Medicaid: Three States' Experiences in Buying Employer-Based Health
Insurance (Letter Report, 07/25/97, GAO/HEHS-97-159).

Pursuant to a congressional request, GAO examined selected states
considered to be successful in implementing section 1906 of the Social
Security Act, focusing on: (1) the extent to which these states are
purchasing employer-based health insurance for Medicaid-eligible
individuals and achieving budgetary savings, as well as the potential
for greater savings; (2) the cost-effectiveness criteria these states
use and the populations and services covered; (3) the outreach efforts
used and barriers hindering states' implementation of section 1906; and
(4) legislative proposals suggested by others to improve states'
efforts.

GAO noted that: (1) Iowa, Pennsylvania, and Texas are recognized as
operating aggressive Health Insurance Premium Payment (HIPP) programs,
the number of people enrolled in their programs and their reported cost
savings are relatively small; (2) the three programs are trying to
identify and enroll more Medicaid eligibles, and state officials
anticipate enrollment increases in the future; (3) even with the
expected increases, however, the programs are expected to remain small
when compared with the total Medicaid populations in the three states;
(4) in assessing the cost-effectiveness of purchasing employer-based
insurance for Medicaid eligibles, Iowa, Pennsylvania, and Texas use
criteria designed to enroll anyone whose expected Medicaid costs exceed
the total of the premiums, deductibles, expected coinsurance, and
program administrative costs; (5) the three states do not target their
programs to only those populations with high-cost medical conditions,
such as acquired immunodeficiency syndrome (AIDS) patients, because
program officials believe this would limit potential cost savings; (6)
for example, Iowa officials reported a HIPP program caseload composed
primarily of families with children; (7) HIPP program outreach and
enrollment efforts in the three states rely primarily on Medicaid
eligibility workers to identify those potential enrollees with access to
employer-based insurance; (8) the enrollment process, including the
assessment of cost-effectiveness, also relies on the cooperation of
Medicaid eligibles and their employers to provide needed information,
such as health plan costs and benefits; (9) a variety of barriers,
however, limit the states' effectiveness in identifying and enrolling
Medicaid eligibles; (10) Medicaid eligibles do not always disclose their
access to insurance coverage, and employers do not always respond to
states' requests for information on health plans; (11) state Medicaid
officials and health policy analysts have proposed legislative changes
to address some of these barriers and improve HIPP program
implementation throughout the country; (12) proposals have been made to
require greater employer cooperation in enrolling Medicaid eligibles and
parents of Medicaid-eligible dependents; and (13) another proposal is to
require that employers and insurers allow HIPP applicants to join
employers' health plans at the time Medicaid eligibility is established
rather than having to wait for an open enrollment period limited to a
certain time of the year.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-97-159
     TITLE:  Medicaid: Three States' Experiences in Buying 
             Employer-Based Health Insurance
      DATE:  07/25/97
   SUBJECT:  Health care programs
             Cost effectiveness analysis
             Health insurance cost control
             Insurance premiums
             State budgets
             State and local procurement
             Proposed legislation
             Employee medical benefits
IDENTIFIER:  Medicaid Program
             HCFA Health Insurance Premium Payment Program
             Iowa
             Texas
             Pennsylvania
             
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Cover
================================================================ COVER


Report to the Chairman, Committee on Commerce, House of
Representatives

July 1997

MEDICAID - THREE STATES'
EXPERIENCES IN BUYING
EMPLOYER-BASED HEALTH INSURANCE

GAO/HEHS-97-159

Employer-Based Health Insurance

(101526)


Abbreviations
=============================================================== ABBREV

  AIDS - acquired immunodeficiency syndrome
  ERISA - Employee Retirement Income Security Act of 1974
  HCFA - Health Care Financing Administration
  HHS - Department of Health and Human Services
  HIPP - Health Insurance Premium Payment

Letter
=============================================================== LETTER


B-276007

July 25, 1997

The Honorable Thomas J.  Bliley, Jr.
Chairman, Committee on Commerce
House of Representatives

Dear Mr.  Chairman: 

More and more members of low-income families now qualify for
Medicaid\1 as a result of federal and state eligibility expansions in
recent years.  In fiscal year 1996, Medicaid expenditures totaled
about $160 billion for about 37 million people who received services. 
Certain Medicaid beneficiaries also have access to employer-based
group health insurance--for example, as an employee or through a
working parent--which in some cases is more economical than Medicaid. 

In 1990, in an effort to achieve Medicaid cost savings, the Congress
added section 1906 to the Social Security Act, requiring states to
pay premiums, deductibles, and coinsurance on behalf of Medicaid
beneficiaries eligible for enrollment in employer-based group health
plans when it is cost-effective to do so.  The states must also pay
the insurance premiums, but not deductibles and coinsurance, for
non-Medicaid-eligible family members if it is cost-effective and
necessary to obtain private coverage for eligible individuals. 

Currently, little is known about the extent and effectiveness of the
states' efforts to implement this law, which became effective January
1, 1991.  Comprehensive, reliable national data are not readily
available because states have been inconsistent in reporting their
section 1906 expenditures to the Department of Health and Human
Services' (HHS) Health Care Financing Administration (HCFA), the
federal agency responsible for overseeing the Medicaid program.  In
1992, the HHS Office of Inspector General surveyed the states and
found that at that time only 18 states had purchased employer-based
insurance for Medicaid-eligible individuals.\2

You asked us to build upon the Inspector General's study and further
examine states' implementation of section 1906.  In discussions with
your staff, we agreed to focus our work on selected states considered
to be successful in implementing section 1906 to determine (1) the
extent to which these states are purchasing employer-based health
insurance for Medicaid-eligible individuals and achieving budgetary
savings, as well as the potential for greater savings; (2) the
cost-effectiveness criteria these states use and the populations and
services covered; (3) the outreach efforts used and barriers
hindering states' implementation of section 1906; and (4) legislative
proposals suggested by others to improve states' efforts. 

To conduct our work, we collected and analyzed information reported
for Health Insurance Premium Payment (HIPP) programs in Iowa,
Pennsylvania, and Texas, which state Medicaid officials, HCFA
officials, and other experts consider to be aggressive and successful
programs in implementing section 1906 and achieving cost savings.  We
also contacted HCFA headquarters officials and three HCFA regional
offices to obtain information regarding states' implementation of
section 1906, and we reviewed studies and other literature discussing
state section 1906 efforts.  For more detailed information on our
scope and methodology, see the appendix. 


--------------------
\1 Medicaid is a joint federal-state health financing program
established under title XIX of the Social Security Act to provide
health care coverage for the poor, disabled, and medically needy. 

\2 The HHS Office of Inspector General mailed a questionnaire to the
50 states and the District of Columbia in 1992.  Two states did not
respond. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Although Iowa, Pennsylvania, and Texas are recognized as operating
aggressive HIPP programs, the number of people enrolled in their
programs and their reported cost savings are relatively small.  The
three programs are trying to identify and enroll more Medicaid
eligibles, and state officials anticipate enrollment increases in the
future.  Even with the expected increases, however, the programs are
expected to remain small when compared with the total Medicaid
populations in the three states.  Texas, for example, purchased
employer-based health insurance for 5,507 Medicaid eligibles enrolled
in its HIPP program as of August 1996 and reported savings of $4.6
million (0.1 percent of its Medicaid expenditures) for state fiscal
year 1996.\3 Texas officials said they would like their HIPP program
to grow to about 10,000 enrollees, which would represent about 0.4
percent of Texas' total Medicaid population. 

In assessing the cost-effectiveness of purchasing employer-based
insurance for Medicaid eligibles, Iowa, Pennsylvania, and Texas use
criteria designed to enroll anyone whose expected Medicaid costs
exceed the total of the premiums, deductibles, expected coinsurance,
and program administrative costs.  The three states do not target
their programs to only those populations with high-cost medical
conditions, such as acquired immunodeficiency syndrome (AIDS)
patients, because program officials believe this would limit
potential cost savings.  For example, Iowa officials reported a HIPP
program caseload composed primarily of families with children. 

HIPP program outreach and enrollment efforts in the three states rely
primarily on Medicaid eligibility workers to identify those potential
enrollees with access to employer-based insurance.  The enrollment
process, including the assessment of cost-effectiveness, also relies
on the cooperation of Medicaid eligibles and their employers to
provide needed information, such as health plan costs and benefits. 
A variety of barriers, however, limit the states' effectiveness in
identifying and enrolling Medicaid eligibles.  For example, Medicaid
eligibles do not always disclose their access to insurance coverage,
and employers do not always respond to states' requests for
information on health plans. 

State Medicaid officials and health policy analysts have proposed
legislative changes to address some of these barriers and improve
HIPP program implementation throughout the country.  For example,
proposals have been made to require greater employer cooperation in
enrolling Medicaid eligibles and parents of Medicaid-eligible
dependents.  Another proposal is to require that employers and
insurers allow HIPP applicants to join employers' health plans at the
time Medicaid eligibility is established rather than having to wait
for an open enrollment period limited to a certain time of the year. 


--------------------
\3 Each time we refer to a year in conjunction with state-reported
data, we are referring to the states' fiscal years.  Iowa's and
Pennsylvania's fiscal year is July 1 through June 30, and Texas'
fiscal year is September 1 through August 31. 


   BACKGROUND
------------------------------------------------------------ Letter :2

Section 1906 of the Social Security Act, enacted in the Omnibus
Budget Reconciliation Act of 1990, requires that states use Medicaid
funds to purchase employer-based group health insurance on behalf of
Medicaid-eligible individuals if such insurance is available and it
is cost-effective to do so.  States must also purchase employer-based
health insurance for non-Medicaid-eligible family members if this is
necessary for Medicaid-eligible individuals to receive coverage and
the insurance is still cost-effective.\4

As defined by section 1906, an individual's enrollment in an
employer-based plan is cost-effective if paying the premiums,
deductibles, and coinsurance is likely to be lower than a state's
expected cost of directly providing Medicaid-covered services.  HCFA,
which oversees the Medicaid program, has provided the states with
guidelines for calculating cost-effectiveness, including a suggested
formula for determining expected deductible and coinsurance costs. 
States may use an alternative method for determining
cost-effectiveness after obtaining HCFA's approval. 

If an employer-based health plan is determined likely to be
cost-effective, individuals are required to enroll as a condition of
their Medicaid eligibility.  However, a child cannot be denied
Medicaid eligibility or services because a parent does not enroll in
an employer's plan. 

Medicaid eligibles enrolled in employer-based health plans are
entitled to receive full Medicaid benefits.  The health plans become
the primary payers for the services they cover.  The states must
provide coverage for those Medicaid services not included in the
private plans.  In addition, according to HCFA, states are required
to reimburse providers for enrollee deductibles and coinsurance
according to the employer-based plans' fee schedules rather than the
state Medicaid fee schedules. 

Federal Medicaid matching funds are available, at each state's
regular matching rate,\5 for premium, deductible, and coinsurance
payments made by the states for Medicaid eligibles.  Federal matching
funds are also available for the premium payments made by states for
noneligible family members, but not for their deductibles,
coinsurance, or other cost-sharing obligations. 

The administration's budget proposal for fiscal year 1998 would
eliminate section 1906 of the Social Security Act as part of an
effort to "eliminate unnecessary administrative requirements."
According to the administration, section 1906 is not necessary
because states have an "inherent incentive" to move Medicaid
beneficiaries into private health insurance when it is
cost-effective.  Moreover, current, detailed, "one-size-fits-all"
federal rules hinder the states from designing programs that most
effectively suit local circumstances, according to the
administration.\6


--------------------
\4 The states pay the premiums, deductibles, and coinsurance for
Medicaid eligibles.  For non-Medicaid-eligible family members, the
states pay the insurance premiums but not the deductibles and
coinsurance. 

\5 The federal government pays a percentage of each state's cost of
Medicaid benefits.  The federal matching rate for each state is
determined by the state's average per capita income and ranges from
50 to 83 percent. 

\6 The administration's fiscal year 1998 budget proposal included per
capita spending limits for Medicaid.  The administration cited these
spending limits as an increased incentive for states to purchase
cost-effective private health insurance for Medicaid beneficiaries. 
However, the per capita spending limits were not included in the
subsequent agreement between the Congress and the administration to
balance the federal budget by 2002. 


   HIPP PROGRAMS' ENROLLMENT,
   SAVINGS, AND GROWTH POTENTIAL
------------------------------------------------------------ Letter :3

Although Iowa, Pennsylvania, and Texas have implemented HIPP programs
to enroll Medicaid eligibles and achieve budgetary savings, to date
only small portions of the Medicaid populations in these states are
signed up.  And, as expected, the Medicaid budgetary savings achieved
in the three states have also been relatively small.  None of the
state officials we talked with expect their HIPP programs to enroll
large numbers of Medicaid eligibles in the future. 


      ENROLLMENT LEVELS AND
      SAVINGS ACHIEVED
---------------------------------------------------------- Letter :3.1

As a percentage of the total state Medicaid population, Iowa's HIPP
program enrollment was the largest of the three states.  In June
1996, Iowa had 2,504 Medicaid eligibles enrolled in its HIPP program,
representing 0.8 percent of the approximately 333,500 Medicaid
eligibles in the state.  For 1996, Iowa's HIPP program reported an
estimated savings of $2.4 million (0.2 percent of Medicaid
expenditures).  Table 1 shows HIPP program enrollment and estimated
Medicaid savings reported to us by each of the three states included
in our evaluation. 



                          Table 1
          
           HIPP Program Enrollment and Estimated
          Budgetary Savings in Three States, 1996

                                                 Estimated
                                                savings as
                                                         a
                        Percentage   Estimated  percentage
                          of state   budgetary          of
             Number of    Medicaid     savings    Medicaid
            enrollees\  population         (in  expenditur
                     a          \a   millions)          es
----------  ----------  ----------  ----------  ----------
Iowa             2,504        0.8%        $2.4        0.2%
Pennsylvan       4,700         0.3         9.7         0.2
 ia
Texas            5,507         0.2         4.6         0.1
----------------------------------------------------------
Note:  The estimated budgetary savings were reported for each state's
fiscal year 1996. 

\a The program enrollment data were provided as of a specific month,
which differed for each state:  Iowa as of June 1996, Pennsylvania as
of January 1997, and Texas as of August 1996. 


      SOME PROGRAM GROWTH EXPECTED
---------------------------------------------------------- Letter :3.2

Because Iowa, Pennsylvania, and Texas are trying to identify and
enroll more people in their HIPP programs, state officials expect
enrollment levels to increase.  The anticipated increases and
potential budgetary savings, however, would remain modest. 

Iowa officials expect their HIPP program enrollment to rise because
the Iowa Department of Human Services' request for an increase in its
1998 appropriation for additional staff was approved by the state
legislature.  The officials said the appropriation increase,
effective July 1, 1997, will allow the size of the department's HIPP
unit to grow from 7 to 14 staff, and 2 computer specialists will be
added to enhance the unit's automation capabilities.  The officials
predicted HIPP program enrollment will increase by as much as 30
percent, as the additional staff will likely process more HIPP
applications and help eliminate the backlog that has existed.  With a
30 percent increase, program enrollment would constitute 1 percent of
Iowa's total Medicaid population. 

Pennsylvania's HIPP program, which started in 1995, has grown
steadily.  Pennsylvania officials said they are not sure when
enrollment will level off but believed the program has considerable
room for growth.  Texas officials said they would like to reach an
enrollment level of about 10,000.  This goal would almost double the
August 1996 enrollment, representing less than 0.4 percent of Texas'
total Medicaid population. 

Iowa and Texas officials, as well as a HCFA official, noted that some
states may be unlikely to start or expand HIPP programs as they focus
their Medicaid programs on managed care.  Such states may believe it
is cheaper and administratively easier to include Medicaid eligibles
in contracted managed care plans rather than operate a separate HIPP
program at the same time.  One official noted that when the cost of
employer-based insurance is compared with that of paying a Medicaid
managed care plan, it does not appear as cost-effective as it does
when it is compared with Medicaid fee-for-service program costs. 
Other officials said some states have simply ignored employer-based
insurance because of their increased attention and emphasis on
Medicaid managed care. 

Contrary to what some other state officials may believe about the
practicality of HIPP programs coexisting with managed care, Iowa and
Texas HIPP officials expect their HIPP programs to remain viable and
cost-effective as managed care expands in those states.  The
officials said that buying employer-based insurance in their HIPP
programs can be less costly than paying monthly payments to Medicaid
managed care plans in Iowa and Texas.  According to the officials,
this is primarily because employer-based insurance plans sometimes
can provide coverage for any size family for the same premium, while
state payments to Medicaid managed care plans are made for each
family member covered.  They also noted that because employers
typically contribute to the cost of the insurance premiums for HIPP
enrollees, the state does not have to pay the entire amount. 

A Texas official said another reason the Texas HIPP program will
remain viable as Medicaid managed care expands is that the state
plans to place all new Medicaid eligibles who have access to
employer-based insurance in the Medicaid fee-for-service program, at
least initially.  Starting in the spring of 1998, such potential HIPP
enrollees will not be allowed to join a Medicaid managed care plan
unless their employer-based health insurance is determined not to be
cost-effective.  Texas' intent is to prevent enrollment in Medicaid
managed care plans, and thus the accompanying monthly payments to
such plans, when the state can achieve greater cost savings by
enrolling Medicaid eligibles in the HIPP program. 


   COST-EFFECTIVENESS CRITERIA,
   SERVICES PROVIDED, AND
   POPULATIONS COVERED
------------------------------------------------------------ Letter :4

Iowa, Pennsylvania, and Texas include any Medicaid eligibles in their
HIPP programs who have access to employer-based health insurance and
whose expected Medicaid costs exceed the costs associated with
purchasing the insurance.  The programs do not focus on only those
with high-cost medical conditions because program officials believe
this would limit potential cost savings.  Each of the three states
provide their HIPP enrollees with coverage for all Medicaid services
not included in the employer-based insurance plans. 


      STATES USE OWN
      COST-EFFECTIVENESS CRITERIA
---------------------------------------------------------- Letter :4.1

The three HIPP programs essentially consider an insurance plan to be
cost-effective if the expected Medicaid costs\7 of a Medicaid
eligible exceed HIPP insurance costs, including premiums,
deductibles, any expected coinsurance, and HIPP program
administrative costs.  The programs use their own criteria for
assessing cost-effectiveness, rather than following HCFA's suggested
guidelines.  A major difference is that the programs base estimates
of coinsurance costs on their Medicaid fee schedules.  This produces
lower estimates of coinsurance payments and results in more insurance
plans determined to be cost-effective and more people enrolled. 

The cost-effectiveness criteria that the three states use do not
restrict or target HIPP program enrollment to only those Medicaid
eligibles expected to incur high medical costs.  The Iowa program
requires a minimum projected savings of only $5 per month per
household.  The Pennsylvania and Texas programs do not require any
minimum monthly savings for a plan to be considered cost-effective. 
Officials from the three programs said that Medicaid savings are
increased by enrolling more than just high-cost Medicaid eligibles. 
A Pennsylvania official noted, however, that the state's program
gives priority to enrolling those with "special conditions" (for
example, pregnant women, AIDS patients, people needing an organ
transplant), and this has resulted in increased Medicaid cost savings
as reflected in the program's estimated $9.7 million savings for
1996. 

The Iowa program considers an employer-based health plan that
provides comprehensive medical coverage\8 to automatically be
determined cost-effective when the plan provides coverage to a
Medicaid-eligible pregnant woman; the employee's share of the premium
cost is $50 or less per month for a one-person Medicaid-eligible
household; or the employee's share of the premium cost is $100 or
less per month for households of two or more Medicaid eligibles.  An
Iowa HIPP official explained that the $50 and $100 criteria were
established for an automatic determination of cost-effectiveness
because the program wanted to reduce the administrative work load
involved in processing its backlog of HIPP applications.  The
official said the actual cost-effectiveness of plans with these
premium amounts has been analyzed and such plans are virtually always
cost-effective, primarily because the plans provide comprehensive
medical coverage.  On the very few occasions when such plans were
found not to be cost-effective, the Medicaid eligibles were enrolled
anyway because of the program's established criteria. 

The three programs have devised cost-effectiveness assessment
formulas that result in lower estimates of HIPP enrollees'
coinsurance costs than if HCFA's suggested guidelines were used. 
HCFA's cost-effectiveness guidelines take into account the
requirement that HIPP programs pay coinsurance and deductible costs
for covered services according to the employer-based plans' fee
schedules.  However, the three HIPP programs pay coinsurance based on
their Medicaid fee schedules, which are generally lower and may allow
the programs to avoid paying coinsurance.\9 If the HIPP programs used
HCFA's guidelines, their cost-effectiveness assessments would
overstate the expected coinsurance payments, and fewer insurance
plans would be determined to be cost-effective.  Iowa, for example,
does not factor in any coinsurance costs in its cost-effectiveness
analysis because its actual coinsurance obligation for HIPP enrollees
is negligible, according to an Iowa HIPP program official. 


--------------------
\7 The three programs estimate each HIPP applicant's likely Medicaid
costs on the basis of the applicant's past medical bills and/or the
Medicaid costs of beneficiaries with similar demographic
characteristics and medical conditions. 

\8 The Iowa HIPP program does not have a strict definition of
comprehensive medical coverage.  However, program officials said they
generally consider such coverage to be for services such as inpatient
hospital care, outpatient hospital care, physician services,
laboratory services, and X rays. 

\9 For example, if a provider billed an employer-based insurance plan
$100 for a covered medical service, and the plan allowed $100 for the
service and paid 80 percent of the cost, or $80, the HIPP program
would be responsible for paying $20 in coinsurance if it used the
employer-based plan's fee schedule.  However, if the HIPP program
used the Medicaid fee schedule and that schedule allowed $80 for the
service, the program would not pay the $20 coinsurance. 


      ALL MEDICAID SERVICES ARE
      COVERED
---------------------------------------------------------- Letter :4.2

In assessing the cost-effectiveness of employer-based health
insurance plans, the three HIPP programs consider which services the
plans cover.  HIPP program enrollees are entitled to all of the
states' Medicaid benefits, including those not included in the
employer-based insurance plans.  The Texas program, for example, will
not enroll a HIPP applicant unless the insurance plan covers certain
Medicaid services, including inpatient hospital care, physician
services, and prescription drugs. 

The state Medicaid programs provide "wrap-around" coverage for
services that the insurance plans do not cover by paying claims
submitted by providers.  Iowa and Pennsylvania HIPP officials, for
example, said every HIPP enrollee has a Medicaid card he or she must
present to providers to receive medical services.  The cards indicate
if a Medicaid eligible has coverage by a private insurance plan and
which services are covered.  In reading the cards, the providers can
tell whom to bill, either a private plan or the Medicaid program.  In
Pennsylvania, the HIPP enrollee must also present a private insurance
plan card. 

As the three states receive provider claims for HIPP enrollees, they
pay deductibles and coinsurance costs as appropriate.  The Iowa and
Pennsylvania HIPP officials noted that their Medicaid payment systems
will reject any provider claims that should have been submitted to a
private insurance plan. 


      MORE THAN HIGH-COST
      POPULATIONS ENROLLED
---------------------------------------------------------- Letter :4.3

The HIPP program officials in the three states we reviewed reported
having relatively few enrollees with high-cost medical conditions. 
The Texas HIPP program, for example, reported that in 1996 only 11
percent of HIPP enrollees were blind or disabled, and 10 percent were
pregnant women or newborns.  Texas HIPP officials said they consider
people in these groups to be high cost.  In contrast, 69 percent of
the HIPP enrollees in Texas were children, a group that typically
incurs low medical costs, according to the Texas officials. 

Pennsylvania program officials told us that as of January 1997, about
22 percent of the HIPP enrollees were considered to have "special
conditions." These included pregnant women, AIDS patients, and the
severely disabled.  The officials said they could not provide a more
detailed breakdown, and their program does not maintain data on the
enrollees by other characteristics. 

The Iowa HIPP program also did not have data available on the
population characteristics of its caseload.  An Iowa official said
the program was mostly composed of families with children. 


   BARRIERS TO HIPP PROGRAM
   OUTREACH AND ENROLLMENT
------------------------------------------------------------ Letter :5

HIPP program outreach and enrollment efforts in the three states face
a variety of barriers.  The programs are not able to identify all
potential enrollees who have access to employer-based health
insurance.  When potential enrollees are identified, the programs
often face additional barriers in attempting to collect needed
information from employers and the potential enrollees themselves. 


      PROCESSES TO IDENTIFY
      POTENTIAL ENROLLEES ARE
      LIMITED
---------------------------------------------------------- Letter :5.1

The three HIPP programs rely primarily on Medicaid eligibility
workers in the field to identify potential HIPP enrollees.  The
eligibility workers communicate with potential enrollees when they
first apply for Medicaid eligibility, when their eligibility is
periodically redetermined, and if they later report new employment. 
In two of the states we contacted, HIPP program officials said
Medicaid eligibility workers are sometimes not sufficiently
knowledgeable about the states' HIPP programs. 

Medicaid eligibility workers in Pennsylvania and Texas refer
identified potential HIPP enrollees (for example, those who indicate
they are employed and have access to health insurance through their
employer) to their state's HIPP program, which then contacts the
employers and requests information about health plan premium costs
and benefits.  In Iowa, the eligibility workers send a form directly
to employers requesting information about earnings and health plan
benefits and costs, collect the completed forms, and forward copies
to the HIPP program when employers indicate health insurance is
available.  The HIPP programs need information about each insurance
plan's premium costs and benefits package to determine the
cost-effectiveness of purchasing insurance. 

Texas officials said there is a high turnover of eligibility workers
in their state.  Consequently, many of them do not understand the
HIPP program and cannot adequately explain it to Medicaid eligibles. 
The officials consider this a major barrier to program enrollment. 

Pennsylvania HIPP officials also told us that eligibility workers
need to be more knowledgeable about the program so the workers can
better identify potential enrollees and explain the program to them. 
The officials believe training eligibility workers about the HIPP
program will increase Medicaid eligibles' awareness of it and result
in greater enrollment.  In April 1997, the eligibility workers in
Pennsylvania started automatically referring potential enrollees to
the HIPP program when they reapply for Medicaid eligibility and
report new employment, in addition to making referrals at their
initial application for Medicaid benefits.  Program officials had
discovered that the eligibility workers were missing these
opportunities to identify potential enrollees.  Two weeks after the
eligibility workers started referring potential HIPP program
enrollees upon their reapplication and reporting of employment, the
number of referrals jumped from 470 in a week to over 1,300. 

In Iowa and Texas, potential HIPP enrollees may also be identified as
a result of computerized data matches of state employment information
and Medicaid eligibility information, which can help identify
employed Medicaid eligibles.\10 However, according to HIPP officials,
the employment information is not always current.  Frequently,
identified Medicaid eligibles are no longer working, have changed
jobs, or no longer have access to insurance.  Iowa officials said
this information has not been productive and has not resulted in many
enrollments.  In Texas, only about 7 percent of the active HIPP
caseload in August 1996 had been identified through the use of the
computerized state employment data. 


--------------------
\10 The Iowa data matches use computerized information from the Iowa
Department of Employment Services, which receives wage information
from employers for all employees.  The Texas HIPP program obtains
information from the Texas Work Force Commission database, which
contains information on all workers for whom an employer pays
unemployment insurance. 


      SOME POTENTIAL HIPP
      ENROLLEES DO NOT DISCLOSE
      INSURANCE OR PROVIDE NEEDED
      INFORMATION
---------------------------------------------------------- Letter :5.2

Some potential HIPP enrollees do not disclose their access to
employer-based health insurance even when they know about the HIPP
program.  In addition, potential enrollees who have been identified
often do not respond to the states' requests for information.  For
example, an individual may fail to provide the program with a
requested insurance card or paycheck stub showing a deduction for
health insurance premiums.  Texas HIPP program officials cited
"client non-responsiveness" as the biggest barrier limiting the
number of enrollees in their program.  Iowa officials also noted
problems with potential enrollees not providing information. 

According to the Texas officials, there are many reasons people do
not comply with requests for information and enroll in the HIPP
program, and convincing people to participate can be very difficult. 
Sometimes Medicaid eligibles are afraid to disclose the necessary
health plan information because of an unfounded fear of losing their
Medicaid benefits if they have access to, or are already covered by,
private insurance.  Iowa officials said apathy may be the primary
reason Medicaid eligibles fail to provide information regarding their
health insurance.  A 1996 report on Medicaid and employer-financed
health insurance coverage by the Institute for Health Policy
Solutions noted that Medicaid eligibles may not be eager to disclose
their insurance because to do so results in extra work for themselves
(that is, obtaining information on their employer's health plan),
reveals their potential Medicaid status to their employer, and
generates an administrative burden for their employer.\11


--------------------
\11 Institute for Health Policy Solutions, Improving Health Care
Coverage for Low-Income Children and Pregnant Women:  Optimizing
Medicaid and Employer-Financed Coverage Relations (Washington, D.C.: 
Institute for Health Policy Solutions, Nov.  21, 1996). 


      EMPLOYERS DO NOT ALWAYS
      COOPERATE
---------------------------------------------------------- Letter :5.3

Another barrier to enrollment is that some employers do not respond
to the states' requests for information on health plan costs and
benefits.  This information is needed to assess the
cost-effectiveness of purchasing an employer's insurance. 

The Institute for Health Policy Solutions report points out that
there are varying degrees of financial disincentives for employers to
participate in a Medicaid HIPP program.  For example, an employer
with mostly minimum-wage employees may offer health insurance but
have few participating employees because many of them cannot afford
the insurance.  If Medicaid is available to pay the employees' costs,
the employer will have a larger number of employees for whom it must
pay the employer's share of costs.  Employers with fewer minimum-wage
employees are less affected.  Small employers in certain states may
also face the possibility that their insurance premiums will increase
if HIPP enrollees added to the health plans are considered to be high
risk (for example, because of health status, where they live, or
demographic category such as age or gender).  For self-insured
employers, adding HIPP enrollees to plans means there is a greater
potential for having to pay more claims.  The Institute's report
noted that an additional disincentive to employer cooperation is the
administrative burden of providing the state with copies of benefit
plans and premium costs. 

Iowa HIPP program officials told us it is difficult for them to get
information from employers, particularly self-insured employers
covered under the Employee Retirement Income Security Act of 1974
(ERISA).  The majority of employers contacted in Iowa failed to
respond when first asked to submit a copy of their health benefits
plan or policy.  In contrast, Pennsylvania and Texas officials said
that employers in their states generally respond to HIPP program
requests for health plan coverage and contribution information.  The
officials in Iowa and Texas also noted, however, that the states have
no legal authority to require that employers provide the needed
health plan information. 


      HEALTH PLAN ENROLLMENT
      PERIODS ARE A BARRIER TO
      HIPP ENROLLMENT
---------------------------------------------------------- Letter :5.4

HIPP officials in the three states also cited limited health plan
enrollment periods as a barrier to enrolling Medicaid eligibles in
HIPP programs.  Many employers allow employees to enroll in their
health plans only at the start of employment; during an annual open
enrollment period; or at the time of certain events, such as a
marriage, divorce, or birth of a child.  These enrollment periods
often do not coincide with application for Medicaid eligibility or
eligibility redetermination.  As a result, many months can elapse
between the time someone applies for Medicaid and the next
opportunity to enroll in an employer's health plan. 

Iowa officials said health plan enrollment periods are sometimes an
impediment to enrolling Medicaid eligibles in the HIPP program.  The
officials said that if the establishment of an individual's Medicaid
eligibility was considered to be one of the events permitting
enrollment in employer health plans, their HIPP program could enroll
more people.  Pennsylvania officials said they need to obtain the
employer's cooperation to enroll a Medicaid eligible in an
employer-based plan outside of an open enrollment period, and
employers have allowed such enrollments roughly 50 percent of the
time the situation has come up.  While open enrollment periods are
not considered a significant problem for the Pennsylvania HIPP
program, the officials believe there would be more enrollments if
establishing Medicaid eligibility was considered to be an event that
permits employees to enroll in employer health plans.  Texas
officials believe that such a change would significantly increase
enrollment in their program. 


   LEGISLATIVE REMEDIES PROPOSED
   TO IMPROVE HIPP PROGRAM
   IMPLEMENTATION
------------------------------------------------------------ Letter :6

States and others have proposed legislative changes to address some
of the HIPP program implementation barriers.  These proposals seek to
increase program enrollment and Medicaid cost savings. 


      REQUIRE GREATER COOPERATION
      FROM POTENTIAL ENROLLEES AND
      EMPLOYERS
---------------------------------------------------------- Letter :6.1

An Iowa Department of Human Services official suggested that the
Congress require greater cooperation from employers, including
employers with self-insured plans under ERISA, to prevent
noncooperating parents from failing to enroll Medicaid-eligible
dependents in available employer health plans.  Another Iowa HIPP
official suggested that such legislation could require employers to
(1) provide the state with information about the health benefits they
offer their employees and (2) enroll Medicaid-eligible employees, or
parents of Medicaid-eligible dependents, in available health
insurance plans when requested to do so by the state, even without
the employees' cooperation. 

The Institute for Health Policy Solutions' report contains another
proposal to require greater employer cooperation.  According to the
Institute, under ERISA, it is not clear that self-insured employers
have any obligation to furnish health plan benefit and cost
information to employees who are not enrolled in an employer-based
plan, except during open enrollment periods.  The states are not
authorized to obtain this information on their own.  Without plan
benefit and cost information, state Medicaid agencies cannot
determine if it is cost-effective to purchase employer-based
insurance coverage in a HIPP program.  The Institute's report
suggests it be clarified\12 that under ERISA, eligible employees have
the right to obtain information about health plan benefit coverage
and premium amounts, even if they are not participating in the plan. 
The Institute concluded that federal action could clear the way for
states to obtain this information.  Without federal action, state
efforts to require greater employer cooperation would not
significantly affect self-insured plans. 


--------------------
\12 According to the report, this clarification may not require a
legislative change but may be able to be accomplished by revising
ERISA regulations. 


      ALLOW ENROLLMENT IN EMPLOYER
      HEALTH PLANS AT ANY TIME
---------------------------------------------------------- Letter :6.2

Another proposal is that employers and insurers be required to treat
the establishment of Medicaid eligibility as an event permitting
enrollment in employers' health plans.  This would eliminate the
problem of established health plan enrollment periods not coinciding
with Medicaid eligibility determinations. 

The Institute for Health Policy Solutions proposed amending ERISA to
make the establishment of Medicaid eligibility a "qualifying event"
for enrolling in an employer's insurance plan outside the open
enrollment period, which normally occurs once a year.  In a similar
proposal, an Iowa official suggested that a provision be added to
section 1906 allowing states to enroll Medicaid recipients in an
insurance plan at any time.  The Texas HIPP program officials we met
with said there are no laws establishing which events permit
enrollment in employer-based health insurance plans.  Instead, these
events are agreed upon by employers and their health plans. 

Federal or state law could be enacted to permit enrollment in a
health plan whenever an individual becomes qualified for Medicaid (if
the individual is otherwise qualified to enroll in the employer-based
plan).  In the case of self-insured plans under ERISA, federal
legislation would be needed to require that employer-based plans
comply with this requirement.  To obtain cooperation from those
employers who do not self-insure and depend on health insurance
policies regulated by the states, states could--under their own
legislative or regulatory authority--require that insurers consider
Medicaid eligibility a qualifying event for enrollment in an
employer's health insurance plan outside the open enrollment period. 


      STATES MAY HAVE AUTHORITY TO
      USE MEDICAID FEE SCHEDULES
---------------------------------------------------------- Letter :6.3

In its May 1994 report,\13 the Inspector General recommended that
HCFA propose legislation allowing the states to pay employer-based
health insurance plan deductibles and coinsurance using Medicaid fee
schedules instead of the individual plans' fee schedules as currently
required.\14 In making this recommendation, the Inspector General
relied on HCFA's interpretation of section 1906 requirements that
states must use employer-based health plan fee schedules.  Our
analysis of section 1906, however, suggests that another reasonable
interpretation is that states already have the authority to use their
Medicaid fee schedules when paying deductibles and copayments. 

In its 1994 report, the Inspector General said that 17 of the 18
states reporting the purchase of employer-based insurance for
Medicaid eligibles reimbursed providers according to their state
Medicaid fee schedules.  They did so because using the individual
plans' fee schedules is more costly to Medicaid and requires
increased administrative expenses. 

All three state HIPP programs included in our review use Medicaid fee
schedules for reimbursing providers.  HIPP officials we contacted
commented on the difficulty that would be involved in trying to use
employer-based health plans' fee schedules.  According to the
officials, there are many health plans and each has its own fee
schedule, resulting in a wide variety of cost-sharing arrangements. 
Some officials called the requirement to use the employer-based
plans' fee schedules "unworkable," "administratively impossible," and
"the largest stumbling block for states trying to implement these
[section 1906] provisions." The Institute for Health Policy Solutions
report also noted that the current cost-sharing requirement can be
cumbersome and costly to administer. 

According to HCFA, section 1906 requires states to reimburse
providers for enrollee deductibles and coinsurance according to the
employer-based plans' fee schedules, rather than state Medicaid fee
schedules.  However, it is not clear to us that this is the only
reasonable conclusion to be reached under section 1906, and it is one
that may undermine states' efforts to achieve Medicaid cost-savings. 

In establishing the requirement for states to enroll Medicaid
beneficiaries in employer-based plans and pay deductibles and
coinsurance, section 1906 refers to another provision of Medicaid law
that establishes requirements for Medicaid payments when a
beneficiary is already enrolled in an employer-based (or other)
health plan.  That law allows states to use their Medicaid fee
schedules when paying deductibles and coinsurance after a private
insurance plan has paid for Medicaid-covered services.\15 In
addition, language related to section 1906 in the 1990 congressional
Conference Report suggests to us that the use of Medicaid fee
schedules is authorized.  Specifically, the report states that the
House bill "[r]equires a provider treating beneficiaries enrolled
under a plan to accept the greater of the plan's reimbursement rate
or the Medicaid rate as payment in full, and prohibits a provider
from charging the beneficiary or Medicaid an amount that would result
in aggregate payment greater than the Medicaid rate."\16 The language
in the final version was slightly different than that in the House
bill, but we interpret the quoted description as being equally
applicable to the final language.  It appears to us that existing law
may provide adequate statutory authority for the states to continue
to use their Medicaid fee schedules without the need for
congressional action. 


--------------------
\13 HHS, Office of Inspector General, Medicaid Payments of Premiums
for Employer Group Health Insurance, OEI-04-91-01050 (Washington,
D.C.:  HHS, May 1994). 

\14 In commenting on the Inspector General's draft report, HCFA
deferred comment on this recommendation and noted that the
requirements of section 1906 could change under proposed major health
reform plans the Congress was then considering.  More recently, the
administration's budget proposal for fiscal year 1998 would eliminate
section 1906 altogether. 

\15 Under section 1902(a)(25) of the Social Security Act, private
insurance coverage for Medicaid recipients is treated as a
third-party liability.  According to this law, when employer-based
health insurance plans are liable to pay for care or services covered
by Medicaid, the employer-based plans provide the primary coverage,
and states then pay deductibles and coinsurance using their Medicaid
fee schedules. 

\16 H.R.  Conf.  Rep.  No.  101-964, at 833 (Oct.  27, 1990). 


   CONCLUDING OBSERVATIONS
------------------------------------------------------------ Letter :7

Iowa, Pennsylvania, and Texas HIPP programs to enroll Medicaid
eligibles and achieve Medicaid cost savings have encountered barriers
that have limited their size.  Although enrollment in these programs
is expected to increase, the likely increases will remain modest when
compared with the total Medicaid populations and expenditures in
these states. 

Moreover, some state and HCFA officials believe the spread of
Medicaid managed care may dissuade some states from starting new HIPP
programs or expanding existing ones.  Such states may decide it is
less costly or administratively easier to include Medicaid eligibles
in managed care plans rather than operate a separate HIPP program. 
In contrast, Iowa and Texas officials said they expect their HIPP
programs to remain cost-effective and viable as managed care expands
in their states. 

The states' implementation of federal welfare reform legislation may
also have an impact on HIPP programs.  Over time, increased numbers
of formerly unemployed welfare recipients may leave the welfare rolls
and be hired into jobs, including people who are currently enrolled
in Medicaid programs or parents of children who are covered by
Medicaid.  Many of these newly employed people may gain access to
employer-based health insurance and become eligible for enrollment in
a state HIPP program.  This could increase the potential for states
to establish or expand HIPP programs and realize associated Medicaid
cost savings.  However, the extent to which states will do so is
uncertain given the existing barriers to such a program and the
increasing role of managed care in state Medicaid programs. 

Because of these uncertainties and the administration's proposal that
section 1906 requirements be eliminated, it is not clear that
legislative changes by the Congress to improve HIPP program
implementation are warranted at this time.  States could, however,
decide to take action on their own to remove some of the barriers
that HIPP programs face in their efforts to identify and enroll
Medicaid eligibles.  Such actions could include establishing laws or
regulations similar to the federal legislative changes that have been
proposed.  For example, states may be able to use legislation or
regulation, whichever is most appropriate, to obtain greater employer
cooperation in providing health plan information to the state and in
helping to enroll employees who are parents of Medicaid-eligible
children.  Without federal action to address ERISA preemption,
however, any such state initiatives would have no significant impact
on self-insured plans. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :8

We provided a draft of this report to the HCFA Administrator; HIPP
program officials in Iowa and Texas; and an official of
Pennsylvania's Department of Public Welfare, Office of
Administration.  We discussed the draft with officials of the Office
of Beneficiary Services within HCFA's Medicaid Bureau and officials
from the three states.  With one exception, these officials generally
agreed with our findings. 

While the HCFA officials agreed that it would be beneficial for
states to have the authority to pay deductibles and coinsurance using
their Medicaid fee schedules, they did not agree with our conclusion
that section 1906 may be interpreted to provide such authority and
believed that legislative action would be required to permit this. 
We continue to believe, however, that section 1906 can be interpreted
to authorize states to pay deductibles and coinsurance using their
Medicaid fee schedules, based on the reference in section 1906(a)(3)
to section 1902(a)(25), which--in a related context--permits states
to pay deductibles and coinsurance using their Medicaid fee
schedules.  The legislative history also supports this view.  At
HCFA's request, we agreed to provide additional information regarding
our legal interpretation, and the officials indicated a willingness
to reexamine their position at a later date. 

HCFA and state officials also provided technical comments that we
incorporated as appropriate. 


---------------------------------------------------------- Letter :8.1

As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
after the date of this letter.  At that time, we will send copies of
this report to the Secretary of HHS; the Administrator, HCFA; and
other interested parties.  We will make copies available to others on
request. 

If you or your staff have any questions, please call me or Kathryn
Allen, Acting Associate Director, at (202) 512-7114.  Other major
contributors to this report were Ron Viereck, Howard Cott, and Craig
Winslow. 

Sincerely yours,

William J.  Scanlon
Director, Health Financing
 and Systems Issues


SCOPE AND METHODOLOGY
==================================================== Appendix Appendix

We focused our work on the HIPP programs implemented in three states: 
Iowa, Pennsylvania, and Texas.  We selected these programs because
our preliminary work showed that they are considered by state
Medicaid officials, HCFA officials, and other experts as aggressive
and successful programs achieving cost savings.  Our findings from
these three HIPP programs cannot be generalized to other states' HIPP
programs. 

We conducted structured interviews to obtain information from HIPP
program officials in the three states.  In addition, we collected and
analyzed documentation on HIPP program operations from the time
enrollment started in each state (Iowa, 1992; Pennsylvania, 1995; and
Texas, 1995).  All of the information we obtained was reported to us
by the program officials, and we did not verify its accuracy. 

We contacted HCFA headquarters in Baltimore, Maryland, to obtain
information regarding HCFA's section 1906 requirements for states,
total section 1906 expenditures reported to HCFA by all states, and
other information on how the states generally are implementing
section 1906.  We also contacted HCFA regional offices in Dallas,
Texas; Kansas City, Missouri; and Philadelphia, Pennsylvania, to
obtain Medicaid state plan amendments filed with HCFA by the three
states for implementation of their HIPP programs.  In addition, we
reviewed relevant studies discussing states' section 1906 efforts. 

We conducted our review between November 1996 and June 1997 in
accordance with generally accepted government auditing standards. 


*** End of document. ***