewed told us that the level of detail provided by Vermont Medicaid
officials in presentations was limited to broad examples used to
illustrate how the demonstration would operate and that state officials
could not offer a comprehensive explanation of the demonstration's
implementation. These stakeholders told us they were unclear about many of
the implications for beneficiaries. Members of the state's Medical Care
Advisory Board, established by the state to facilitate consumer input to
its Medicaid policies, told us that they had lacked time and information
to review the demonstration proposal prior to its formal submission to HHS
for review and approval and had voted in April 2005--just before the
proposal was submitted to HHS--not to approve its going forward. The board
did not receive information it had requested from the state on federal
matching formulas, disenrollment rates, historical cost and caseload
trends, programs included in the budget projection, or how the
demonstration interacts with the state budget. Because the board's role
was advisory, however, the state submitted the demonstration proposal
despite the board's lack of support.

At the Federal Level, HHS Did Not Provide Notice and Opportunity for
Public Comment by Stakeholders

At the federal level, HHS did not provide a process for public notice and
comment on either Florida's or Vermont's proposed demonstrations. In
January 2007, HHS officials reiterated statements made to us by HHS
officials in 2002 that the agency no longer followed the federal public
notice-and-comment process in its 1994 policy published in the Federal
Register and instead was posting pending and approved demonstration
proposals to its Web site. (Table 1 shows the differences between the 1994
and 2007 federal-level policies.) However, some national stakeholders
reported that HHS did not post the proposals to its Web site before
approving the Florida and Vermont demonstrations. Further, HHS had not
posted to its Web site a demonstration amendment proposal submitted by
Vermont Medicaid officials to HHS in September 2006 until mid-April
2007.^38 All of the national stakeholders we queried about the
demonstration amendment told us that they were unaware of the proposed
amendment and that neither HHS nor state Medicaid officials had provided
them a copy.

^37Vt. Stat. Ann. tit. 33 SS 1901, 1901a, 1901e (2006).

^38In commenting on a draft of this report, HHS indicated that it
considered the September 2006 submission a concept paper and did not
consider the amendment as a formal application until December 2006.

Table 1: Comparison of HHS's 1994 and 2007 Policies on Public Notice and
Comment at the Federal Level

Federal action                                                   1994 2007 
State notified as to adequacy of intended public process                   
Monthly notice of all new and pending proposals published in               
Federal Register                                                           
Federal Register notice published indicating that HHS is                   
accepting written comments on proposals                                    
List maintained of organizations requesting notice of receipt of           
demonstration proposal                                                     
Organizations notified when proposal received                              
Thirty-day comment period provided before decision on proposal             
Acknowledgment issued for receipt of all comments                          

Source: 59 Fed. Reg. at 49,249 (Sept. 27, 1994) and HHS officials.

In January 2007, HHS officials told us--as they had told us in 2002--that
the department no longer adhered to the 30-day waiting period to accept
and consider comments before rendering a decision on a demonstration
proposal as described in the agency's 1994 policy. For example, in
Florida, HHS approved the state's demonstration proposal 16 days after the
state submitted the formal proposal to HHS.^39 Nearly all of the national
stakeholders we interviewed told us that this window was not enough time
to allow them to review and comment on Florida's final proposal. Further,
stakeholders said that HHS does not notify interested groups or the public
when HHS receives a demonstration proposal for review. As a result, in
contrast to the department's 1994 policy, beneficiaries and other
interested parties may be unaware that HHS has received a proposal until
after the proposal has been approved, as some reported was the case for
Florida.

Several national stakeholders reported that requests they made to HHS for
information about both demonstrations went unanswered. These stakeholders
told us that such information helps their organizations to evaluate
proposed demonstrations before providing comments and to assist local
stakeholders in understanding the implications of proposed demonstrations.

The Medicaid Commission recently endorsed compliance with policies
requiring a public input process at the federal level for achieving
Medicaid reform.^40 In December 2006, the commission issued a report to
the Secretary of Health and Human Services, which recommended, among other
things, that compliance with existing policies regarding public notice of
section 1115 demonstration proposals, such as HHS's 1994 public
notice-and-comment policy, be monitored and enforced. The report
recommended that HHS and states enforce existing federal and state laws
and regulations so that stakeholders such as beneficiaries, providers, and
family members may provide input while new programs and delivery models
affecting them are developed and implemented. The Medicaid Commission
found that information and perspectives offered during public comment
periods constituted important feedback and recommended that HHS and state
officials elicit public feedback when state Medicaid agencies pursue
policies that would restructure state Medicaid programs.

^39For Vermont's demonstration, the HHS approval process took more than 5
months; state Medicaid officials submitted the proposal to HHS on April
15, 2005, and received HHS approval on September 27, 2005.

^40The Medicaid Commission, appointed in July 2005 by the Secretary, was
charged by the Secretary with identifying reforms necessary to stabilize
and strengthen Medicaid. The commission issued its report and
recommendations in December 2006.

A broad range of national stakeholder organizations have also raised
concerns to Congress about the need for an improved federal-level process
for public input during HHS review of demonstration proposals. A group of
nearly 60 national stakeholder organizations sent a letter in February
2006 to the Chairman and Ranking Member of the Senate Committee on
Finance, expressing concern that significant and complex policy changes
are made to the Medicaid program through section 1115 demonstrations,
often with little opportunity for public input. This group of national
stakeholders further stated that it wanted to ensure that major changes
made to Medicaid were subject to appropriate public input and
congressional oversight and that the ramifications of these changes for
beneficiaries were well understood.

Views varied among the national stakeholder groups we interviewed
concerning the need for a public input-and-comment process at the federal
level. National stakeholder organizations representing state governors and
legislatures did not believe that additional measures were required at the
federal level to provide for public input. These groups--the National
Governors Association, National Conference of State Legislatures, and the
Center for Health Transformation--told us that state-level public input
processes were sufficient for providing information and opportunities for
comment and that additional action at the federal level would not add to
stakeholders' understanding of demonstration proposals. In contrast,
national stakeholder groups we interviewed that represent beneficiaries
generally told us that a process for public comment at the federal level
was important to their organizations. In November 2006, a panel of 16
representatives from a broad range of national stakeholder organizations
described the relationship between HHS's current actions and their
organizations' activities:

           o Providing public input during the federal approval process.
           Representatives said that providing public input on topics that
           affect their constituents is a significant responsibility for
           their organizations during the federal approval process. HHS did
           not, however, provide an opportunity for national groups to offer
           public input during the approval process for the Florida and
           Vermont demonstrations. An official from a national group
           representing community health centers said, for example, that HHS
           had not provided the organization an opportunity to offer input to
           the pending demonstration proposals, both of which affect health
           centers in those states. Officials from other national groups
           confirmed that HHS directs their organizations to offer input to
           states rather than to HHS, even after HHS has received a formal
           demonstration proposal from a state. In addition, an official from
           a national organization providing legal services to low-income
           individuals, including Medicaid beneficiaries, said that HHS has
           no formal process to notify national stakeholders of pending
           proposals received for HHS review and that if advocates and
           organizations did not actively seek out information through other
           channels, they would not be aware of pending demonstration
           proposals.

           o Providing technical assistance to local affiliates and
           beneficiaries. Representatives told us that information from HHS
           on proposed demonstrations during the approval process is critical
           for their organizations to provide technical assistance to
           beneficiaries and local affiliates, particularly if the
           state-level public input process was insufficient. For example, an
           official from a national organization representing children with
           behavioral health issues (many of whom are Medicaid beneficiaries)
           commented that local members often call the national organization
           to ask for information about demonstration proposals pending in
           their own state. Likewise, an official from an organization
           representing individuals with Alzheimer's disease said that state
           and local chapters rely on the national organization for expertise
           and information on public policy issues, including proposed
           Medicaid demonstrations. An official from a national group
           providing social services to low-income seniors told us that the
           group uses information provided by HHS to inform its constituency
           of implications of new or untested Medicaid policies on long-term
           care services. Officials from other national groups we contacted
           also told us that HHS did not provide requested information
           related to pending demonstrations in Florida and Vermont,
           including copies of the proposals.

           o Informing HHS about lessons learned from past demonstrations.
           Representatives said that HHS itself cannot necessarily track
           every implication for beneficiaries that could occur over a
           demonstration's 5-year period for all the demonstrations it
           approves for different states. As a result, national stakeholders
           try to inform HHS on which provisions and procedures from former
           demonstrations have and have not worked and on what implications
           may have developed for beneficiaries. National groups told us they
           have an "experiential base" of knowledge about the past
           performance of demonstrations, which, through an open exchange of
           information with stakeholders, can benefit HHS officials in
           deciding whether to approve a demonstration proposal.

           o Monitoring changes to federal Medicaid policy. Representatives
           also expressed concern that HHS has introduced major changes to
           federal Medicaid policy through approvals of state demonstrations
           and that public input at the federal level is an important
           requirement for monitoring and anticipating these changes. An
           official from a national organization representing providers of
           mental health services told us that the federal approval process
           for demonstration proposals has become so complex that changes in
           federal Medicaid policy have occurred without a complete paper
           trail available to the public showing how demonstration proposals
           were developed, which limits accountability and transparency for
           HHS.

Concluding Observations

Both the Florida and Vermont demonstrations embody significant changes in
how these states operate their Medicaid programs. In approving these
demonstrations, HHS has approved state Medicaid reforms that depart from
previously approved demonstrations. These reforms have potentially mixed
implications for beneficiaries covered under the demonstrations in terms
of how the demonstrations may affect their access to health care services.
In Florida, which will test the effects of combining market-based
commercial approaches with the delivery of services to the low-income
Medicaid population, it is important that beneficiaries are fully informed
and understand the trade-offs involved with their health care choices,
especially if they are relinquishing certain Medicaid benefits, such as
EPSDT. In Vermont, the federal financial risk is limited to a specified
level, but the risk of increased costs due to unforeseen circumstances is
assumed by the state--and could potentially result in program changes for
beneficiaries and providers should the spending limit be exceeded. As HHS
noted in issuing its 1994 policy, people who may be affected by a
demonstration have a legitimate interest in learning about proposed
demonstrations and should have an opportunity to provide input to the
decision-making process. Although Florida and Vermont officials provided
for public input and comment during the development of their proposals,
many stakeholders reported seeking, but not obtaining, more time and
information to understand and provide informed input on the proposed
changes. A federal-level process does not exist that would allow
stakeholders and beneficiaries to learn of, review, and provide input on
the submitted proposals.

HHS's objective of expediting the waiver review and approval process is
reasonable. But, as we stated in our 2002 report, public input into new
demonstration proposals is important not only because such input helps
ensure that demonstrations are consistent with overall Medicaid goals and
that the waiver of certain statutory provisions is justified by the
benefits obtained, but also because approved demonstrations represent
federal policy whose influence may reach beyond a single state. A
notice-and-comment opportunity at the federal level would provide for a
more open and transparent process for all affected and interested parties,
including Congress--something that, as shown by our earlier work and more
recently in Florida and Vermont, may be better accomplished at the federal
rather than state level. Unless Congress and HHS take action in response
to the matters for congressional consideration and recommendations to the
Secretary that we presented in our July 2002 report--namely that Congress
consider requiring the Secretary to improve public notification and input
at the federal level and that the Secretary provide for an improved
process--it appears likely that HHS will continue to approve waivers for
comprehensive Medicaid demonstrations without adequate opportunity for
public input. Improvements should include, at minimum, posting pending
demonstration proposals to the HHS Web site, implementing a 30-day comment
period after receipt of a demonstration proposal before issuing a
decision, and notifying interested parties of the receipt of proposals.

Agency and State Comments and Our Evaluation

We provided a draft of this report for comment to HHS, Florida, and
Vermont. Each provided written comments, which we summarize and evaluate
below.

HHS's Comments and Our Evaluation

As in 2002, when we reported concerns with the lack of opportunity for
public input to the section 1115 demonstration approvals, HHS disagreed
with our recommendation that called for the Secretary to improve the
opportunities for public input at the federal level. HHS expressed a view
that opportunities for public input are more than adequate because states
have a broad array of options for soliciting public input, and because HHS
holds states accountable for complying with its 1994 policy and subsequent
guidance regarding public input. HHS expressed concern that requirements
that the department build a new process would create redundancy and slow
the approval process, delaying states' creative approaches under the
demonstrations. Of greatest concern to HHS was that federal legislation
could create a pathway to court that would allow a single individual to
delay implementation of a Medicaid demonstration and in so doing, disrupt
a state's budget.

Our report points out that Florida and Vermont offered opportunities for
public notice and comment consistent with HHS's policy for input at the
state level; however, we do not agree that such a process at the state
level precludes the need for input to HHS once a proposal is made final
and submitted to HHS for approval. It is only at this point in the process
that a state's final plans may be made clear. As discussed extensively by
HHS in its comments, states may make significant changes to plans for the
demonstration before submitting a proposal to HHS; stakeholders may not be
aware of these changes or the plans as laid out in the final proposal.^41
Further, demonstrations have potentially far-reaching implications for
beneficiaries beyond a state's borders, as approval of an innovative
approach in one state paves the way for other states to follow suit
through similar demonstrations. Finally, HHS did not explain or provide a
basis for its contention that allowing for input at the federal level
would create legal challenges. Therefore, we disagree with HHS's
suggestion that a public process should be limited in order to avoid legal
challenges. Although ensuring that opportunities for comment are available
for 30 days or longer after a proposal is received could slow the current
process--since HHS is approving some proposals more quickly, as in
Florida--we believe this added time is a cost that is outweighed by the
potential benefits in improved transparency and the potential for
meaningful federal consideration of input from beneficiaries and others.
We maintain that such a process is important for ensuring that
precedent-setting decisions to waive Medicaid requirements are made after
the consideration of concerns of stakeholder organizations and those
affected by the decisions. Furthermore, because not all information key to
stakeholders may be available to them during the state process and because
the proposal might be changing significantly during the state's process, a
notice-and-comment process that provides openness and transparency for all
affected and interested parties at the federal level remains important for
ensuring adequate public input to the final proposal as submitted to HHS.
Consequently, we continue to believe our recommendation is valid.

^41In its comments, HHS acknowledged that demonstration proposals often
evolve rapidly--alterations, additions, and deletions are made along the
way, often on a more-than-daily basis. Further, states may not have
labeled a particular document the "official or final submission."

HHS committed to several actions to ensure a transparent approval process
which we summarize and respond to below.

           o HHS noted that its 1994 policy predates widespread access to,
           and use of, the Internet. HHS said that it has a policy to post
           applications on its Web site within 10 days after the application,
           renewal, or amendment request is received.^42 HHS also stated its
           intention to add to the CMS Web site within the next several
           months a summary page of pending actions including state and
           federal contact information. We note that HHS did not have a
           10-day-to-Web site policy during the course of our review and that
           HHS told us in 2002 that it planned to post waiver applications to
           its Web site but did not do so in the case of Florida and Vermont.
           When asked for a copy of its new 10-day policy, HHS officials told
           us that the policy was contained in division manager performance
           expectations and was communicated to staff who work with 1115
           demonstrations.

           o HHS also noted that CMS accepts and responds to written comments
           on demonstration proposals at any time. Officials had made this
           observation during our review, but also provided documentation
           indicating that they had received only one comment on the Florida
           demonstration and none on the Vermont demonstration during the
           process.

Finally, HHS offered several additional comments of a technical nature,
including questioning our selection of Florida and Vermont as the focus of
our review. HHS indicated that other state demonstrations have higher
matching rates and high federal financial exposure; in particular, family
planning demonstrations, for which states receive a 90 percent matching
rate. We recognize HHS has approved many section 1115 demonstrations, some
of which carry higher matching rates than the Florida and Vermont
demonstrations. Yet we focused our work on recently approved comprehensive
demonstrations, for which the majority of the state's Medicaid spending
was directed by the demonstration's terms, precisely for the reason
indicated by HHS--that these "two projects are significant demonstrations
with far-reaching financial and programmatic implications." Other recently
approved section 1115 demonstrations identified by HHS either were not
comprehensive, or did not affect more than 50 percent of the state's
Medicaid spending.^43 The family planning demonstrations that HHS
highlighted as at high risk of federal financial exposure because of their
high matching rates cover a small portion of many Medicaid services that
states provide, and these demonstrations are not consistent with HHS's
definition of "comprehensive." We incorporated other of HHS's technical
comments where appropriate. HHS's comments are reproduced in enclosure
III.

^42Because of the widespread availability of the Internet, we are not
reiterating the specific portion of our previous recommendation that HHS
post proposals in the Federal Register.

State Comments and Our Evaluation

In commenting on a draft of this report, Florida stated that our draft
report did not provide an accurate and unbiased representation of its
demonstration. In particular, Florida said the report did not acknowledge
key aspects of the state's demonstration, such as the use of choice
counselors to provide information to beneficiaries and the implementation
of an enhanced benefit program. Florida said such omissions and
underemphasized facts could lead to inaccurate conclusions about the
nature of the demonstration and its implications for beneficiaries.
Florida also said the report overemphasized the customized benefit
packages and opt-out program components of its demonstration and did not
adequately describe other important components. From our analysis of the
demonstration's terms and conditions, we believe the draft report
accurately reflects the major potential implications for beneficiaries
over the 5-year demonstration period; we have nonetheless added
information to our report on the enhanced benefit program which had not
previously been described. Florida also took issue with the use of the
phrase "commercial managed care plans," saying that the state is not
solely contracting with commercial plans. Because the state did not
consider all contracted plans as "commercial," we removed this word when
describing the plans with which Florida contracts. We note that Florida
acknowledges that its demonstration seeks to build upon the "commercial"
market structure.

Florida also reiterated its extensive efforts to provide opportunities for
public comment during development of the demonstration proposal and stated
that it would not be prudent to duplicate the state's process at the
federal level. Florida offered opportunities for public comment;
nevertheless, stakeholders reported that information about the proposal
was not available and two state-level groups filed public information
requests to obtain this information. Stakeholders also expressed concern
that Florida's Medical Care Advisory Committee--required by federal
regulation to provide consumer input to the state on Medicaid policy
development and program administration--did not participate in the
development of the demonstration proposal. Finally, Florida provided
several technical comments, which we incorporated as appropriate.
Florida's comments are reproduced in enclosure IV.

Vermont stated that our draft report was thorough, thoughtful, balanced,
and complete; nonetheless, state officials were disheartened that some
stakeholders reported that the state's public input process was somehow
weak or not well rounded. Vermont also noted that there is no more
uncertainty regarding future benefit levels under the Vermont
demonstration than there is without any demonstration at all, as optional
Medicaid populations have always been subject to inclusion at states'
discretion. Vermont's comments are reproduced in enclosure V.

^43In addition to Florida and Vermont, we identified California and Iowa
as states with recently approved comprehensive demonstrations. We
estimated the portion of total state Medicaid expenditures covered in
demonstration year one to be 4.6 percent and 4.4 percent, respectively.

                                   - - - - -

As arranged with your office, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days after
its issue date. At that time, we will send copies of this report to the
Secretary of Health and Human Services, the Administrator of the Centers
for Medicare & Medicaid Services, and other interested parties. We will
also make copies available to others upon request. In addition, the report
will be available at no charge on the GAO Web site at
[3]http://www.gao.gov .

If you or your staff members have any questions, please contact me at
(202) 512-7114 or [email protected]. Contact points for our Office of
Congressional Relations and Public Affairs may be found on the last page
of this report. Major contributors to this report are acknowledged in
enclosure VI.

Kathryn G. Allen
Director, Health Care Issues

Enclosures - 6

Enclosure I
            National, State, and Local Stakeholder Groups Contacted

National stakeholder groups that GAO contacted:

           o Alzheimer's Association
           o American Association of Homes and Services for the Aging
           o AARP (formerly the American Association of Retired Persons)
           o American Network of Community Options & Resources
           o Center for Health Transformation
           o Center on Budget and Policy Priorities
           o Families USA
           o Georgetown Health Policy Institute
           o The Heritage Foundation
           o March of Dimes
           o National Association for Children's Behavioral Health
           o National Association of Community Health Centers
           o National Conference of State Legislatures
           o National Governors Association
           o National Health Law Program
           o National Health Policy Forum
           o National Mental Health Association
           o National Senior Citizens Law Center
           o National Women's Law Center
           o Service Employees International Union

State-level and local stakeholder groups in Florida and Vermont that GAO
contacted:

           o Florida AARP
           o Florida Association of Health Plans
           o Florida Hospital Association
           o Florida Legal Services
           o Low Income Pool Council (in Florida)
           o Florida Pediatric Society
           o WellCare (in Florida)
           o Vermont Association of Hospitals and Health Systems
           o Bi-State Primary Care Association (in Vermont)
           o Vermont Legal Aid
           o Vermont Medical Care Advisory Committee (known as the Medicaid
           Advisory Board)

Enclosure II

    Summary of Mandatory Federal Requirements for Traditional State Medicaid
                                    Programs

Summary of Mandatory Federal Requirements for Traditional State Medicaid
Programs

Mandatory health benefits States must cover, at a minimum, the following   
                             services under their state plans:                
                                                                              
                                o Inpatient hospital services                 
                                o Outpatient hospital services                
                                o Prenatal care                               
                                o Vaccines for children                       
                                o Physician services                          
                                o Nursing facility services for persons aged  
                                21 or older                                   
                                o Family planning services and supplies       
                                o Rural health clinic services                
                                o Home health care for persons eligible for   
                                skilled-nursing services                      
                                o Laboratory and x-ray services               
                                o Pediatric and family nurse practitioner     
                                services                                      
                                o Nurse-midwife services                      
                                o Federally qualified health-center services  
                                o Early and periodic screening, diagnostic,   
                                and treatment services for children under age 
                                21^a                                          
Mandatory eligibility     States must cover, at a minimum, the following   
groups                    individuals under their state plans:             
                                                                              
                                o Individuals eligible for Aid to Families    
                                with Dependent Children program (now known as 
                                Temporary Assistance for Needy Families, or   
                                TANF) if they meet requirements that were in  
                                effect in their state on July 16,1996         
                                o Children under age 6 whose family income is 
                                at or below 133 percent of the federal        
                                poverty level (FPL)                           
                                o Pregnant women whose family income is below 
                                133 percent of FPL                            
                                o Supplemental Security Income recipients in  
                                most states                                   
                                o Recipients of adoption or foster care       
                                assistance under Title IV of the Social       
                                Security Act                                  
                                o Special protected groups                    
                                o All children born after September 30, 1983, 
                                who are under age 19 and in families with     
                                incomes at or below FPL                       
                                o Certain Medicare beneficiaries^b            
Cost-sharing limits       States are limited to the following cost-sharing 
                             requirements under their state plans:            
                                                                              
                                o States may not impose enrollment fees or    
                                premiums on mandatory eligibility groups      
                                o States may impose nominal deductibles,      
                                coinsurance, or co-payments on some Medicaid  
                                beneficiaries for certain services            
                                o Certain Medicaid beneficiaries must be      
                                exempt from this cost sharing, including      
                                pregnant women, children under age 18, and    
                                hospital and nursing home patients expected   
                                to contribute most of their income to         
                                institutional care                            
                                o All Medicaid beneficiaries must be exempt   
                                from co-payments for emergency services,      
                                hospice services,and family-planning          
                                services^c                                    

Source: GAO analysis of federal laws and Department of Health and Human
Services regulations and guidance.

aSocial Security Act SS 1902(a)(10)(A), 1905(a) (codified, as amended, at
42 U.S.C. SS 1396a(a)(10)(A), 1396d). Effective March 31, 2006, states
also have the option of limiting coverage of services for certain Medicaid
recipients to either benchmark coverage or coverage that provides a
benefit package equal in value to benchmark coverage. Benchmark coverage
is defined as (1) the Federal Employee Health Benefits Program (Blue
Cross/Blue Shield) benefit plan, (2) the health benefits plan offered to
state employees, (3) coverage offered by a health maintenance organization
with the largest enrollment in the state, or (4) a package of benefits
approved by the Secretary of Health and Human Services. SSA S 1937 (to be
codified at 42 U.S.C. S 1396u-7).

bSSA S 1902(a)(10)(A)(i)) (codified, as amended, at 42 U.S.C. S
1396a(a)(10)(A)(i)).

cSSA S 1916 (codified, as amended, at 42 U.S.C. S 1396o). Effective March
31, 2006, states may impose premiums on certain previously exempt Medicaid
recipients with family incomes above 150 percent of the FPL. States may
also impose more than nominal cost sharing on certain services such as
nonpreferred drugs and nonemergency services provided in an emergency
room. States also have the option of imposing co-payments on certain
individuals in previously exempt populations. SSA S 1916A (to be codified
at 42 U.S.C. S 1396o-1).

Enclosure iII

        Comments from the Department of Health and Human Services (HHS)

Enclosure IV

                       Comments from the State of Florida

Enclosure V

                       Comments from the State of Vermont

Enclosure VI
                       Contact and Staff Acknowledgments

GAO Contact

Kathryn G. Allen, (202) 512-7114 or [email protected]

Acknowledgments

In addition to the contact mentioned above, Katherine M. Iritani,
Assistant Director; Ted Burik; Ellen W. Chu; Tom Moscovitch; Terry Saiki;
Stan Stenersen; Hemi Tewarson; and Jennifer Whitworth made key
contributions to this report.

(290553)

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