[Background Material and Data on Programs within the Jurisdiction of the Committee on Ways and Means (Green Book)]
[Program Descriptions]
[Section 15. Other Programs]
[From the U.S. Government Printing Office, www.gpo.gov]




 
SECTION 15 - OTHER PROGRAMS

CONTENTS

Overview
Food Stamp Program
Administration, Program Variations, and Funding
Benefits
Quality Control (QC)
Interaction with TANF, SSI, and GA Programs
Recipiency Rates
Recent Legislative History
Medicaid
	 Overview
Eligibility
Families, Pregnant Women, and Children
The Aged and Persons with Disabilities
Medically Needy
Other Individuals Covered
Enrollment
Medicaid and the Poor
Benefits
Financing
Reimbursement Policy
Administration
Delivery Systems 
Medicaid Waiver Payments
Legislative History
State Children's Health Insurance Program
Eligibility
Benefits
Cost Sharing
Financing
General Program Characteristics
Trends in Enrollment and Expenditures
Legislative History
Federal Housing Assistance
Types of Assistance
Trends in Levels and Budgetary Impact of Housing Aid
School Lunch and Breakfast Programs
Special Supplemental Nutrition Program for Women, Infants, and 
Children (WIC)
Child and Adult Care Food Program
Centers and Outside-of-School Programs
Family and Group Day Care Homes
Workforce Investment Act
Head Start
Low-Income Home Energy Assistance Program (LIHEAP)
Background
Federal Requirements for the Allotments
Eligibility Standards
Planning and Administration
	 Available Sources of Funds
	 Performance Measurement
Veterans Benefits and Services
Workers' Compensation
Overview
Benefits
Federal Role
Major Developments Since 1980
References

OVERVIEW

	A wide variety of Federal programs outside the jurisdiction 
of the Committee on Ways and Means provide benefits to individuals 
and families that also receive assistance from programs within the 
Committee's jurisdiction (see appendix K). This section describes 
several such programs: food stamps; Medicaid; the State Children's 
Health Insurance Program (SCHIP); housing assistance; School Lunch 
and Breakfast Programs; the Special Supplemental Nutrition Program 
for Women, Infants, and Children (WIC); the Child and Adult Care 
Food Program (CACFP); the Workforce Investment Act (WIA); Head 
Start; the Low-Income Home Energy Assistance Program (LIHEAP); 
veterans benefits and services; and workers' compensation.
	Most families receiving Temporary Assistance for Needy 
Families (TANF) or Supplemental Security Income (SSI) would have 
incomes low enough to qualify them for assistance under these 
programs. Unlike the principal assistance programs under the 
jurisdiction of the Committee on Ways and Means, participation in 
Head Start, LIHEAP, and other programs is limited by appropriations. 
Income received from TANF is counted in determining eligibility and 
benefit levels for these programs. However, because these programs 
provide in-kind rather than cash assistance, benefits are not 
counted in determining eligibility for TANF.
	Tables 15-1 and 15-2 describe the overlap in recipients 
between programs within the jurisdiction of the Committee on Ways 
and Means and other major Federal assistance programs. Table 15-1 
illustrates that 80.8 percent of TANF recipient households also 
received food stamps during the first half of 2002;  35.1 percent 
received WIC; 99.6 percent received Medicaid; 62.3 percent received 
free or reduced-price school meals; and 37.6 percent received 
housing assistance.
	Table 15-2 presents the percentage of recipients of other 
means-tested programs who are participating in programs under Ways 
and Means jurisdiction. For example, 16.2 percent of food stamp 
households received TANF benefits at some time during the first 
half of 2002; 30.2 percent received SSI; 30.5 percent received 
Social Security; 4.9 percent received unemployment benefits; and  
26.0 percent received Medicare.

TABLE 15-1-- PERCENT OF RECIPIENTS IN PROGRAMS WITHIN THE 
JURISDICTION OF THE COMMITTEE ON WAYS AND MEANS RECEIVING ASSISTANCE 
FROM OTHER MAJOR FEDERAL ASSISTANCE PROGRAMS, 2002




[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]




TABLE 15-2 -- PERCENT OF RECIPIENTS IN OTHER MAJOR FEDERAL ASSISTANCE 
PROGRAMS RECEIVING ASSISTANCE  UNDER PROGRAMS WITHIN THE JURISDICTION 
OF THE  COMMITTEE ON WAYS AND MEANS, 2002

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


		
	Table 15-3 shows the percentage of households receiving Aid 
to Families with Dependent Children (AFDC)/TANF or SSI and also 
receiving assistance from other programs for selected time periods. 
The figures at the bottom of the AFDC/TANF portion of the table show 
that the number of households receiving AFDC/TANF increased rapidly 
between 1990 and 1994, declined somewhat in 1995, and then fell 
rapidly between 1995 and 2002. Due to the rapid decline after 
1994, the AFDC/TANF rolls declined by 61 percent over the entire 
period. The number of households receiving SSI declined slightly in 
1990 and 1993, but otherwise increased throughout the period between 
1984 and 2002. The rolls increased by 73 percent over this period.
		
TABLE 15-3--PERCENT OF HOUSEHOLDS RECIEVING TANF OR SSI 
AND ALSO RECEIVING ASSISTANCE FROM OTHER PROGRAMS, 
SELECTED YEARS 1984-2002




[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]



	The percentage of AFDC/TANF households receiving other 
benefits fluctuated over the 1984-2002 period, but several the 
biggest programs--school meals, housing assistance, and Medicaid--
increased then declined, and then increased again in 2002. Food 
Stamps experienced increased coverage until 1993, after which it 
fell off by 9 percent through 2002. School lunches also fell off 
somewhat between 1995 and 1998 before increasing in 2002. Medicaid 
coverage increased between 1984 and 1990, but the pattern was 
erratic after that prior to 2002 establishing a new high-water 
mark of coverage.  Similarly, the high-water mark for housing was 
2002. The pattern of receiving other benefits for SSI households 
is broadly similar; namely, initial increases and then declines 
prior to selected increases again in 2002.  For every program, 
except Medicaid which was received by 100 percent of SSI households, 
and veterans benefits, coverage increased between 1984 and 1994 but 
then declined either between 1994 and 1995 or between 1995 and 1998. 
Medicaid too declined from its 100 percent coverage in 1995 to 
95 percent in 1998.  Declines continued through 2002 in food stamps, 
WIC, school meals, and housing.  However, coverage under Medicaid 
and VA Compensation Programs turned upward again.

FOOD STAMP PROGRAM

	Food stamps are designed primarily to increase the food 
purchasing power of eligible low-income households to a point where 
they can buy a nutritionally adequate low-cost diet. Participating 
households are expected to devote 30 percent of their counted monthly 
cash income to food purchases.  Food stamp benefits  then make up the
difference between the household's expected contribution to its food 
costs and an amount judged to be sufficient to buy an adequate low-
cost diet. This amount, the maximum food stamp benefit, is set at the 
level of the U.S. Department of Agriculture's lowest cost food plan 
(the Thrifty Food Plan or TFP), varied by household size, and 
adjusted annually for inflation. Thus, a participating household with 
no counted cash income receives the maximum monthly allotment for its 
household size while a household with some counted income receives a 
lesser allotment, normally reduced from the maximum at the rate of 
30 cents for each dollar of counted income.
	Benefits are available to most households that meet Federal 
eligibility tests for limited monthly income and liquid assets. But 
household members must fulfill requirements related to work effort 
and must meet citizenship and legal permanent residence tests. 
Recipients in the two primary cash welfare programs (TANF and SSI) 
generally are automatically eligible for food stamps, as are 
recipients of State general assistance (GA) payments, if their 
household is composed entirely of TANF, SSI, or GA beneficiaries. 



ADMINISTRATION, PROGRAM VARIATIONS, AND FUNDING

	The regular Food Stamp Program operates in all 50 States, the 
District of Columbia, Guam, and the Virgin Islands. The Federal 
Government is responsible for most of the rules that govern the 
program, and, with limited variations for Alaska, Hawaii, and the 
territories, these rules are nationally uniform. However, by law and 
regulation, States have a number of significant options to vary from 
Federal administrative, benefit calculation, and eligibility rules, 
especially for those who also are recipients of their State's cash 
welfare programs, and a number of waivers from regular rules and 
procedures have been (and continue to be) granted. Sales taxes on 
food stamp purchases may not be charged, and food stamp benefits
do not directly affect other assistance available to low-income 
households, nor are they taxed as income.
	Alternative programs are offered in Puerto Rico, the 
Northern Mariana Islands, and American Samoa, and program 
variations occur in a number of demonstration projects and in those 
jurisdictions that have elected to exercise the program options 
allowed.
	Funding is overwhelmingly Federal, although the States and 
other jurisdictions have financial responsibility for significant
administrative costs, as well as liability for erroneous benefit 
determinations (as assessed under the food stamp "quality control" 
system, discussed below).

Federal Administrative Responsibilities
	At the Federal level, the program is administered by the 
Agriculture Department's Food and Nutrition Service (FNS). The FNS 
gives direction to welfare agencies through Federal regulations that 
define eligibility requirements, benefit levels, and administrative 
rules. It also is responsible for overseeing State programs for the 
electronic issuance of food stamp benefits, and for approving and 
overseeing participation by retail food stores and other outlets 
that may accept food stamps. Other Federal agencies that have 
administrative roles to play include: the Federal Reserve System 
(through which food stamp benefits are redeemed for cash, and which 
has some jurisdiction over "electronic benefit transfer (EBT)" 
methods for issuing food stamp benefits), the Social Security 
Administration (responsible for the Social Security numbers 
recipients must have, for providing limited application "intake" 
services, and for providing information to verify recipients' 
income), the Internal Revenue Service (providing assistance in 
verifying recipients' income and assets), the Bureau of Citizenship
and Immigration Services of the Department of Homeland Security 
(helping welfare offices confirm alien applicants' status), and 
the Agriculture Department's Inspector General (responsible for 
trafficking investigations).

State and Local Administrative Responsibilities
	States, the District of Columbia, Guam, and the Virgin 
Islands, through their local welfare offices, have primary 
responsibility for the day-to-day administration of the Food Stamp 
Program. They determine eligibility, calculate benefits, and issue 
food stamp allotments (using coupons or, in most cases, electronic 
benefit transfer cards) following Federal rules. They also have a 
significant voice in carrying out employment and training programs 
and in determining some administrative features of the program 
(e.g., the extent to which verification of household circumstances 
is pursued, the length of eligibility certification periods, the 
structure of EBT systems). Most often, the Food Stamp Program is 
operated through the same welfare agency and staff that runs the 
State's TANF Program.

Puerto Rico, the Northern Mariana Islands, and American Samoa
	
	In addition to the regular Food Stamp Program, the Food Stamp 
Act directs funding for a Nutrition Assistance Program in the 
Commonwealth of Puerto Rico and another in American Samoa. Separate 
legislation authorizes a variant of the Food Stamp Program in the 
Commonwealth of the Northern Mariana Islands.
	Since July 1982, Puerto Rico has operated a Nutrition 
Assistance Program  of its own design, funded by an annual Federal 
"block grant."  The Commonwealth's Nutrition Assistance Program 
differs from the regular Food Stamp Program primarily in that: 
(1) funding is limited to an annually indexed amount specified by 
law ; (2) the Food Stamp Act allows the Commonwealth a great deal 
of flexibility in program design, as opposed to the regular program's 
extensive Federal rules (e.g., 75 percent of benefits, paid through 
electronic benefit transfers, are earmarked for food purchases, the 
remainder may be claimed as cash, and rules barring certain not 
citizens do not apply); (3) income eligibility limits are about 
one-third those used in the regular Food Stamp Program; (4) maximum 
benefit levels are about 40 percent less than in the 48 contiguous 
States and the District of Columbia; and (5) different rules are used 
in counting income for eligibility and benefit purposes. In fiscal 
year 2002, Puerto Rico's Nutrition Assistance Program aided 
approximately 1 million persons each month with monthly benefits 
averaging $98 dollars a person ($244 a household).  
	Under the terms of the 1976 Covenant with the Commonwealth of 
the Northern Mariana Islands and implementing legislation (Public 
Law 96-597), a variant of the Food Stamp Program was negotiated with 
the Commonwealth and began operations in July 1982. The program in 
the Northern Marianas differs primarily in that: (1) it is funded 
entirely by Federal money, up to a maximum grant negotiated 
periodically ($7.1 million per year for fiscal years 2003 and 2004); 
(2) a portion of each household's food stamp benefit must be used to 
purchase locally produced food; (3) maximum allotments are about 
5 percent higher than in the 48 contiguous States and the District 
of Columbia; and (4) income eligibility limits are about half those 
in the regular program. In September 2003, the Northern Marianas' 
program assisted 6,800 persons with a monthly benefit averaging 
$80 per person.
	
	As with the Northern Marianas, American Samoa operates a 
variant of the regular Food Stamp Program. Under the Secretary of 
Agriculture's authority to extend Agriculture Department programs to 
American Samoa (Public Law 96-597) and a 2002 amendment to the Food 
Stamp Act made by the Farm Security and Rural Investment Act (Public 
Law 107-171), American Samoa receives an  annually indexed grant 
($5.6 million per year in fiscal years 2003 and 2004) to operate a 
Food Stamp Program limited to low-income elderly and disabled 
persons. While maximum monthly allotments are similar to those in 
the regular Food Stamp Program ($132 per person), income eligibility 
limits are about 25 percent lower.  In September 2003, the program 
aided about 2,900 persons per month.

Program Options
	The Food Stamp Act authorizes demonstration projects to test 
program variations that might improve operations. However, because of 
(1) the law's substantial limits on how much any demonstration can 
reduce benefits or restrict eligibility, (2) an administration policy 
that effectively bars demonstrations that have a significant cost to 
the Food Stamp Program, and (3) implementation of provisions for 
State flexibility included in the 1996 Welfare Reform Law (Public 
Law 104-193) and the 2002 Farm Security and Rural Investment Act 
(Public Law 107-171), no major demonstration projects are 
operational. Instead, a few small demonstrations are operating in 
some States (these deal with joint application processing and 
standardized food stamp benefits for SSI recipients, cash benefits 
for the elderly and SSI recipients, and "privatizing" program 
administration), and extensive waivers of administrative rules are 
routinely granted.
	States also are allowed a number of significant options in 
how they implement the Food Stamp Program.  States may establish 
their own administrative standards in areas such as application 
processing, ongoing recertification of recipient households, 
reporting of changes in household circumstances (and adjusting 
benefits to take these changes into account), counting child 
support payments, and standardizing the treatment of utility 
expenses in benefit calculations.  In addition, States can use 
most of the rules they have established for TANF and Medicaid 
programs when deciding what income and resources (assets) to 
exclude in food stamp eligibility and benefit determinations, and 
may grant 5-month "transitional" food stamp benefits to those 
leaving the TANF program (without requiring them to reapply for 
food stamps).  The states may issue benefits (at their own cost) 
to ineligible noncitizens and those ineligible under the work rule 
for able-bodied adults without dependents (ABAWDs; discussed below).  
With  50 percent Federal cost-sharing, they can operate "outreach" 
programs to inform low-income persons about food stamps and support 
nutrition education efforts. They may choose to operate a 
"simplified" program under which they can use many of their TANF 
rules and procedures when determining food stamp benefits for 
TANF recipients.  States may sanction food stamp recipients failing 
to meet other public assistance program rules or failing to cooperate 
in child support enforcement efforts.  They may, to a certain extent, 
waive the application of the work rule for ABAWDs; and they may 
choose to disqualify an entire household if the head of the household 
fails to fulfill work-related requirements. In some instances, they 
may include the cash value of food stamp benefits when using welfare 
to subsidize recipients' wages.  States and localities may opt to 
run "workfare" programs for food stamp recipients.  Finally, States 
determine the content of employment and training programs for food 
stamp recipients (and, in many cases, who must participate).

Funding
	The Food Stamp Act provides 100 percent Federal funding of 
food stamp benefits, except when States choose to "buy into" the 
program and pay for issuing food stamp benefits to ineligible 
noncitizens or those made ineligible by the work rule for ABAWDs. The 
Federal Government also is responsible for its own administrative 
costs: overseeing program operations (including oversight of 
participating food establishments), redeeming food stamp benefits 
through the Federal Reserve, and paying the Social Security 
Administration for certain intake services.

TABLE 15-4 -- RECENT FOOD STAMP ACT EXPENDITURES, SELECTED YEARS,
1980-2002


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


	In most instances, the Federal Government provides half the 
cost of State welfare agency administration.  In addition, the 
Federal Government shares the cost of carrying out employment and 
training programs for food stamp recipients: (1) each State receives 
a Federal grant for basic operating costs (a formula share of $90 
million per year, plus a share of $20 million a year for those 
States pledging to serve all ABAWDs; and (2) additional operating 
costs, as well as expenses for support services to participants 
(e.g. transportation and child care) are eligible for a 50 percent 
Federal match. Finally, States are allowed to retain a portion of 
improperly issued benefits they recover (other than those caused by 
welfare agency error): 35 percent of recoveries in fraud cases and 
20 percent in other circumstances. Federal and State Food Stamp Act 
spending in selected years since 1980 is shown in 15-4.
	The Food Stamp Program has financial, employment/training-
related, and "categorical" tests for eligibility. Its financial 
tests require that most of those eligible have monthly income and 
liquid assets below limits set by law (income limits are inflation 
indexed). Under the employment/training-related tests, certain 
household members must register for work, accept suitable job offers, 
and fulfill work or training requirements (such as looking or 
training for a job) established by State welfare agencies. Under a 
work requirement established in 1996, food stamp eligibility for 
ABAWDs is limited to 3-6 months in any 36-month period unless they 
are working at least half time or in a work or training activity. 
Categorical eligibility rules make some automatically eligible for 
food stamps (many TANF, SSI, and GA recipients), and categorically 
deny eligibility to others (e.g., strikers and many noncitizens, 
postsecondary students, and people living in institutional settings). 
Applications cannot be denied because of the length of a household's 
residence in a welfare agency's jurisdiction or because the household 
has no fixed mailing address or does not reside in a permanent 
dwelling.

The Food Stamp Household
	The basic food stamp beneficiary unit is the "household." A 
food stamp household can be either a person living alone or a group 
of individuals living together; there is no requirement for cooking 
facilities. The food stamp household is unrelated to recipient units 
in other welfare programs (e.g., TANF families with dependent 
children, elderly or disabled individuals or couples in the SSI 
Program).
	Generally speaking, individuals living together constitute a 
single food stamp household if they customarily purchase food and 
prepare meals in common. Members of the same household must apply 
together, and their income, expenses, and assets normally are 
aggregated in determining food stamp eligibility and benefits. 
However, persons who live together can sometimes be considered 
separate "households" for food stamp purposes, related co-residents 
generally are required  to apply together, and special rules apply to 
those living in institutional settings. Most often, persons living 
together receive larger aggregate benefits if they are treated as 
more than one food stamp household.
	Persons who live together, but purchase food and prepare 
meals separately, may apply for food stamps separately, except for: 
(1) spouses; (2) parents and their children (21 years or younger); 
and (3) minors 18 years or younger (excluding foster children, who 
may be treated separately) who live under the parental control of a 
caretaker. In addition, persons 60 years or older who live with 
others and cannot purchase food and prepare meals separately because 
of a substantial disability may apply separately from their 
coresidents as long as their coresidents' income is below prescribed 
limits (165 percent of the Federal poverty guidelines).
	Although those living in institutional settings generally 
are barred from food stamps, individuals in certain types of group 
living arrangements may be eligible and are automatically treated as 
separate households, regardless of how food is purchased and meals 
are prepared. These arrangements must be approved by State or local 
agencies and include: residential drug addict or alcoholic treatment 
programs, small group homes for the disabled, shelters for battered 
women and children, and shelters for the homeless.
	Thus, different food stamp households can live together, food 
stamp recipients can reside with nonrecipients, and food stamp 
households themselves may be "mixed" (include recipients and 
nonrecipients of other welfare benefits).

Income Eligibility
	Except for households composed entirely of TANF, SSI, or GA 
recipients (who generally are automatically eligible for food 
stamps), monthly cash income is the primary food stamp eligibility 
determinant.  In establishing eligibility for households without an 
elderly or disabled member,  the Food Stamp Program uses both the 
household's basic (or "gross") monthly income and it's counted (or 
"net") monthly income. When judging eligibility for households with 
elderly or disabled members, only the household's counted monthly 
income is considered; in effect, this procedure applies a more 
liberal income test to elderly and disabled households.
	Basic (or gross) monthly income includes all of a household's 
cash income except the following  "exclusions" (disregards): (1) most 
payments made to third parties (rather than directly to the 
household); (2) unanticipated, irregular, or infrequent income, up 
to $30 a quarter; (3) loans (deferred repayment student loans are 
treated as student aid, see below); (4) income received for the care 
of someone outside the household; (5) nonrecurring lump-sum payments 
such as income tax refunds and retroactive lump-sum Social Security 
payments (these are instead counted as liquid assets); (6) Federal 
energy assistance; (7) expense reimbursements that are not a "gain 
or benefit" to the household; (8) income earned by schoolchildren 
17 or younger; (9) the cost of producing self-employment income; 
(10) Federal postsecondary student aid (e.g., Pell grants, student 
loans); (11) advance payments of Federal earned income credits; 
(12) "on-the-job" training earnings of dependent children under 19 
in the Workforce Investment Act (WIA), formerly the Job Training 
Partnership Act (JTPA), Programs, as well as monthly "allowances"; 
(13) income set aside by disabled SSI recipients under an approved 
"plan for achieving self-support"; and (14) payments required to be 
disregarded by provisions of Federal law outside the Food Stamp Act 
(e.g., various payments under laws relating to Indians, payments 
under the Older Americans Act Employment Program for the Elderly).  
In addition, States may, within certain limits, choose to exclude 
other types of income they disregard in their TANF or Medicaid 
programs.
	Counted (or net) monthly income is computed by subtracting 
certain "deductions" from a household's basic (or gross) monthly 
income. This procedure is based on the recognition that not all of a 
household's income is equally available for food purchases. Thus, a 
standard portion of income, plus amounts representing work expenses 
or excessively high nonfood living expenses, are disregarded.
	For households without an elderly or disabled member, counted 
monthly income equals gross monthly income less the following 
deductions:
	A "standard" monthly deduction that varies by household size 
and is indexed for inflation (for fiscal year 2004, this deduction 
in the 48 States and the District of Columbia is $134 for households 
of 1-4 persons, $149 for 5-person households, and $171 for households 
of 6 or more persons).  Different standard deductions are used for 
Alaska, Hawaii, Guam, and the Virgin Islands (e.g., the fiscal year 
2004 deduction for 4-person households is $229 in Alaska, $189 in 
Hawaii, $269 in Guam, and $127 in the Virgin Islands).  
	Any amounts paid as legally obligated child support;
	Twenty percent of any earned income, in recognition of taxes 
and  work expenses;
	Out-of-pocket dependent care expenses, when related to work 
or training, up to $175 per month per dependent, $200 per month for 
children under age 2; and
	Shelter expenses (including utility costs) that exceed 
50 percent of counted income after all other deductions, up to a 
periodically adjusted ceiling that is $378 per month for fiscal year 
2004.  Different ceilings prevail in Alaska ($604), Hawaii ($509), 
Guam ($444), and the Virgin Islands ($298). 
	For households with an elderly or disabled member, counted 
monthly income equals gross monthly income less:
	The same standard, child support, earned income, and 
dependent care deductions noted above;
	Any shelter expenses, to the extent they exceed 50 percent 
of counted income after all other deductions, with no limit; and
	Any out-of-pocket medical expenses (other than those for 
special diets) that are incurred by an elderly or disabled household 
member, to the extent they exceed a threshold of $35 a month.
	Except for those households comprised entirely of TANF, SSI, 
or GA recipients, in which case food stamp eligibility generally is 
automatic; all households must have net monthly income that does not 
exceed the annually indexed Federal poverty guidelines. Households 
without an elderly or disabled member also must have gross monthly 
income that does not exceed 130 percent of the inflation-adjusted 
Federal poverty guidelines. Both these income eligibility limits are 
uniform for the 48 contiguous States, the District of Columbia, Guam, 
and the Virgin Islands; somewhat higher limits (based on higher 
poverty guidelines) are applied in Alaska and Hawaii. The net and 
gross eligibility limits on income are summarized in Table 15-5.

TABLE 15-5 -- COUNTED (NET) AND BASIC (GROSS) MONTHLY INCOME 
ELIGIBILITY LIMITS FOR THE FOOD STAMP PROGRAM, FISCAL YEAR 2004


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


Allowable Assets
	Except for households automatically eligible for food stamps 
because they are composed entirely of Temporary Assistance for Needy 
Families (TANF), Supplemental Security Income (SSI), or GA 
recipients, eligible households must have counted liquid assets that 
do not exceed federally prescribed limits. Households without an 
elderly or disabled member cannot have counted liquid assets above 
$2,000. Households with an elderly or disabled member cannot have 
counted liquid assets above $3,000.
	Counted liquid assets include cash on hand, checking and 
savings accounts, savings certificates, stocks and bonds, individual 
retirement accounts (IRAs) and Keogh plans (less any early 
withdrawal penalties), and nonrecurring lump-sum payments such as 
insurance settlements. Certain less liquid assets also are counted: 
a portion of the value of vehicles and the equity value of property 
not producing income consistent with its value (e.g., recreational 
property).
	Counted assets do not include the value of the household's 
residence (home and surrounding property), business assets, personal 
property (household goods and personal effects), lump-sum earned 
income tax credit payments, burial plots, the cash value of life 
insurance policies and pension plans (other than Keogh plans and 
IRAs), and certain other resources whose value is not accessible to 
the household, would not yield more than $1,000 if sold (e.g., a car 
with a small equity value), or are required to be disregarded by 
other Federal laws.
	Some special rules apply when counting allowable assets. 
Although the general rule is that the fair market value of a vehicle 
in excess of $4,650 is to be counted as an asset, States may (and 
often do) count vehicles as assets only to the extent they do under 
their TANF programs.  Moreover, States generally may exclude 
additional assets to the extent they do so under their TANF or 
Medicaid programs.

Work-Related Requirements
	To gain or retain eligibility, most able-bodied adults must: 
(1) register for work (typically with the welfare agency or a State 
employment service office); (2) accept a suitable job if offered one; 
(3) fulfill any work, job search, or training requirements 
established by administering welfare agencies; (4) provide the 
administering welfare agency with sufficient information to allow a 
determination with respect to their job availability; and (5) not 
voluntarily quit a job without good cause or reduce work effort 
below 30 hours a week. If the household head fails to fulfill any of 
these requirements, the entire household may, at State option, be 
disqualified for up to 180 days. Individual disqualification periods 
differ according to whether the violation is the first, second, or 
third; minimum periods, which may be increased by the State welfare 
agency, range from 1 to 6 months.
	Those who are exempt by law from these basic work 
requirements include: persons physically or mentally unfit for work; 
those under age 16 or over age 59; individuals between 16 and 18 if 
they are not head of household or are attending school or a training 
program; persons working at least 30 hours a week or earning the 
minimum wage equivalent; persons caring for dependents who are 
disabled or under age 6; those caring for children between ages 6 
and 12 if adequate child care is not available (this second 
exemption is limited to allowing these persons to refuse a job 
offer if care is not available); individuals already subject to and 
complying with another assistance program's work, training, or job 
search requirements; otherwise eligible postsecondary students; and 
residents of drug addiction and alcoholic treatment programs.
	Those not exempted by one of the above-listed rules must, at 
least, register for work and accept suitable job offers. However, 
their State welfare agency may require them to fulfill some type of 
work, job search, or training obligation. Welfare agencies must 
operate an employment and training program of their own design for 
work registrants whom they designate. Welfare agencies may require 
all work registrants to participate in one or more components of 
their program, or limit participation by further exempting additional 
categories and individuals for whom participation is judged 
impracticable or not cost effective. Program components can include 
any or all of the following activities: supervised job search or 
training for job search, workfare, work experience or training 
programs, education programs to improve basic skills, or any other 
employment or training activity approved by the Agriculture 
Department.
	Recipients who take part in an employment or training 
activity beyond work registration cannot be required to work more 
than the minimum wage equivalent of their household's benefit. Total 
hours of participation (including both work and any other required 
activity) cannot exceed 120 hours a month. Welfare agencies also must 
provide support for costs directly related to participation (e.g., 
transportation and child care). Agencies may limit this support to 
local market rates for necessary dependent care.
	In addition to these work-related requirements, there is a 
work requirement for most able-bodied adults between 18 and 
50 without dependents (ABAWDs). They are ineligible for food stamps 
if, during the prior 36 months, they received food stamps for 
3 months while not working at least 20 hours a week or participating 
in an approved work/training activity. Those disqualified under this 
rule are able to reenter the Food Stamp Program if, during a 30-day 
period, they work 80 hours or more or participate in a work/training 
activity. If they then become unemployed or leave work/training, 
they are eligible for an additional 3-month period on food stamps 
without working at least 20 hours a week or participating in a work/
training activity. But they are allowed only one of these added 
3-month eligibility periods in any 36 months for a potential total of 
6 months on food stamps in any 36 months without half-time work or 
enrollment in a work/training program.
	At State request, this rule can be waived for areas with very 
high unemployment (over 10 percent) or lack of available jobs. 
Moreover, States may, on their own initiative, exempt up to 15 
percent of those covered under the new work rule.
	In fiscal year 2002, States reported 2.3 million new work 
registrants. Of these, approximately 1.2 million -- including an 
estimated 450,000 ABAWDs--were subject to employment and training 
program placement. 

Categorical Eligibility Rules and Other Limitations
	Food stamp eligibility is sometimes denied for reasons other 
than financial need or compliance with work-related requirements. 
Many noncitizens are  barred--eligibility is extended only to 
permanent residents legally present in the U.S. for at least 5 years, 
legal immigrant children (under 18), the elderly and disabled who 
were legally resident before August 1996, refugees and asylees, 
veterans and others with a military connection, those with a 
substantial history of work covered under the Social Security system, 
and certain other limited groups of aliens. Households with members 
on strike are denied benefits unless eligible prior to the strike. 
With some exceptions, postsecondary students (in school half time or 
more) who are fit for work and between ages 18 and 50 are ineligible. 
Persons living in institutional settings are denied eligibility, 
except those in special SSI-approved small group homes for the 
disabled, persons living in drug addiction or alcohol treatment 
programs, and persons in shelters for battered women and children or 
shelters for the homeless. Boarders cannot receive food stamps unless 
they apply together with the household in which they are boarding. 
Those who transfer assets for the purpose of qualifying for food 
stamps are barred. Persons who fail to provide Social Security 
numbers or cooperate in providing information needed to verify 
eligibility or benefit determinations are ineligible. Food stamps are 
denied those who intentionally violate program rules, for specific 
time periods ranging from 1 year (on a first violation) to 
permanently (on a third violation or other serious infraction); and 
States may impose food stamp disqualification when an individual is 
disqualified from another public assistance program. Automatic 
disqualification is required for those applying in multiple 
jurisdictions, fleeing arrest, or convicted of a drug-related felony.  
Finally, States may disqualify individuals not cooperating with child 
support enforcement authorities or in  arrears on their child support 
obligations.

BENEFITS

	Food stamp benefits are a function of a household's size, 
its net monthly income, and inflation-indexed maximum monthly benefit 
levels (in some cases, adjusted for geographic location). An eligible 
household's net income is determined (i.e., the deductions noted 
earlier are subtracted from gross income), its maximum benefit level 
is established, and a benefit is calculated by subtracting its 
expected contribution (30 percent of its counted net income) from its 
maximum allotment. Thus, a 3-person household with $400 in counted 
net income (after deductions) would receive a monthly allotment of 
$251 (the fiscal year 2004 maximum 3-person benefit in the 48 States, 
$371, less 30 percent of net income, $120).
	Allotments are not taxable and food stamp purchases may not 
be charged sales taxes. Receipt of food stamps does not affect 
eligibility for or benefits provided by other welfare programs, 
although some programs use food stamp participation as a "trigger" 
for eligibility and others take into account the general availability 
of food stamps in deciding what level of benefits to provide. In 
fiscal year 2002, monthly benefits averaged $80 per person (see 
Table 15-11).  

Maximum Monthly Allotments
	Maximum monthly food stamp allotments are tied to the cost 
of purchasing a nutritionally adequate low-cost diet, as measured by 
the Agriculture Department's Thrifty Food Plan (TFP). Maximum 
allotments are set at: the monthly cost of the TFP for a four-person 
family consisting of a couple between ages 20 and 50 and two school-
age children, adjusted for family size (using a formula reflecting 
economies of scale developed by the Human Nutrition Information 
Service), and rounded down to the nearest whole dollar. Allotments 
are adjusted for food price inflation annually, each October, to 
reflect the cost of the TFP in the immediately previous June.
	Maximum allotments are standard in the 48 contiguous States 
and the District of Columbia; they are higher, reflecting 
substantially different food costs,  in Alaska, Hawaii, Guam, and 
the Virgin Islands (Table 15-6).

TABLE 15-6-- MAXIMUM FOOD STAMP ALLOTMENTS, FISCAL YEAR 2004


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


Minimum and Prorated Benefits
	Eligible one-and two-person households are guaranteed a 
minimum monthly food stamp allotment of $10. Minimum monthly 
benefits for other household sizes vary from year to year, depending 
on the relationship between changes in the income eligibility limits 
and the adjustments to the cost of the TFP. In a few cases, benefits 
can be reduced to zero before income eligibility limits are exceeded.  
	In addition, a household's calculated monthly allotment can 
be prorated (reduced) for one month. On application, a household's 
first month's benefit is reduced to reflect the date of application. 
If a previously participating household does not meet eligibility 
recertification requirements in a timely fashion, but does become 
certified for eligibility subsequently, benefits for the first month 
of its new certification period normally are prorated to reflect the 
date when recertification requirements were met.

Application, Processing, and Issuing Food Stamps
	Food stamp benefits normally are issued monthly. The local 
welfare agency must either deny eligibility or make food stamps 
available within 30 days of initial application and must provide food 
stamps without interruption if an eligible household reapplies and 
fulfills recertification requirements in a timely manner. Households 
in immediate need because of little or no income and very limited 
cash assets, as well as the homeless and those with extraordinarily 
high shelter expenses, must be given expedited service (provision of 
benefits within 7 days of initial application).
	Food stamp issuance is a welfare agency responsibility, and 
issuance practices differ among welfare agencies. Food stamp coupons 
have traditionally been issued by: (1) providing (usually mailing) 
recipients an authorization-to-participate card that is then turned 
in at a local issuance point (e.g., a bank or post office) when
picking up their monthly allotment; or (2) mailing food stamp coupon 
allotments directly to recipients. However, in most States electronic 
benefit transfer (EBT) systems now are used.  EBT systems replace 
coupons with an ATM-like card used to make food purchases at the 
point of sale by deducting the purchase amount from the recipient's 
food stamp benefit account.  EBT issuance is used statewide in all 
States except California (which is scheduled for statewide issuance 
by the end of 2004); it also is used in Puerto Rico and the Virgin 
Islands (Guam is scheduled to convert to EBT in mid-2004).

Items That May Be Purchased With Food Stamp Benefits
	Typically, participating households use their food stamp 
benefits in approved grocery stores to buy food items for home 
preparation and consumption; food stamp purchases are not taxable. 
However, the actual list of approved uses for food stamps is more 
extensive, and includes: (1) food for home preparation and 
consumption, not including alcohol, tobacco, or hot foods intended 
for immediate consumption; (2) seeds and plants for use in gardens 
to produce food for personal consumption; (3) food purchased at 
approved farmers' markets; (4) in the case of the elderly and SSI 
recipients and their spouses, meals prepared and served through 
approved communal dining programs; (5) in the case of the elderly 
and those who are disabled to an extent that they cannot prepare all 
of their meals, home-delivered meals provided by programs for the 
homebound; (6) meals prepared and served to residents of drug 
addiction and alcoholic treatment programs, small group homes for the 
disabled, shelters for battered women and children, and shelters or 
other establishments serving the homeless; and (7) where the 
household lives in certain remote areas of Alaska, equipment for 
procuring food by hunting and fishing (e.g., nets, hooks, fishing 
rods, and knives). Food stamp benefits now normally are accessed 
through EBT cards. The card is swiped through an approved retailer's 
point-of-sale device, automatically debiting the recipient's food 
stamp account and crediting the retailer's bank account; unlike 
coupon transactions, recipients receive no cash change, and 
special arrangements must be made for nontraditional sites like 
farmers' markets.



QUALITY CONTROL (QC)

	Since the early 1970s, the Food Stamp Program has had a QC 
system to monitor the degree to which erroneous eligibility and 
benefit determinations are made by State welfare agencies. The system 
was established by regulation in the 1970s as an administrative tool 
to enable welfare officials to identify problems and take corrective 
actions. Today, by legislative directive, the QC system also is used 
to calculate and impose fiscal sanctions on States that have very 
high rates of erroneous benefit and eligibility decisions. It also 
provides outside evaluators with a general picture of the integrity
of the eligibility and benefit determination process in each State.

	Under the QC system, welfare agencies, with Federal 
oversight, continuously sample their active food stamp caseloads, 
as well as their decisions to deny or end benefits. The agencies 
perform in depth investigations of the eligibility and benefit 
status of the randomly chosen cases looking for errors in applying 
Federal rules and otherwise erroneous benefit and eligibility 
outcomes. Over 90,000 cases are reviewed each year, and each State's 
sample is designed to provide a statistically valid picture of 
erroneous decisions and, in most instances, their dollar value in 
benefits. The resulting error rate information is used by program 
managers to chart needed changes in administrative practices, and 
by the Federal Government to assess fiscal sanctions on States with 
error rates above certain tolerance levels. Both error rate findings 
and any assessed sanctions are subject to appeal through 
administrative law judges and the Federal courts. Sanctions may be 
reduced or waived if the State shows good cause or if it is 
determined that the sanction amounts should be invested in improved 
State administration. Interest may be charged on outstanding 
sanction liabilities if the administrative appeals process takes 
more than 1 year.
	QC reviews generate annual estimates of the proportion of 
cases in which administrators or recipients make an "error" and the 
dollar value of those errors. Caseload and dollar error rates are 
calculated for overpayments (including incorrect payments to eligible 
and ineligible households) and underpayments. The accuracy of welfare 
agency decisions denying or terminating assistance also is measured 
periodically, with an error rate reflecting the proportion of denials 
and terminations that were improper; no dollar value is calculated. 
The national weighted average for the dollar value of overpayments 
was estimated at 6.2 percent for fiscal year 2002 (Table 15-7). This 
is the lowest on the record.  Error rates for underpayments have 
been relatively unchanged historically (running about 2 or 3 percent.  
Finally, the rate of improper denials/terminations in the most recent 
estimate (fiscal year 2002) was 7.9 percent (as a rate of improper 
decisions, not unissued dollars).
	The dollar error rates reported through the food stamp QC 
system are used as the basis for assessing the financial liability of 
States for overpaid and underpaid benefits.  Although about 
$2 billion in sanctions have been assessed since the early 1980s, 
less than $20 million has been collected.  The appeals process has 
delayed collection, sanctions have been forgiven or waived both by 
Congress and the administration, permission has been given for States 
to invest sanction amounts in improved program administration, small 
errors have been removed from assessment calculations, and States' 
reported error rates have been reduced because of the presumed error-
rate effects of high and increased proportions of "error-prone" 
households with earnings and immigrant applicants.
	Legislated rules governing fiscal sanctions also have changed 
a number of times.  Under the most recent revision (enacted in 2002 
and effective for error rates reported for fiscal year 2003 and 
beyond), sanctions are assessed against States  with persistently 
high rates of error.  Sanctions are calculated in cases in which a 
State has a combined (overpayment and underpayment) dollar error rate 
above  105 percent of the weighted national average - after a 
statistical adjustment to ensure there is a 95 percent statistical 
probability that the State's "true" error rate exceeds the sanction 
threshold.  However, they are not "assessed" until a State has 
exceeded the 105 percent threshold for two consecutive years.  In that 
case, the Agriculture Department may (1) require the State to invest 
up to 50 percent of the amount in administrative improvements, (2) 
place up to 50 percent of the amount "at risk" for collection in the 
next year, and (3) waive any amount.  If a State then fails to reduce 
its combined error rate below the 105 percent threshold for a third 
consecutive year, the "at risk" amount is collected.

TABLE 15-7-- FOOD STAMP QUALITY CONTROL ERROR RATES, FISCAL YEAR 2002

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


	Under this new system, States are liable for amounts equal to 
the value of food stamps issued in the State (in the second 
consecutive year they exceed the  105 percent threshold) multiplied 
by 10 percent of the amount by which the State's combined error rate 
exceeds 6 percent.  For example, in a State that issued  $100 million 
in food stamp benefits and had a 12 percent combined error rate (in 
its second consecutive year above the threshold for sanctions), the 
amount of the sanction would be $100 million x 6 percent (i.e., the 
6 percent by which the State exceeded the 6-percent base) x 10 
percent, or $600,000.  In addition (and separate from the QC system), 
States are required to attempt to collect identified overpayments.  
In fiscal year 2001, over $200 million in overpayments were 
collected.
	Under the revised QC system, States also can receive 
performance bonus payments, if they meet the standard set by the 
Agriculture Department.  To carry this out, the Department is 
required to measure States' performance as to actions taken to 
correct errors, reduce error rates, improve eligibility 
determinations, and other indicators of effective administration. 
The law sets aside $48 million a year for bonus payments.
	Finally, the QC system identifies the various sources of 
error and requires States with combined error rates above 6 percent 
to develop and carry out corrective action plans to improve 
administration and payment accuracy.  These reviews generally show 
that the primary responsibility for overpayment errors is almost 
evenly divided between welfare agencies and clients, and that most 
errors are mistakes (and not intentional violations).  The most 
common errors are related to establishing food stamp expense 
deductions and households' income correctly.
	Intentional program violations (e.g., fraud) can occur in a 
number of ways; the most common are intentionally misrepresenting 
household circumstances in order to obtain food stamps or increase 
benefits, and trafficking in food stamp benefits to obtain cash or 
non-food items.  Roughly one-quarter of the dollar value of 
erroneous benefit and eligibility determinations identified through 
QC reviews are fraudulent - about 1.5 percent of all benefits issued 
in fiscal year 2002.  Among cases in which States establish actual 
claims against households for overpayment, fewer than 10 percent were 
classified as fraud in fiscal year 2001.  The most recent Agriculture 
Department study on the extent of food stamp trafficking estimated 
that about $395 million per year was diverted from food stamp 
benefits by trafficking between 1999 and 2002.

INTERACTION WITH TANF, SSI, AND GA PROGRAMS

The Food Stamp Program is intertwined with Temporary Assistance for 
Needy Families (TANF), Supplemental Security Income (SSI), and State/
local General Assistance (GA) programs in several ways: it is 
administratively linked with TANF and GA programs, TANF recipients 
can receive "transitional" food stamp benefits when leaving TANF, 
most TANF, SSI, and GA recipients are automatically (categorically) 
eligible for food stamps, and the food stamp recipient population is, 
to a large extent, made up of TANF, SSI, and GA participants.State 
and local offices and personnel administering TANF and GA programs
are typically the same offices that enroll people for food stamps 
and issue food stamp benefits.  States may choose to use many TANF 
rules on how to count income and assets when determining food stamp 
benefits. Joint food stamp-TANF/GA application and interview 
procedures are common.  Information about applicants and recipients 
is shared. TANF/GA cash benefits sometimes are included as part of 
the food stamp electronic benefit transfer (EBT) system (i.e., both 
TANF cash and food stamp benefits can be accessed with the same EBT 
debit card).  This coadministration does not apply in the case of 
the SSI Program, which is administered separately through Social 
Security Administration offices - although these offices do provide 
limited intake and referral services for the Food Stamp Program and 
some pilot projects provide standardized food stamp benefits through 
SSI offices.

States have the option to give up to 5 months' transitional food 
stamp benefits to those leaving TANF (for reasons other than a 
sanction) - without requiring that the household apply for food 
stamps.  The transitional benefit is the amount received prior to 
leaving TANF, adjusted to account for the loss of TANF income.  
Transitional benefit households may reapply during the 5-month period 
to have their benefits adjusted based on changed circumstances, and 
States may opt to adjust benefits based on information received from 
another program (like Medicaid) in which the household participates. 
At the end of the transitional period, households may reapply for 
continued food stamps under regular food stamp rules.

Food stamp rules generally make households in which all members are 
TANF, SSI, or GA recipients categorically eligible for food stamps, 
without reference to regular food stamp financial eligibility 
requirements.  TANF recipients are broadly defined as anyone 
receiving benefits or services through a State's TANF Program. SSI 
recipients' eligibility for food stamps is barred in California 
(see earlier eligibility discussion), and GA programs must meet 
minimal Federal standards to qualify their recipients for food 
stamps.  Categorical eligibility for food stamps is particularly 
important in cases in which States have chosen TANF rules that are 
more liberal than food stamp rules (e.g., disregarding the value of 
vehicles for working households) in order to encourage work effort. 
However, it is important to keep in mind that food stamp rules often 
qualify a household for food stamps even after loss of TANF, SSI, 
or GA benefits.
	For most persons participating in the Food Stamp Program, 
food stamp aid represents a second or third form of government 
assistance.  Only about 20 percent of food stamp households rely 
solely on nongovernmental sources for their cash income, although 
about 30 percent have some income from these sources (e.g., earnings, 
private retirement income).  According to 2001 data from QC surveys, 
TANF contributed to the income of some 23 percent of food stamp 
households.  SSI benefits went to 32 percent of food stamp 
households, and GA payments were received by just under 6 percent.
	Table 15-8 shows overall food stamp participation rates in 
selected years from 1975 to 2002 using two measures: as a proportion 
of the total U.S. population and as a percentage of the population 
with income below the Federal poverty thresholds. Food stamp 
enrollment has fluctuated widely over the last 25 years, reaching its 
peak in fiscal year 1994; in that year, it averaged 27.5 million 
persons a month, with an all-time high of 28 million in the spring of 
1994 (not including  1.4 million persons receiving aid under Puerto 
Rico's nutrition assistance grant in lieu of food stamps).

RECIPIENCY RATES

	Food stamp enrollment is responsive to changes in the economy 
(i.e., recipients' employment status and earnings), food stamp 
eligibility rules (and potential applicants' perception of their 
eligibility status), and administrative practices, as well as the 
number of recipients getting or losing public assistance eligibility. 
With few changes in eligibility rules, the caseload expanded from a  
monthly average of 22.6 million persons in fiscal year 1991 to the 
1994 peak. From 1994 through 2000, enrollment declined dramatically 
to a low of 17.2 million persons in 2000 - the lowest level since 
the 1970s - due to Federal and State welfare reform initiatives, a 
lower participation rate among those eligible, and the effects of a 
strong economy.  Since 2000, participation has risen to more than  
19 million in 2002 due to outreach changes, an increasing rate of 
participation among eligible individuals, and weakened economic 
conditions. 
		
TABLE 15-8 -- FOOD STAMP PARTICIPATION RATES IN THE UNITED 
STATES, SELECTED YEARS 1975-2002


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


	Table 15-9 shows the average monthly number of people (in 
thousands) who received food stamp benefits in each State, the 
District of Columbia, and the participating Commonwealths and 
territories for selected years between 1975 (when the Food Stamp 
Program became nationally available) and 2002. There was a general 
increase in food stamp participants between 1975 and 1995, followed 
by sharp declines through 2000 and modest increases in recent years. 


RECENT LEGISLATIVE HISTORY

(For legislative history prior to 1996, see previous editions of 
the Green Book.)

	The 1996 Omnibus "farm bill" (the Federal Agriculture 
Improvement and Reform Act; Public Law 104-127) extended the Food 
Stamp Act's overall authorization for appropriations through fiscal 
year 1997, with no specific dollar limits. It also: (1) continued the 
requirement for nutrition assistance grants to Puerto Rico and 
American Samoa, and for employment and training programs, through 
fiscal year 2002; (2) revised rules for penalizing food stores in 
trafficking cases involving management; and (3) extended authority 
for several pilot projects.
	Later in 1996, the omnibus welfare reform law (the Personal 
Responsibility and Work Opportunity Reconciliation Act; Public Law 
104-193) made the most extensive changes to the Food Stamp Program 
since the Food Stamp Act was rewritten in 1977. Under this law, 
spending on food stamps was projected for a net reduction of 
$23.3 billion through fiscal year 2002 (or 13 percent less than under 
then-current law over fiscal years 1997-2002). The food-stamp-
related provisions of the welfare reform act: (1) gave States 
significantly more control over program operations and expanded 
their administrative options (e.g., allowed States to more closely 
conform their TANF and food stamp rules and sanction food stamp 
recipients for failure to meet other public assistance program 
requirements);  (2) established a new work rule limiting 
participation by able-bodied adults without dependents (ABAWDs) who 
are not working or in training for work to 3 months in any 3-year 
period; (3) added other new work rules (e.g., disqualification for 
significantly reduced work effort); (4) instituted an across-the-
board benefit reduction; (5) barred eligibility for most legally 
resident noncitizens; (6) increased penalties for violating Food 
Stamp Program rules; and (7) encouraged implementation of electronic 
benefit transfer (EBT) systems for issuing food stamp benefits 
(requiring systems be in place nationwide by 2002).
	In 1997, the Balanced Budget Act's (BBA) food stamp component 
followed up on the 1996 welfare reform law with amendments that 
allowed States to exempt significant numbers of ABAWDs from new work 
requirements and more than doubled Federal funding for employment and 
training programs for food stamp recipients (targeted on adults 
without dependents). It also required States to establish systems to 
ensure that prisoners are not counted as part of any food stamp 
household. Separately, the 1997 emergency supplemental appropriations 
law (Public Law 105-18) permitted States to "buy into" the Food Stamp 
Program and pay for benefits to noncitizens ineligible for federally 
financed food stamps and adults without dependents made ineligible 
by work requirements.
	The 1998 Agricultural Research, Extension, and Education 
Reform Act (Public Law 105-185) significantly reduced spending for 
the Federal share of State food stamp administrative costs--some 
$200 million per year--by imposing a flat annual dollar reduction on 
most States' entitlements to correct for a perceived "windfall" extra 
payment States can potentially receive through the interaction 
between food stamp and TANF funding rules. It also lowered Federal 
payments to States for employment and training programs for food 
stamp recipients. A portion of the money saved by these reductions 
was then used to restore food stamp eligibility to some of the 
noncitizens made ineligible by the 1996 welfare reform law (e.g., 
elderly and disabled persons legally resident at the time the 1996 
law was enacted).
	Most recently, the Farm Security and Rural Investment Act of 
2002 (Public Law 107-171) reauthorized appropriations for the Food 
Stamp Program and made the most extensive changes since the 1996 
welfare reform law.  It expanded eligibility for noncitizens children 
and other noncitizens who meet a 5-year legal residence test. It 
raised benefits, primarily for larger households, by increasing the 
amount of income that is disregarded when setting benefits (i.e., 
indexing the "standard deduction" and varying it by household size). 
It allowed States to guarantee 5-months of "transitional" food stamp 
benefits to those leaving TANF.  A number of other State options were 
established to ease access to the program and administrative burdens 
on applicants/recipients and program operators.  These let States 
reduce recipient reporting requirements, simplify benefit 
calculations, and conform income and asset definitions to those used 
in TANF and Medicaid.  It ended Federal restrictions on the spending 
of work/training funds and changed and generally reduced the Federal 
share of this spending.  Finally, the new law revamped the Food 
Stamp Program's quality control system to (1) dramatically reduce 
the number of States likely to be sanctioned for high rates of 
erroneous benefit decisions (only those with persistently high error 
rates would be penalized), and (2) grant bonus payments to States 
with exemplary administrative performance.

	Table 15-10 provides an overview of the characteristics of 
food stamp households for selected years since 1980; Table 15-11 
summarizes annual vital statistics about the program for selected 
years since 1972.

MEDICAID

OVERVIEW

	Medicaid was enacted in 1965, in the same legislation that 
created the Medicare program, the Social Security Amendments of 1965 
(P.L. 89-97).  It grew out of and replaced two earlier programs of 
Federal grants to States that provided medical care to welfare 
recipients and the aged.
	Medicaid is a means-tested entitlement program.  It is 
jointly financed by Federal and State funds.  Federal contributions 
to each State are based on a State's willingness to finance covered 
medical services and a matching formula.  Each State designs and 
administers its own program under broad Federal rules.  The Centers 
for Medicare and Medicaid Services (CMS), within the U.S. Department 
of Health and Human Services (HHS), is responsible for Federal 
oversight of the program.  In FY2002, total (preliminary) Federal and 
State spending on Medicaid reached $258.2 billion, slightly exceeding 
total outlays for Medicare.  No other means-tested cash or noncash 
program comes close to approaching this spending 


TABLE 15-9 -- FOOD STAMP RECIPIENTS BY JURISDICTION, SELECTED FISCAL 
YEARS 1975-2002  

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]




TABLE 15-10 -- CHARACTERISTICS OF FOOD STAMP HOUSEHOLDS, SELECTED
YEARS 1980-2001

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]



TABLE 15-11-- HISTORICAL FOOD STAMP STATISTICS, SELECTED 
YEARS, 1972-2002



[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


level. In fact, of all federally supported social programs, only 
Social Security costs more.
	
	To many, Medicaid is an enigma.  The program's complexity 
surrounding who is eligible, what services are paid for, and how 
those services are reimbursed and delivered is one source of this 
confusion.  Variability across State Medicaid programs is the rule, 
not the exception.  In recent years, more and more States have 
implemented a variety of major program changes using special waiver 
authority.  Income eligibility levels, services covered, and the 
method for and amount of reimbursement for services differ from State 
to State.  Furthermore, Medicaid is a program that is targeted at 
individuals with low-income, but not all of the poor are eligible, 
and not all those covered are poor.  For populations like children 
and families, primary and acute care often are delivered through 
managed care, while the elderly and disabled typically obtain such 
care on a fee-for-service basis.  Nationwide, Medicaid finances the 
majority of long-term care services.  Such services include, for 
example, nursing home care and community-based services designed to 
support the elderly and disabled in their homes.  Recently, some 
States have begun to integrate Medicare and Medicaid financing 
and/or coordinate acute and long-term care services for these 
populations.
	The complexity of Medicaid presents an enormous challenge for 
anyone attempting to make generalizations about the program. This 
subsection describes Federal Medicaid rules that govern:  (1) who is 
eligible, (2) what services are covered and how they are delivered, 
(3) how the program is financed and administered, (4) key provider 
reimbursement issues, and (5) the significant role of waivers in 
expanding eligibility and modifying services.  It concludes with a 
brief legislative history beginning with major laws affecting 
Medicaid since 1996.

ELIGIBILITY

	The Federal Medicaid statute defines over 50 distinct
population groups as being potentially eligible for States' programs.  
Some groups are mandatory, meaning that all States that participate 
in the Medicaid program must cover them; others are optional. Prior 
to the 1980s, Medicaid eligibility was limited to very low-income 
families with dependent children, poor elderly and disabled 
individuals, and the "medically needy."
	Beginning in the 1980s, additional eligibility pathways were 
added to the Medicaid statute to allow for the coverage of higher 
income children and pregnant women as well as other elderly and 
disabled individuals.  Most recently, States were given the option to 
provide Medicaid to other groups with specific characteristics 
including certain women with breast or cervical cancer, to uninsured 
individuals with tuberculosis, and to working individuals with 
disabilities.  Not all groups of Medicaid beneficiaries receive the 
same set of benefits.  To understand the different benefits offered 
to each group, see "Benefits" below.
	Medicaid is a means-tested program. To qualify, applicants' 
income and resources must be within certain limits.  The specific 
income and resource limitations that apply to each eligibility group 
are set through a combination of Federal parameters and State 
definitions.  Consequently, those standards vary considerably among 
States, and different standards apply to different population groups 
within a State.  For many of those groups, moreover, States have 
permission under a special provision, Section 1902(r)(2), to use 
more liberal standards for computing income and resources than are 
specified within each of the groups' definitions.  Most States use 
Section 1902(r)(2) to ignore or disregard certain types or amounts 
of income or assets, thereby extending Medicaid to individuals with 
earnings or assets too high to otherwise qualify under the specified 
rules for that eligibility pathway.



FAMILIES, PREGNANT WOMEN, AND CHILDREN

	The two primary pathways to Medicaid for low-income family 
members, pregnant women, and children are through (1) Section 1931 of 
Medicaid statute, for those families who would have been eligible for 
cash welfare payments under former Aid to Families with Dependent 
Children (AFDC) program rules, and (2) a series of targeted Medicaid 
expansions for poor pregnant women and children begun in the 1980s.  
Other important pathways for low-income family members, including 
transitional medical assistance, other AFDC-related groups, and 
children qualifying for the State Children's Health Insurance 
Program (SCHIP) who are receiving their health coverage under the 
Medicaid program, are explained below.

Section 1931:  Persons qualifying under the former AFDC program rules
	Families who are eligible for Temporary Assistance for Needy 
Families (TANF) are not automatically eligible for Medicaid. 
Medicaid's Section 1931, however, preserves Medicaid entitlement for 
individuals who meet the requirements of the former AFDC programs in 
effect in their States on July 16, 1996. This categorical group was 
created when TANF replaced AFDC in 1996 to ensure that low-income 
families do not lose Medicaid as a result of welfare reform.  States 
have significant flexibility in defining the income and resource 
standards for those families qualifying for Medicaid under Section 
1931: (1) income standards may be reduced below those in effect in 
1996, but they cannot be lower than those used on May 1, 1988; 
(2) income and resource standards may be increased for any period 
after 1996, but by no more than the percentage increase in the 
Consumer Price Index (CPI) for the same period; and (3) States may 
use less restrictive methods for counting income and resources than 
those in effect on July 16, 1996.Certain individuals qualifying under 
the Section 1931 pathway may be denied Medicaid coverage if they 
refuse to cooperate with States' TANF work requirements.  States are 
permitted to deny Medicaid benefits to nonpregnant adults and heads 
of households who lose TANF benefits because of refusal to work, but 
must continue to provide Medicaid coverage to their children. 
	In 2002, 39 States had taken advantage of the flexibility of 
Section 1931 to expand eligibility for working families by 
disregarding some earned income, thereby allowing families with 
higher total income to qualify for the program. Other States 
eliminated various income and assets rules, thus expanding low-
income working families' access to Medicaid. 

Poverty-related pregnant women and children 
	Between 1986 and 1991, Congress gradually extended Medicaid 
to new groups of pregnant women and children. Under these provisions, 
States are required to cover pregnant women and children under age 6 
with family incomes below 133 percent of the Federal poverty income 
guidelines.  Coverage for pregnant women qualifying through this 
pathway is limited to services related to the pregnancy or 
complications of the pregnancy and extends to 60 days after 
termination of the pregnancy. Children receive full Medicaid 
coverage. 
	States are required to cover all children over the age of 
five and under 19 who are in families with income below 100 percent 
of the Federal poverty level (FPL). This requirement has been phased-
in since July 1, 1991 and was fully implemented in 2002.  
	States have the option to go beyond the above mandatory 
groups to include pregnant women and infants under 1 year of age 
whose family income is over 133 and up to 185 percent of the FPL. In 
2002, 36 States and the District of Columbia extended coverage to 
some or all pregnant women and infants in this category.

Transitional medical assistance
	Transitional medical assistance (TMA) was established prior 
to the 1996 welfare reform to address the concern that individuals 
receiving AFDC payments would not seek work or would turn down work 
opportunities for fear of losing Medicaid.  TMA requires States to 
continue providing Medicaid for 6 months to families that were 
receiving Medicaid under Section 1931 in at least 3 of the last 6 
months.  The extended Medicaid coverage is available to individuals 
(and their families) who would otherwise have lost such assistance 
due to increased work hours, increased earnings of the caretaker 
relative, or the loss of one of the time-limited earned income 
disregards. In addition, States are required to extend Medicaid 
coverage for a second 6 months to families that were covered during 
the entire first 6-month TMA period, and whose earnings are below 
185 percent of poverty. The provisions authorizing TMA are due to 
sunset at the end of March 2004, although this date has been 
repeatedly extended.  A small additional group of mandatory TMA-
eligible persons are those who would otherwise lose Medicaid 
coverage under Section 1931 because of increased child or spousal 
support. Families eligible for this 4-month extension must have been 
receiving Medicaid under Section 1931 in at least 3 of the 
preceding 6 months. 

Other AFDC-related groups
	While the AFDC program no longer exists, a number of Medicaid 
eligibility groups tied to States' former AFDC rules remain. States 
must provide Medicaid to recipients of adoption assistance and foster 
care (who are under age 18) under Title IV-E of the Social Security 
Act. In 1999 States were given the option to extend Medicaid to 
former foster care recipients who are aged 18, 19, or 20. Ribicoff 
children, a pathway named for the former Senator who sponsored 
legislation authorizing this group, are those under age 21 who meet 
income and resource requirements for the former AFDC Program but who 
do not meet other categorical requirements for AFDC.  States have the 
option to cover Ribicoff children and have a great deal of 
flexibility in defining the specific group of children to be covered 
under this category. Often States use this authority to cover 
children in State-sponsored foster care, children who are 
institutionalized, or who are inpatients in psychiatric facilities.  
Although many of the children who have traditionally been covered 
under Ribicoff are now eligible under other poverty-related groups, 
Ribicoff remains an important pathway to eligibility for some small 
groups of older adolescents in foster care and children in two-parent 
families.

Targeted low-income children authorized under the State Children's 
Health Insurance Program (SCHIP)

	Section 4911 of the Balanced Budget Act of 1997 (BBA 1997, 
P.L. 105-33) established an additional coverage group for low-income 
children.  Targeted low-income children are those who are not 
otherwise eligible for Medicaid, are not covered under a group health 
plan or other insurance, and are living with families with income 
that is either: (1) above the State's Medicaid financial eligibility 
standard in effect in June 1997 but less than 200 percent of the FPL; 
or (2) in States with Medicaid income levels for children already at 
or above 200 percent of the poverty level as of June 1997, within 
50 percentage points over this income standard.  States either can 
establish a specific coverage group for targeted low-income children 
or they can build upon other existing Medicaid coverage groups for 
children.  As of February 2003, 37 States cover targeted low-income 
children under Medicaid.

THE AGED AND PERSONS WITH DISABILITIES

Persons who qualify for Supplemental Security Income (SSI)  
	With one important exception, States are required to provide 
Medicaid coverage to recipients of SSI.  SSI, authorized under Title 
XVI of the Social Security Act, is a means-tested cash assistance 
program for aged, blind, and disabled individuals whose income falls 
below the Federal maximum monthly SSI benefit and whose resources are 
limited.  To qualify for SSI, a person must satisfy the program 
criteria for age or disability and meet certain citizenship or United  
States residency requirements.  Eligibility for SSI is restricted to 
otherwise qualified individuals whose resources do not exceed $2,000 
for an individual and $3,000 for a couple; certain resources, such as 
a person's home, are exempt.  Income cannot exceed the maximum 
Federal SSI benefit of $552 per month in  2003 for an individual 
living independently, and $829 for a couple living independently.  
The SSI benefit level of $552 per month for an individual is 
74 percent of FPL.
	The major exception to Medicaid coverage of SSI recipients is 
in States that exercise the so-called "209(b)" option described in 
Section 209(b) of the Social Security Amendments of 1972 (P.L. 
92-603).  Such States may use income, resource, and disability 
standards that are no more restrictive than those in place on 
January 1, 1972. As of 2001, there were 11 Section 209(b) States, 
including Connecticut, Illinois, Hawaii, Indiana, Minnesota, 
Missouri, New Hampshire, North Dakota, Ohio, Oklahoma, and Virginia. 
Each of these has at least one eligibility standard that is more 
restrictive than current SSI standards and some have certain 
standards that are more liberal.  States that use more restrictive 
eligibility rules under Section 209(b) must also allow applicants to 
deduct medical expenses from their income when determining financial 
eligibility for Medicaid.  This process is sometimes referred to 
as "spend-down." 

Recipients of State Supplemental Payment (SSP) benefits
	Many States provide SSP benefits with State-only dollars on a
monthly basis. These payments are intended to cover such items as 
food, shelter, clothing, utilities, and other daily necessities. The 
amount of the benefit is determined by the individual States. States 
may provide supplemental payments to all persons who receive SSI, 
and/or to individuals who meet all SSI criteria, other than income.  
States also may choose to provide SSP benefits only to particular 
groups, such as elderly persons living independently in the community 
without special needs, or elderly individuals who require in-home 
personal care assistance or home-delivered meals.  In all of these 
cases, States decide whether to extend Medicaid coverage to all SSP 
recipients, to only some of these recipients, or to none at all. When 
a State provides Medicaid eligibility to persons receiving only SSP-
and not SSI-then the maximum income eligibility standard for 
Medicaid is an amount equivalent to the combined Federal SSI payment 
and the SSP benefit.  For 209(b) States, however, the effective 
maximum financial eligibility standard for these individuals is the 
209(b) categorical eligibility standard plus the SSP payment. 

Poverty-related group for the aged and disabled 
	The enactment of the Omnibus Budget Reconciliation Act of 
1986 (OBRA 86) offered States an option for covering persons whose 
income exceeds SSI or 209(b) levels.   This option allows States to 
cover aged and disabled individuals with incomes up to 100 percent of 
FPL.  In 2001, there were 21 States using this option.   

Coverage for institutionalized individuals and related groups under 
the special income rule 
	States may extend Medicaid to certain individuals with 
incomes too high to qualify for SSI, and who are eligible for nursing 
facility or other institutional care. Under the special income rule, 
also referred to as "the 300 percent rule," such persons must (1) 
require care provided by a nursing home or other medical institution 
for no fewer than 30 consecutive days, (2) meet the resource standard 
determined by the State, and (3) have income that does not exceed a 
specified level - no greater than 300 percent of the maximum SSI 
payment applicable to a person living at home.  For 2003, this limit 
is $1,656 per month, three times the monthly SSI payment of $552. 
States may use a level that is lower than the maximum of 300 percent 
of SSI.
	Since 1993 (OBRA 93), States that use only the special income 
rule for institutional eligibility, and do not use the medically 
needy option (described below), must allow applicants to place income 
in excess of the special income level in a special trust, often 
called a Miller Trust, and receive Medicaid coverage for their care. 
Following the individual's death, the State becomes the beneficiary 
of amounts in the trust.

Working individuals with disabilities
	Concern that many workers with disabilities would lose 
eligibility for Medicaid as a result of increased earnings and yet 
not have access to affordable or adequate health insurance through 
their jobs, prompted Congress to establish a variety of special 
rules that would protect working individuals with disabilities from 
losing their Medicaid benefits. One rule does so by changing SSI 
program rules for working persons with disabilities. In order for 
disabled persons to qualify for SSI and, thus become eligible for 
Medicaid, applicants must establish disability status under the 
criteria determined by the Secretary of the Department of Health 
and Human Services (HHS). These criteria are linked to an 
individual's ability to work or earn income from work, commonly 
referred to as an individual's ability to "engage in substantial 
gainful activity" (SGA). Current regulations provide that an 
individual is able to engage in SGA if his or her earnings exceed 
$800 per month, as of January 2003. For persons who are blind, SGA 
is $1,330 per month for 2003. SGA is defined in Federal regulations 
as paid work involving significant and productive physical or mental 
duties.   Section 1619(a) of SSI law permits those States that 
extend Medicaid to SSI recipients to allow certain persons with a 
disability who had been eligible for an SSI payment for at least one 
month and who meet all other eligibility rules, to continue receiving 
Medicaid even when they are working at the SGA level. The amount of 
their SSI special cash benefits is gradually reduced as their 
earnings increase under an income disregard formula until their 
countable earnings reach the SSI benefit standard or what is known 
as the breakeven point ($552 per month in 2003).
	In addition, individuals who are blind or have a disability 
can continue to be eligible for Medicaid even if their earnings 
exceed the SSI income disregard breakeven point under a special group 
referred to as "qualified severely impaired individuals." Special 
eligibility status granted by Section 1619(b)(1) and 1905(q), under 
which the individual is considered an SSI recipient for purposes of 
Medicaid eligibility (although he or she is not actually receiving a 
SSI cash benefit) applies as long as the individual: (1) continues to 
be blind or have a disabling impairment;  (2) continues to meet all 
the other requirements, except for earnings, for SSI eligibility; 
(3) would be seriously inhibited from continuing to work by the 
termination of eligibility for Medicaid services; and (4) has 
earnings that are not sufficient to provide a reasonable equivalent 
to the benefits that would have been available if he or she did not 
have SSI, state supplementary payments, Medicaid and publicly funded 
personal care.
	Other provisions give States even more flexibility to cover 
working persons with disabilities.  The Balanced Budget Act of 1997 
(BBA 97, P.L. 105-33) allows States to provide Medicaid coverage to 
working individuals with disabilities whose family's net income does 
not exceed 250 percent of the FPL.  Two other provisions were added 
under the Ticket to Work and Work Incentives Improvement Act of 1999 
(TWWIIA, P.L. 106-170).  The first allows States to further expand 
Medicaid coverage to working individuals with disabilities, between 
the ages of 16 and 64, with incomes and resources as defined by the 
State and allows States to impose premiums and other cost-sharing on 
individuals who qualify.  The second allows States, under certain 
circumstances, to provide coverage to persons whose medical condition 
has improved and who has therefore become ineligible for SSI on the 
basis of disability.  

Qualified Medicare beneficiaries and related groups
	Certain low-income individuals who are aged or have 
disabilities as defined under SSI and who are eligible for Medicare 
are also eligible to have some of their Medicare cost-sharing 
expenses paid for by Medicaid.  There are four categories of such 
persons :
	Qualified Medicare Beneficiaries (QMB)-- Qualified Medicare 
beneficiaries are aged or disabled Medicare beneficiaries with 
incomes no greater than 100 percent of the Federal poverty level 
and assets no greater than $4,000 for an individual and $6,000 
for a couple. States are required to cover, under their Medicaid 
programs, the costs of Medicare premiums, deductibles, and 
coinsurance for Medicare covered benefits for such persons. Other 
Medicaid covered services, such as nursing facility care, 
prescription drugs, and primary and acute care services, are not 
covered for these individuals unless they qualify for Medicaid 
through other eligibility pathways (e.g. via SSI, medically needy, 
or the special income rule).
	Specified Low-Income Medicare Beneficiaries (SLMB) -- 
Specified low-income Medicare beneficiaries meet QMB criteria, except 
that their income is greater than 100 percent of FPL but does not 
exceed 120 percent FPL.  Under this Medicaid pathway, States are 
required to cover only the monthly Medicare Part B premium. Other 
Medicaid covered services are not covered for these individuals 
unless they qualify for Medicaid through other eligibility pathways.
	Qualifying Individuals (QI-1) -- The QI-1 eligibility pathway 
applies to aged and disabled Medicare beneficiaries whose income is 
between 120 and 135 percent of FPL.  For these individuals, States 
are required to pay the monthly Medicare Part B premium, only until 
the Federal allotment for this purpose is depleted. These individuals 
are not otherwise eligible for Medicaid.  
	Qualified Disabled and Working Individuals (QDWIs) -- States 
are required to pay the Medicare Part A premiums for persons who were 
previously entitled to Medicare on the basis of a disability, who 
lost their entitlement based on earnings from work, but who continue 
to have a disabling condition.  Such persons may qualify only if 
their incomes are below 200 percent of FPL, their resources are below 
200 percent of the SSI limit ($4,000), and they are not otherwise 
eligible for Medicaid.

MEDICALLY NEEDY

	States may extend Medicaid coverage to persons who are 
members of one of the broad categories of Medicaid covered groups 
(i.e., are aged, have a disability or are in families with 
children), but do not meet the applicable income requirements and, 
in some instances, resources requirements for other eligibility 
pathways. Under this option, States may set their medically needy 
monthly income limits for a family of a given size at any level 
up to 133 1/3 percent of the maximum payment for a similar family 
under the state's AFDC program in place on July 16, 1996. For 
families of one, the statute gives certain states some 
flexibility to set these limits to amounts that are reasonably 
related to the AFDC payment amounts for two or more persons.
	While 133 1/3 percent of the former AFDC program standard is 
generally higher than the income standard for other Medicaid pathways 
for families, it is generally lower than the income standard for 
elderly or disabled SSI recipients. For all groups, States are 
required to allow individuals to spend down to the medically needy 
income standard by incurring medical expenses, in the same way that 
SSI recipients in Section 209(b) States may spend down to Medicaid 
eligibility. 
	Under the statute, States may limit the categories of 
individuals who can qualify as medically needy.  If a State provides 
any medically needy program, however, it must include all children 
under 18 who would qualify under one of the welfare-related groups, 
and all pregnant women who would qualify under either a mandatory or 
optional group, if their income or resources were lower.  In 2002,  
35 States  and the District of Columbia covered the medically needy. 

OTHER INDIVIDUALS COVERED

	In recent years, new groups have been added to Medicaid that 
move the program further away from its traditional links to cash 
assistance programs.  Demonstration waivers have allowed States the 
flexibility to target enrollment and benefits to various groups, and 
two new pathways were added to Medicaid for individuals with specific 
medical diagnoses.  With specific restrictions, Medicaid is 
also available to certain immigrants.

Individuals qualifying under demonstration waivers
	Demonstration waivers available under the authority of 
Section 1115 of the Social Security Act enable States to experiment 
with new approaches for providing health care coverage that promote 
the objectives of the Medicaid program.  Section 1115 allows the 
Secretary of HHS to waive a number of Medicaid rules - including 
many of the Federal rules relating to Medicaid eligibility. The 
Health Insurance Flexibility and Accountability (HIFA) Initiative 
is an explicit effort of HHS to encourage States to seek Section 
1115 waivers to extend Medicaid and SCHIP to the uninsured, with a 
particular emphasis on Statewide approaches that maximize private 
health insurance coverage options and target populations with incomes 
below 200 percent of FPL. A number of States have used such waivers 
to enact broad-based and sometimes statewide health reforms, although 
demonstrations under Section 1115 need not be statewide.  A number of 
the demonstrations extend comprehensive health insurance coverage to 
low-income children and families who would not otherwise be eligible 
for Medicaid. 

Women with breast and cervical cancer  
	Women who are eligible for Medicaid under this optional 
coverage group are those who have been screened for and found to 
have breast or cervical cancer (including precancerous conditions) 
through the National Breast and Cervical Cancer Early Detection 
Program (NBCCEDP).  Women who qualify must be under age 65, 
uninsured, and otherwise not eligible for Medicaid. Benefits are 
limited to the period in which the beneficiary requires breast or 
cervical cancer treatment.  In 2002, 42 States  chose to cover women 
who meet these requirements.

Persons with tuberculosis  
	States may choose to offer Medicaid to people with 
tuberculosis (TB) who are uninsured.  Individuals qualifying under 
this pathway are entitled only to those services related to the 
treatment of tuberculosis.  In 2002, 8 States  and the District of 
Columbia covered such persons with TB.

Immigrants   
	Legal immigrants arriving in the United States after August 
22, 1996 are ineligible for Medicaid benefits for their first 5 years 
here. Coverage of such persons after the 5-year ban is a State 
option. States may provide Medicaid coverage to legal immigrants who 
resided in the country and were receiving benefits on August 22, 
1996, and for those residing in the country as of that date who 
become disabled in the future. States are also required to provide 
coverage to:

-	refugees for the first 7 years after entry into the United 
	States; 

-	asylees for the first 7 years after asylum is granted; 

-	certain individuals whose deportation is being withheld by the 

-	Immigration and Naturalization Service for seven years after 
	the deportation is first withheld; 

-	lawful permanent aliens after they have been credited with 
	40 quarters of coverage under Social Security; and 

-	immigrants who are honorably discharged U.S. military 
	veterans, active duty military personnel, and their spouses 
	and unmarried dependent children who otherwise meet the 
	State's financial eligibility criteria.  

	In addition, States are required to provide emergency 
Medicaid services to all legal and undocumented noncitizens who meet 
the financial and categorical eligibility requirements for Medicaid.

ENROLLMENT

In 2000, there were 44.3 million people enrolled in Medicaid. Over 
one-half (51 percent) of those enrolled were under age 19 , about 
37 percent were ages 19 through 64, and almost 10 percent were 65 or 
over. Charts 15-1 and 15-2 show 2000 Medicaid enrollment by basis of 
eligibility (BOE) and by major enrollment group, respectively. State 
reported data are not available in a format that allows for examining 
enrollment by the pathways as described above. 

CHART 15-1--ENROLLEES BY BASIS OF ELIGIBILITY, FISCAL YEAR 2000

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


Chart 15-1 shows that Medicaid enrollment is predominantly non-
disabled adults (e.g., parents) under age 65 and children (about 
73 percent).  Chart 15-2 shows that almost half of Medicaid 
enrollment in 2000 is through traditional pathways:  39 percent of 
enrollees are SSI recipients, SSI-related enrollees, and members of 
families that would have been eligible for former AFDC programs and 
now qualify through Section 1931, and an additional 8 percent are 
the medically needy.  Over one-third of 2000 enrollment is through 
relatively new pathways:  28 percent of individuals on the program 
are enrolled through the poverty-level pathways added to Medicaid 
since the mid-1980s and 8 percent through demonstration waivers.  
Finally, about 17 percent of Medicaid enrollees are in the "other" 
group, including foster care children, elderly individuals in 
institutions, families receiving transitional medical assistance, and 
persons receiving State supplementary SSI payments.  This "other" 
grouping includes over 60 specific eligibility pathways.

Table 15-12 presents Medicaid recipients  by basis of eligibility 
for selected years from 1975 through 2000.  Since the mid-1970s, the 
number of individuals receiving at least one Medicaid service during 
the year has more than doubled, and during the 1990s, Medicaid 
enrollment growth quickened.  Prior to 1998, Medicaid recipients, as 
reported by States using HCFA-2082 reporting forms, excluded 
individuals for whom only capitated  payments were made. HMO 
enrollment, however, also grew rapidly, especially among non-disabled 
children and adults, after 1995.  Individuals in HMOs, totaling over 
5 million in 1995, are not reflected in the figures in Table 15-12, 
prior to 2000.

CHART 15-2 --MEDICAID ENROLLEES BY MAJOR ENROLLMENT GROUP, 
FISCAL YEAR 2000

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


	Table 15-13 shows all Medicaid enrollees in fiscal year 2000 
by State.  Individuals counted in this table include all recipients 
plus all other individuals enrolled in the program in any month 
whether or not services were paid on their behalf.  States are ranked 
by the total number of enrollees.  California, the State with the 
highest Medicaid enrollment, had 8.1 million individuals in the 
program in 2000.  The second highest enrollment was in New York with 
3.4 million enrollees.  The top ten States, in terms of enrollment, 
accounted for over one-half of the program's total enrollment.



	TABLE 15-12--UNDUPLICATED NUMBER OF MEDICAID RECIPIENTS BY 
	ELIGIBILITY CATEGORY FOR SELECTED YEARS 1975-2000
	
	
	
	
	
	[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

	

MEDICAID AND THE POOR

	In CY 2002, Medicaid covered 11.6 percent of the total U.S. 
population (excluding institutionalized persons) and 40.5 percent of 
those with incomes below the federal poverty level (FPL), according 
to data from the March 2003 Current Population Survey (CPS) 
conducted by the U.S. Census Bureau. Because categorical eligibility 
requirements for children are less restrictive than those for adults, 
poor children are much more likely to receive coverage. Table 15-14 
shows Medicaid coverage by age and income status in CY 2002. The 
estimates of those with Medicaid coverage include those covered by 
the State Children's Health Insurance Program (SCHIP).  Note that 
persons shown as receiving Medicaid may have had other health 
coverage as well. Nearly all the elderly, for example, had Medicare.  
Of persons with family incomes below poverty, more than two-thirds of 
children under age 6 are covered by Medicaid, compared to less than 
a third of those 19 and older. 
	Many individuals, even below the poverty level, are not 
eligible for Medicaid due to categorical restrictions.  Nondisabled, 
childless, nonaged adults are never eligible for Medicaid, regardless 
of their income, unless their State obtains a special waiver to cover 
such individuals.  In addition, even those who are eligible may not 
enroll.  For example, all children under 6 years old in families with 
incomes below 133 percent of FPL are a mandatory coverage group. 
However, more than 2 million of these children are not enrolled in 
Medicaid.  This may be for several reasons, including that these 
children have another source of health insurance, their families are 
unaware that Medicaid is available, or they do not perceive that 
coverage is needed.
	Estimates of the number of people with Medicaid based on the 
CPS and other national surveys always have differed from official 
numbers published by the Centers for Medicare and Medicaid Services 
(CMS), based on data provided by States.  The most recent 
administrative data for Medicaid are from fiscal year 2000, which 
list more than 44 million Americans as enrolled in Medicaid, 
including those in institutions.  The CPS estimates that, in calendar 
year 2000, enrollment in Medicaid was approximately 30 million. While 
not all of the reasons for this difference are understood, the 
following may be plausible explanations for at least part of the 
disparity: (1) double counting and classification errors in the 
administrative data; (2) imprecise imputation of Medicaid status on 
the CPS based on receipt of cash assistance; and (3) inaccurate 
survey response by those respondents who did not want to report 
being covered by a public assistance program or who reported their 
current insurance coverage rather than their coverage for the entire 
previous year, as is requested for the CPS.  Also, the CPS is a 
survey of only the noninstitutionalized population. According to 
the Medicaid administrative data, approximately 2 million of the 
44 million counted as enrolled in Medicaid in fiscal year 2000 were 
institutionalized. 


TABLE 15-13--MEDICAID ELIGIBLES BY BASIS OF ELIGIBILITY BY STATE, 
FISCAL YEAR 2000 

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]



TABLE 15-14--MEDICAID COVERAGE BY AGE AND FAMILY INCOME, CALENDAR 
YEAR 2002

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]



BENEFITS

	Medicaid's basic benefits rules require all States to provide 
certain "mandatory" services as listed in Medicaid statute.  The 
statute lists additional services that are considered optional - that 
is, Federal matching payments are available for optional services if 
States choose to include them in their Medicaid plans.  States define 
the specific features of each mandatory and optional service to be 
provided under that plan within broad Federal guidelines. Those four 
basic guidelines include:
-	Amount, duration, and scope --Each covered service must be 
sufficient in amount, duration, and scope to reasonably achieve its 
purpose.  The State may not arbitrarily deny or reduce the amount, 
duration, or scope of services solely because of the type of illness 
or condition.  The State may place appropriate limits on a service 
based on such criteria as medical necessity.
-	Comparability--With certain exceptions defined in regulations, 
services available to any categorically needy beneficiary in a State 
must be equal in amount, duration, and scope to those available to 
any other categorically needy beneficiary in the State.  Similarly, 
services available to any medically needy beneficiary in a State must 
be equal in amount, duration, and scope to those available to any 
other medically needy beneficiary in the State.
-	Statewideness--Generally, a State plan must be in effect 
throughout an entire State; that is, the amount, duration, and scope 
of coverage must be the same statewide.
-	Freedom-of-Choice--With certain exceptions, a State's 
Medicaid plan must allow recipients freedom of choice among health 
care providers participating in Medicaid. States may provide and 
pay for Medicaid services through various prepayment arrangements, 
such as a health maintenance organization (HMO).
	The Secretary may waive applicability of these requirements 
	under certain circumstances (see the following discussion of 
	waivers). The following services are mandatory for most 
	groups of Medicaid recipients:
	
-	inpatient hospital services (excluding inpatient hospital 
	services for mental disease);
-	outpatient hospital care including Federally Qualified 
	Health Center (FQHC) services and, if permitted under State 
	law, rural health clinic (RHC) services; 
-	laboratory and x-ray services; 
-	certified pediatric and family nurse practitioners;
-	nursing facility services for those age 21 and over; 
-	early and periodic screening, diagnosis, and treatment for 
	children under the age 21 (EPSDT, defined below); 
-	physicians' services;
-	family planning services and supplies; 
-	medical supplies and surgical services of a dentist; 
-	home health services for those entitled to nursing facility 
	care; 
-	nurse-midwife services;
-	pregnancy-related services (including treatment for 
	conditions that may complicate pregnancy); and
-	60 days of postpartum-related services
	The statute lists a wide variety of optional benefits that 
	can be covered. Some of the optional benefits are specific 
	items, such as eyeglasses and prosthetic devices, that 
	States may include as a Medicaid benefit.  Others are types 
	of medical providers, such as chiropractors and podiatrists, 
	whose services can be considered Medicaid covered benefits.  
	States have a great deal of flexibility in choosing among the 
	listed items, in defining the scope of selected optional 
	benefits, and in developing programs that meet the needs of 
	their Medicaid populations.  Other optional services include 
	such items as prescription drugs, and inpatient psychiatric 
	care for individuals under age 21 or over 65, dental care, 
	physical therapy, case management, and many other services. 
	Table 15-15 identifies the major optional benefits provided 
	under State Medicaid plans in 2002. 

	
	In addition to the above general rules regarding mandatory 
and optional benefits, the Medicaid statute specifies special 
benefits or special rules regarding certain benefits for targeted 
groups of individuals.  These special categories of benefits 
include:
-	EPSDT--Children under the age of 21 are entitled to the 
program of preventive child-care referred to as EPSDT.  EPSDT is 
comprised of screening services including a comprehensive health and 
developmental history, comprehensive physical exams, appropriate 
immunizations according to the schedule established by the Advisory 
Committee on Immunization Practices, laboratory tests and lead 
toxicity screening, health education, vision services including 
eyeglasses, dental services, hearing services, and other necessary 
health care to correct or ameliorate defects, physical and mental 
illnesses, and conditions identified through the screening services.  
Under EPSDT, if an optional service is determined to be a necessary 
treatment to correct or ameliorate a condition identified through 
screening, States are required to provide that service, even if they 
have not chosen to cover that optional service under the general 
benefits rules described above.
-	Pregnancy-related services--While all women who qualify for 
Medicaid are eligible for pregnancy-related services, women who 
qualify under one of the pregnancy-related eligibility groups are 
eligible for only pregnancy

-related services (including treatment of conditions that may 
complicate pregnancy). Eligibility for these individuals extends 
through the pregnancy and for a period of 60 days postpartum.
-	Benefits for the medically needy--Special benefits rules 
apply if States choose to cover medically needy populations. States 
may offer a more restricted benefit package for those enrollees 
but are required, at a minimum, to offer the following: prenatal 
and delivery services for pregnant women; ambulatory services for 
individuals under 18 and those entitled to institutional services; 
and home health services for individuals entitled to nursing facility 
services.  Broader requirements apply if a State has chosen to 
provide coverage for medically needy persons in institutions for 
mental disease and intermediate care facilities for the mentally 
retarded.  If so, the State is required to cover either all of the 
mandatory services, or alternatively, the optional services listed 
in any 7 of the categories of care and services in Medicaid law 
defining covered benefits.
-	Tuberculosis (TB)-related services--States are given the 
option of providing TB-related services to individuals infected 
with tuberculosis who meet certain income and resource requirements 
but are not otherwise eligible for Medicaid.  TB-related services 
include prescription drugs, physicians' services, outpatient 
hospital services, clinic services, FQHC services, RHC services, 
laboratory and x-ray services, case management, and services 
designed to encourage completion of regimens of prescribed drugs.

In addition, States are able to waive many of the basic benefits 
rules to provide special home and community-based services for 
persons who are in need of long-term care and to conduct 
demonstration projects that test alternative methods of meeting 
the overall purpose of the Medicaid statute.  These waivers include:

-	Home and Community-Based Long-Term Care Services (HCBS)--
Under the HCBS waiver authority, States can provide special 
benefits tailored to meet the long-term care needs of targeted 
populations.  Among the benefits offered under these programs are 
case management; homemaker; home health aide; personal care; adult 
day health; habilitation; respite care; day treatment or other 
partial hospitalization services; and psychosocial rehabilitation 
and clinic services for individuals with chronic mental illness.  
States also can cover a wide range of other medical, non-medical, 
social and supportive services that allow persons who need long-
term care to remain in the community.  (For more information on 
HCBS waivers, see the "Medicaid Waiver Programs" subsection below).
-	Section 1115 Research and Demonstration Waivers--States have 
a great deal of flexibility to define benefits under Section 1115 
waivers.  Many of the rules outlined above regarding benefits may 
be waived.  Under comprehensive 1115 demonstrations, States generally 
provide a broad range of services statewide.  The Bush Administration 
has encouraged States to pursue targeted policies under three waiver 
initiatives, all using Section 1115 authority.  Under Pharmacy Plus 
waivers, States are encouraged to provide only pharmacy benefits to 
low-income seniors and individuals with disabilities.  Under Family 
Planning waivers, States are encouraged to provide only family 
planning services to certain individuals


TABLE 15-15--OPTIONAL MEDICAID SERVICES AND NUMBER OF STATES 
OFFERING EACH SERVICE, NOVEMBER 2002

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]



of childbearing age.  Under Specialty Services and Populations 
Demonstrations, States provide pharmacy benefits to those with 
HIV/AIDS and conduct cash and counseling projects that provide 
cash to enrollees who may then arrange and purchase certain services 
on their own.  (For more information on research and demonstration 
waivers, see the "Medicaid Waiver Programs" subsection below).  
	Tables 15-16 and 15-17 show recipients and expenditures by 
type of service for fiscal year 2000.  The single benefit used by the 
largest number of Medicaid recipients was prescription drugs, for 
20.5 million recipients, followed by physician services, used by 
19.1 million recipients.   Nursing facility services accounted for 
the largest share of Medicaid spending (23.9 percent), followed 
closely by inpatient hospital services (16.9 percent).  Prescription 
drugs and physician services, while accounting for the largest number 
of users, accounted for 13.9 percent and  4.7 percent of all 
spending on services, respectively.
	Chart 15-3 shows average per recipient Medicaid spending by 
basis of eligibility-the aged, blind and disabled, adults, children, 
and others for fiscal year 2000.  The figure points out the 
relatively low cost of non-disabled children and adults to the 
Medicaid program.  While these groups comprise the majority of 
Medicaid enrollment, their costs are relatively small ($2,030 per 
adult and $1,237 per child) when compared with the per recipient 
cost of the elderly ($11,928), and blind and disabled ($10,559) 
recipients.  This chart, on the other hand, underestimates the 
average cost of long-term care services for the comparatively few 
users of those services (see Table 15-16).  Because these averages 
were calculated for all program recipients (of any service), they 
are below the average cost of services for only those individuals 
actually using the specific service.  This difference is 
especially pronounced for long-term care services because relatively 
few users of those services account for a small number of very 
expensive claims.

FINANCING

	The Federal government helps States pay for Medicaid services 
by means of a variable matching formula, called the Federal medical 
assistance percentage (FMAP), which is adjusted annually. With 
specific exceptions (described below), the Federal matching rate, 
which is inversely related to a State's per capita income, can range 
from 50 to 83 percent.  Beginning in fiscal year 1998, the Federal 
matching rate for the District of Columbia increased to 70 percent 
and Alaska's matching percentage is calculated using the 3-year 
average per capita income for the State divided by 1.05. Federal 
matching for five territories is 50 percent, with a maximum dollar 
limit placed on the amount each territory can receive.

TABLE 15-16--MEDICAID RECIPIENTS BY SERVICE CATEGORY,
FISCAL YEAR 2000



[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]



To provide fiscal relief to States, Federal matching rates were 
changed temporarily by the Jobs and Growth Tax Relief Reconciliation 
Act (JGTRRA, P.L. 108-27), which altered the rates for certain 
expenditures  for the last 2 quarters of fiscal year 2003 and the 
first 3 quarters of fiscal year 2004.  For these quarters, the 
Federal matching percentage for each State is held harmless for 
declines from the prior fiscal year, and then is increased by 
2.95 percentage points. The Federal matching percentages for all 
States and jurisdictions for fiscal years 2003 and 2004 are shown 
in Table-15-18.



TABLE 15-17--TOTAL MEDICAID PAYMENTS BY BASIS OF ELIGIBILITY (BOE), 
TYPE OF SERVICE, AND AS A PERCENTAGE OF TOTAL PAYMENTS BY BOE,
FISCAL YEAR 2000

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]



CHART 15-3--MEDICAID EXPENDITURES PER RECIPIENT BY ACUTE 
AND LONG-TERM CARE AND BASIS OF ELIGIBILITY, FISCAL YEAR 
2000

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


REIMBURSEMENT POLICY

	For the most part, States establish their own rates to pay 
Medicaid providers for services.  By regulation these rates must be 
sufficient to enlist enough providers so that covered services will 
be available to Medicaid beneficiaries at least to the extent they 
are available to the general population in a geographic area. The 
Balanced Budget Act of 1997 (BBA 97, P.L. 105-33) required that 
beginning October 1, 1997, States must provide public notice of the 
proposed rates for hospitals, nursing facilities, and intermediate 
care facilities for the mentally retarded and the methods used to 
establish those rates.
	All providers are required to accept payments under the 
program as payment in full for covered services except where States 
require nominal cost-sharing by beneficiaries. States generally may 
impose such charges with certain exceptions. They are precluded from 
imposing cost sharing on services for children under 18, services 
related to pregnancy, family planning or emergency services, and 
services provided to nursing facility residents who are required to 
spend all of their income for medical care except for a personal 
needs allowance.  Effective August 5, 1997, States are permitted to 
pay Medicaid rates, instead of Medicare rates, to providers for 
services to dual eligibles (those Medicare beneficiaries who also 
are eligible for full Medicaid benefits) and qualified Medicare 
beneficiaries (QMBs; see "Eligibility" subsection).

Certain types of providers are subject to special rules. Three such 
circumstances are discussed in detail below.

TABLE 15-18--FEDERAL MEDICAL ASSISTANCE PERCENTAGES BY STATE FOR 
FISCAL YEARS 2003 AND 2004


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]



Reimbursement for prescription drugs

	The Omnibus Budget Reconciliation Act of 1990 (OBRA 90, P.L. 
101-508) established rules for Medicaid reimbursement of prescription 
drugs. Medicaid payments for drugs are subject to upper payment 
limits.  For drugs with generic versions available from three or 
more manufacturers, the upper payment limit is 150 percent of the 
average wholesale price.  For other drugs, the upper payment limit is 
either the estimated price paid by the provider for the drug plus a 
dispensing fee or the provider's usual charge for the drug to the 
general public.  The law denies Federal matching funds for drugs 
manufactured by a firm that has not agreed to provide rebates to 
States. Under amendments made by the Veterans Health Care Act of 1992 
(P.L. 102-585), a manufacturer is not deemed to have a rebate 
agreement unless the manufacturer has entered into a master 
agreement with the Secretary of Veterans Affairs. Rebate amounts 
vary depending upon whether the drug is available from multiple 
sources (a generic version of the drug is available) or available 
from a single source (a generic version of the drug is not 
available). The rebate for drugs ranges from 11 percent to 15.1 
percent of the average manufacturer price. 



Disproportionate share hospital payments
	States must provide for additional payments to hospitals 
serving a disproportionate share of low-income patients. Unlike 
comparable Medicare payments, Medicaid disproportionate share 
hospital (DSH) payments must follow a formula that considers a 
hospital's charity patients as well as its Medicaid caseload. 
Beginning in fiscal year 1992, State DSH payments were limited as 
part of an effort to rein in fast growth.  DSH payments were limited 
to 12 percent of total Medicaid spending. The 12 percent figure was 
phased in through the use of State-specific DSH allotments (caps on 
Federal matching payments) for each Federal fiscal year. BBA 97 
lowered the DSH allotments by imposing a freeze and making graduated 
proportional reductions for 1998 - 2002. Thereafter, annual DSH 
allotments for a State equal the allotment for the preceding fiscal 
year increased by the percentage change in the medical care component 
of the Consumer Price Index for All Urban Consumers.  BBA 97 also 
imposed a new cap on DSH payments to institutions for mental disease 
and other mental health facilities.  The Medicare, Medicaid and SCHIP 
Benefits Improvement and Protection Act of 2000 (BIPA 2000, P.L. 106-
554) established a 175 percent (of uncompensated care costs) cap for 
all public hospitals in the nation for a two-year period beginning 
in State fiscal year 2003.   

Upper payment limits for certain institutional providers
	In 1987, the Secretary of HHS issued regulations establishing
separate upper payment limits for inpatient and outpatient services 
provided by different types of facilities.  An aggregate upper 
payment limit was established for each type of institutional 
provider of Medicaid services by ownership (State versus other) that 
would not exceed what would have been paid for those services under 
Medicare payment principles.  In 2000, the Secretary determined that 
some States made arrangements with city or county facilities to pay 
these facilities at inflated rates. The city or county facilities 
then transferred some or all of the enhanced payments back to the 
State. BIPA 2000 addressed these funding methods by requiring 
regulations to provide separate upper payment limits for private 
and public facilities up to 100 percent of the Medicare rate for 
such services. Later, through regulation, the Clinton Administration 
allowed payments to city and county public hospitals up to 
150 percent of the Medicare rate for their services. In January 2002, 
the Bush Administration changed the special rule for city and county 
hospitals to 100 percent of the Medicare rate.

ADMINISTRATION

Medicaid is a State-administered program. At the Federal level, the 
Centers for Medicare and Medicaid Services (CMS) of the U.S. 
Department of Health and Human Services (HHS) is responsible for 
overseeing State operations.
	Federal law requires that a single State agency be charged 
with administration of the Medicaid program. Generally, that agency 
is either the State welfare agency, the State health agency, or an
umbrella human resources agency. The single State agency may contract 
with other State entities to conduct some program functions. Further, 
States may process claims for reimbursement themselves or contract 
with fiscal agents or health insuring agencies to process these 
claims.  The Federal share of administrative costs is 50 percent for 
all States, except for certain items for which the authorized rate 
is higher.

DELIVERY SYSTEMS

	There are two systems for delivering services under Medicaid: 
fee-for-service and managed care.  These systems differ in how the 
State pays for the services and how the individual accesses service 
providers. Most States use a combination of both of these systems to 
deliver Medicaid services.  The primary elements of these systems and 
initiatives to deliver long-term care services are discussed below.

Fee-For-Service
	The fee-for-service (FFS) system has been the primary method 
of paying for and delivering Medicaid services since the program's 
enactment in 1965.  Under fee-for-service, a Medicaid beneficiary 
determines, in consultation with a physician, the type of services 
needed and can receive those services from any Medicaid-certified 
provider.  States may limit the amount of services or require prior 
approval of services, but the individual retains significant 
flexibility. The provider receives payment from the State Medicaid 
agency for that particular service based on rates established by the 
State.  States have significant flexibility in developing how 
payment rates are calculated and there is significant variation by 
State and by service. For example, the rate may be related to the 
actual cost of the service for an individual provider or could be a 
fixed, pre-determined amount for a particular procedure.
	Although enrollment in managed care has increased over the
last decade, the fee-for-service system continues to be a widespread 
and important service delivery mechanism.  The fee-for-service system 
is used for individuals whose Medicaid eligibility group or 
geographic location is not served through managed care, or for 
persons who opt out when managed care is voluntary.  The fee-for-
service system also is used for those Medicaid services not covered 
by a managed care contract.	For individuals who live in rural 
areas and individuals who are elderly or have a disability, fee-for-
service continues to be the dominant delivery system.  States have 
tended to exclude these groups from managed care programs. 
Individuals in rural areas often have limited choice of managed 
care plans and service providers.  Individuals who are elderly or 
who have a disability often have complex medical conditions which 
can be costly and require specialty care, and their health status 
can be unpredictable.  Though individuals who are elderly or who 
have a disability tend to be excluded, States have started to 
develop managed care approaches for these groups to contain costs 
and test alternative delivery systems as discussed below. 
	Under a primarily fee-for-service system, State Medicaid 
expenditures and the number of enrollees have increased 
significantly. Over the 10-year period between 1985 and 1995, State 
Medicaid expenditures increased from $18.2 billion to $67.3 billion, 
an average growth rate of 14 percent annually. This increase 
reflected both increases in medical costs and increases in the 
number of Medicaid enrollees.  Between 1985 and 1995, the number of 
Medicaid enrollees increased 66 percent from 21.8 million to 36.2 
million. During that period, States also lacked a coordinated system 
for delivering services.  No one was designated to assist the 
individual in sorting through his or her health care options or 
ensuring timely access to appropriate services. In an effort to 
slow the growth of expenditures and improve service delivery, many 
States turned to managed care for many of their enrollees.

Managed Care
	The number of Medicaid beneficiaries enrolled in a managed 
care plan of any type increased from 9.5 percent of the Medicaid
population in 1991 to 57.6 percent in 2002.  As of June 30, 2002, 
21.3 million individuals receiving Medicaid were enrolled in some 
form of managed care.  Alaska, Mississippi, and Wyoming were the only 
States that did not use managed care to deliver services to Medicaid 
beneficiaries.
	Under managed care, the State contracts with one or more 
plans to provide  an agreed upon set of benefits.  The contract could 
include a comprehensive set of services or include only one service, 
such as, case management.   For each managed care contract, the State 
establishes fixed, prospective, monthly, per person payment rates 
referred to as a "capitation" payment for the covered services. The 
capitation rate is based on the average cost of services for a 
defined group.  After determining the average cost, States may use a 
variety of actuarial methods to adjust the average cost for specific 
individuals by age, geographic location, and/or diagnosis. For 
example, a State may establish different rates for men and women in 
different age brackets.  The plan would receive the rate associated 
with the individual enrolled based on that person's gender and age.  
The capitation payment does not vary on a monthly basis if the volume 
of services actually used by the individual differs from that assumed 
in the capitation payment.  The plan also negotiates payment rates 
with participating providers.  In contrast, under fee-for-service, 
the State establishes the provider payment rates as described 
earlier. The goal of managed care is to reduce unnecessary service 
use, improve access to quality health care by having a central point 
of contact, and increase care coordination thereby reducing 
expenditures.

	Types of managed care--Managed care plans vary in the 
financial responsibility or "risk" the plan assumes and the services 
they provide.  In a risk-based managed care contract, the plan is 
fiscally responsible for the provision of all services agreed upon 
in the contract regardless of actual use by beneficiaries.  Under a 
non-risk based contract, States either implement processes to share 
the financial burden with the plan or the State assumes full 
financial responsibility for the services provided.  For example, in 
a non-risk based contract, at the end of the fiscal period, a State 
may modify the payments to a managed care plan if actual service use 
differs from projected use (upon which the original capitation 
payment was based).
	There is also significant variation in the amount and types 
of services that each State includes in its Medicaid managed care 
contracts.  Some States contract with a plan for a limited benefit 
package such as case management, dental, or mental health services. 
Other States have included a comprehensive  set of services.
	The primary types of Medicaid managed care arrangements are 
described below:
-	Managed care organization (MCO) --Under a managed care 
organization (such as an HMO), the entity has a comprehensive, risk-
based contract with the State.  The State pays the organization a 
fixed, prospective, per person per month rate for providing medical 
care for all plan enrollees.
-	Pre-paid health plan (PHP)--Pre-paid health plans refer to 
risk-based contracts that include less than a comprehensive set of 
services (such as only behavioral health services), or non-risk 
based contracts for any package of services.  Essentially, such 
plans do not have a risk-based contract with the State for a 
comprehensive set of services. 
-	Primary care case management (PCCM)--Under a PCCM model, 
providers receive a per person, monthly fee for coordinating each 
enrollee's care.   The provider is not fiscally responsible for the 
services used by the individual.  All services are provided through 
the fee-for-service delivery system.   The PCCM must be a physician 
or licensed health care professional; this provider acts as a care 
coordinator and/or gatekeeper to the services specified under the 
PCCM contract.
	There are also several hybrids of the MCO, PHP and PCCM 
models.  Most States have implemented multiple models.  For example, 
a State may have an MCO for children and families enrolled in 
Medicaid and a PHP for mental health services for individuals with 
a relevant disability.  As of June 30, 2002, 47 States and the 
District of Columbia were using some form of Medicaid managed care, 
44 States had risk-based plans  and 30 States had non-risk PCCM 
plans.   
	As discussed earlier, managed care has primarily included 
low-income adults and children, as shown in Table 15-19. Of the 
21.3 million Medicaid recipients enrolled in a managed care 
organization or pre-paid health plan in fiscal year 2000, 78 percent 
were low-income adults and children, 18 percent were individuals with
disabilities and the elderly, and 5 percent had an unknown basis of 
eligibility.  
	Medicaid expenditures in fiscal year 2000 for services 
provided in managed care or a pre-paid health plan followed a similar 
pattern, as shown in Table 15-20. Of the $24.4 billion in Medicaid 
expenditures for individuals in a managed care organization (MCO) 
or pre-paid health plan (PHP), 64 percent were for low-income adults 
and children, 35 percent were for individuals with disabilities and 
the elderly, and 1 percent were for individuals whose basis of 
eligibility was unknown.

TABLE 15-19--MEDICAID RECIPIENTS SERVED THROUGH MCO AND/OR PHP PLANS 
BY BASIS OF ELIGIBILITY,  FISCAL YEAR 2000  

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]



	Trends in Managed Care -- In the early and mid-1990s, States 
significantly expanded enrollment in Medicaid managed care programs, 
but the programs growth is slowing.  In fiscal years 2001 and 2002, 
the number of individuals enrolled in a managed care plan as a 
percentage of all Medicaid eligible individuals increased  1.9 
percent and 1.3 percent, respectively.   This is a significant 
decrease over the 61.1 percent and 38.4 percent annual growth rates 
of fiscal years 1994 and 1995, respectively.  The expansion of 
Medicaid managed care in the early and mid-1990s should be viewed 
in the context of a general trend toward managed care across many 
sectors of the U.S. health care system.  Despite the significant 
growth of managed care both in Medicaid and the overall health care 
system, the extent to which it has accomplished the goal of 
controlling health care expenditures and increasing quality has 
been inconclusive.
	Finally, in both Medicaid and the U.S. health care system in 
general, managed care continues to evolve.  Some of these changes 
include plans entering and exiting certain geographic locations, and 
company consolidations and bankruptcies. There has been a significant 
number of risk-based managed care plans that have entered and left 
the Medicaid program. In a survey of all States that had risk-based 
programs in 1998 conducted by the National Academy for State Health 
Policy (May 2001), 82 percent of these States had turnover in plans 
between 1998 and 2000.  State agencies most commonly cited financial 
reasons (e.g., insufficient capitation payments, inadequate risk-
sharing methodology) for managed care plans leaving the Medicaid 
program.  Five States reported that this turnover in plans resulted 
in moving solely to a PCCM model of service delivery. The turnover 
is not necessarily negative if it strengthens the overall delivery 
system, but it may result in decreased continuity of services and 
additional administrative costs if beneficiaries must switch 
providers or re-enroll in a different plan.

Long-Term Care Delivery System 
	Long-term care refers to a wide range of supportive and 
health services for persons who have lost the capacity for self-care 
due to illness, frailty, or a disabling condition.  It differs from 
acute care in that the goal of long-term care is not to cure an 
illness that is generally of short duration, but to allow an 
individual to attain and maintain an optimal level of functioning 
over the long-term. 
		
TABLE 15-20--TOTAL MEDICAID PAYMENTS FOR MCO AND PHP RECIPIENTS BY 
BASIS OF ELIGIBILITY, FISCAL YEAR 2000 


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


	Since the establishment of the Medicaid program in 1965, 
long-term care services (i.e. nursing home and home care) have been 
delivered largely through the fee-for-service delivery system. A 
1981 amendment to the Medicaid statute established Section 1915(c) 
waivers, giving States the option of providing home and community-
based services to individuals who otherwise would be eligible for 
institutional care. Many States arrange for these services to be 
delivered on a fee-for-service basis, often using case managers to 
determine service needs and authorize delivery.  Concerns about 
uncoordinated long-term and acute care, inefficiencies in disease 
management for persons with multiple chronic conditions, and growing 
costs, however, have encouraged Federal and some State governments 
to develop alternative systems to pay for and deliver long-term care 
services.	In recent years, many of the alternative delivery 
systems that States and the Federal government have developed 
coordinate long-term care services for dual eligibles-persons who 
are eligible for both Medicaid and Medicare-through managed care 
programs. One example is the Program for All-Inclusive Care for the 
Elderly (PACE), originally modeled after the On Lok Senior Health 
Services pilot project in San Francisco.  PACE makes available all 
services covered under both programs without amount, duration or 
scope limitations, and without application of any deductibles, 
copayments or other cost sharing. Under the program, certain low-
income individuals age 55 and older, who would otherwise require 
nursing home care, receive all health, medical, and social services 
they need.  An interdisciplinary team of physicians, nurses, physical 
therapists, social workers, and other professionals develop and 
monitor care plans for enrollees. Monthly capitated payments are 
made to providers from both the Medicare and Medicaid programs. As 
specified in Medicare and Medicaid statutes, the amount of these 
payments from both programs must be less than what would have 
otherwise been paid for a comparable frail population not enrolled 
in the PACE program.  Payments are also adjusted to account for the 
comparative frailty of PACE enrollees.  PACE providers assume the 
risk for expenditures that exceed the revenue from the capitation 
payments. The Balanced Budget Act of 1997 made PACE a permanent 
benefit category under Medicare and a State plan optional benefit 
under Medicaid. As of February 2003, there were 28 PACE sites 
across the country.
	Other examples of State initiatives to provide coordinated 
long-term care services include the Minnesota Senior Health Options 
(MSHO), the Wisconsin Partnership Program, and the Continuing Care 
Network (CCN) demonstration of Monroe County, New York.  The MSHO 
program combines Medicare and Medicaid financing to integrate acute 
and long-term care services for dually eligible seniors residing in 
seven counties in Minnesota.  The program consolidates all Medicare 
and Medicaid managed care requirements into a single contract 
overseen by the State, allowing MSHO to reduce duplication and 
resolve important differences across Medicare and Medicaid delivery 
systems. Like PACE, the Wisconsin Partnership Program pays capitated 
payments to providers to coordinate acute and long-term care services 
for persons who would otherwise qualify for nursing home care. It 
also places a strong emphasis on services provided in home and 
community settings. This program, however, was designed specifically 
to serve rural areas. New York's CCN project enrolls at least 10,000 
elderly beneficiaries, including 1,500 who had been certified for 
care in a nursing facility. To participate, enrollees must be age 65 
or over, eligible for Medicare and/or Medicaid, and reside in the 
program's service area. Capitation payments made to CCN are intended 
to cover all of Medicare's acute care services for this population 
and most of Medicaid's long-term care services.  Medicaid 
prescription drug coverage, for example, is paid separately on a fee-
for-service basis. 
	States have also experimented with other initiatives that 
capitate payments for acute and long-term care services under the
Medicaid program only.  Examples of these demonstrations include the 
nation's only statewide mandatory Medicaid managed care program-the 
Arizona Long-Term Care System (ALTCS)-and small, voluntary programs 
such as Florida's Community-Based Diversion Pilot Project. Florida's 
Diversion program serves selected metropolitan areas and counties.  
Case managers employed through both of these programs arrange 
Medicaid long-term care services and coordinate with Medicare 
providers to deliver acute care services. 
	All of these programs were designed with the expectation 
that they would control costs and reduce administrative complexity.  
They also intend to delay institutionalization, and thus incur 
savings for Medicaid through the provision of expanded home and 
community-based care options and, in some cases, greater beneficiary 
control over services. Those programs that also capitate Medicare are 
intended to reduce hospitalization and skilled nursing facility 
expenditures as well as other acute care costs associated with 
institutional care. While these initiatives exist in a number of 
States, they account for a relatively small share of total Medicaid 
spending for long-term care. 

MEDICAID WAIVER PROGRAMS

	Under current law, States have the flexibility to waive 
certain Medicaid program requirements to provide services to 
individuals not traditionally eligible for Medicaid, limit benefit 
packages for certain groups, and provide home and community-based 
services to people with long-term care needs, among other purposes.  
States must submit proposals outlining terms and conditions for 
proposed waivers to CMS for approval before implementing these 
programs.  The two primary provisions of the Social Security Act used 
today that authorize States to implement waiver programs are Section 
1115 and Section 1915(c).  In recent years, there has been increased 
interest among States in demonstration programs as a means to 
restructure Medicaid coverage, control costs, and increase 
flexibility.  Whether large or small reforms, the waiver programs 
have resulted in significant changes for Medicaid beneficiaries 
nationwide.  

Section 1115 Waiver Demonstration Programs
	Section 1115 of the Social Security Act provides the 
Secretary of Health and Human Services (HHS) with broad authority to 
waive certain statutory requirements in the Medicaid program allowing 
States to conduct research and demonstration programs to further the 
goals of Title XIX.   Under Section 1115, the Secretary may waive 
Medicaid requirements contained in Section 1902, known as freedom of 
choice of provider, comparability, and statewideness (see "Benefits" 
subsection for a discussion of these requirements). 
	States often use Section 1115 waivers to offer different 
service packages or a combination of services in different parts of 
the State, test new reimbursement methods, change eligibility 
criteria in order to offer coverage to new or expanded groups, 
cover non-Medicaid services (e.g., cash and counseling 
demonstrations ), or contract with a greater variety of managed care 
plans. Demonstration programs generally are approved for a five-year 
period, however CMS has granted program extensions for many of the 
comprehensive waiver programs (i.e., programs that generally offer a 
statewide comprehensive service package to populations traditionally 
eligible for Medicaid as well as expansion populations). Some of 
these extensions have allowed Section 1115 waiver programs to remain 
in operation for 10 or more years.  For example, Arizona's entire 
Medicaid program operates under Section 1115 waiver authority, and 
this program is in its 20th year.
	While Section 1115 is explicit about provisions in Medicaid 
law that may be waived in conducting research and demonstration 
projects, a number of other provisions in Medicaid law and 
regulations specify limitations or restrictions on how a State may 
operate a waiver program.  For example, one provision restricts 
States from establishing waivers that fail to provide all mandatory 
services to the mandatory poverty-related groups of pregnant women 
and children; another provision specifies restrictions on cost-
sharing imposed under demonstration waivers.

	Financing -- Approved Section 1115 waivers are deemed to be 
part of a Medicaid State plan and are financed through Federal and 
State matching funds at the regular FMAP rate.  However, unlike 
regular Medicaid, costs associated with waiver programs must be 
budget neutral to the Federal government over the life of the waiver 
program.  To meet the budget neutrality test, estimated spending 
under the waiver cannot exceed the estimated cost of the State's 
existing Medicaid program.  For example, costs associated with an 
expanded population (e.g., those not already covered under the State' 
Medicaid program), must be offset by reductions elsewhere within the 
Medicaid program.  Several methods used by States to generate cost 
savings for the waiver component include: (1) moving part of the 
Medicaid population into managed care; (2) limiting benefit packages 
for certain eligibility groups; (3) providing targeted services to 
certain individuals so as to divert them from full Medicaid 
coverage; and (4) using enrollment caps and cost-sharing to reduce 
the amounts States must pay. 

	Program Types -- CMS classifies Section 1115 waiver programs 
into five distinct categories:  
-	Comprehensive demonstrations--These demonstrations provide a 
broad range of services that generally are offered statewide to 
populations traditionally eligible for Medicaid as well as expansion 
populations.  In fiscal year 2002, there were 20 approved Medicaid 
comprehensive State reform waivers,  with two pending implementation.  
Fiscal year 2002 State-reported enrollment estimates for the 
comprehensive demonstration waivers totaled approximately 
7.2 million,  and Federal expenditures for these programs were 
approximately $15.8 billion. 
-	Family planning demonstrations--These demonstrations provide 
family planning services for certain individuals of childbearing age 
in 16 States.  For the family planning demonstrations, fiscal year 
2002 enrollment counts totaled 1.8 million, and Federal expenditures 
were approximately $327 million.  
-	Specialty services and population demonstration--These 
demonstrations generally include programs that provide cash to 
enrollees so that they may directly arrange and purchase services 
that best meet their needs.  In addition, they also include waivers 
to provide pharmacy benefits to persons with specific conditions, 
such as HIV/AIDS.  In fiscal year 2002, there were 10 such programs 
in 8 States.   These demonstrations covered just under 7,000 
individuals at a Federal cost of approximately  $41.6 million. 
-	The Health Insurance Accountability and Flexibility 
Initiative (HIFA)-These demonstrations are designed to encourage 
States to extend Medicaid and SCHIP to the uninsured, with a 
particular emphasis on statewide approaches that maximize private 
health insurance coverage options and target populations with 
incomes below 200 percent of FPL. As of January 2003, there were 
six Medicaid Section 1115 waivers approved under the HIFA 
initiative in 5 States.   Four of the six HIFA programs (Illinois, 
New Jersey, New Mexico, and Oregon) are Medicaid/SCHIP combined 
waivers.  A combined HIFA waiver generally means that the State 
will finance changes to its Medicaid program using unspent SCHIP 
funds.  No enrollment or expenditure data were available 
for fiscal year 2002 as these programs were new at that time.
-	Pharmacy plus demonstrations--These demonstrations provide  
comprehensive pharmacy benefits for low-income seniors and 
individuals with disabilities with income at or below 200 percent 
of FPL.  The demonstrations may provide pharmaceutical products, 
assist individuals who have private pharmacy coverage with high 
premiums and cost sharing, or provide wraparound pharmaceutical 
coverage to bring private sources of pharmacy coverage up to the 
level of desired demonstration benefit coverage.  Enrollees are 
not eligible for the comprehensive Medicaid benefits available 
under the State's Medicaid plan.  In fiscal year 2002, there were 
four approved Pharmacy Plus waivers in four States.   Two States 
reported waiver data in fiscal year 2002.  In these States, 
enrollment counts totaled 193,574 at a Federal cost of approximately 
$169 million. 

Section 1915(c) Home and Community-Based Waiver Programs
	In 1981, Congress added Section 1915(c) to the Medicaid 
statute. Section 1915(c) authorizes the Secretary of HHS to waive 
certain requirements  of Medicaid law allowing States to cover a 
range of home and community-based services for persons who otherwise 
would be eligible for Medicaid-funded institutional care. The 1915(c) 
waivers, often referred to as home and community-based services 
(HCBS) waivers, were designed to reduce the institutional bias in 
the Medicaid program that favors institutional care over care in the 
home or in the community.
	The waivers allow States to cover a broad range of medical 
and non-medical social services to enable people with chronic 
long-term care needs to remain in the community.  Unlike the budget 
neutrality test required for Section 1115 waivers (under which 
estimated spending under the waiver cannot exceed the estimated costs 
of the State's existing Medicaid program), the cost-effectiveness 
test under 1915(c) prohibits expenditures from exceeding the cost of 
institutional care that would have been provided to waiver recipients 
absent the waiver.   To assist States in containing costs, Section 
1915(c) allows States to place caps on the total number of 
individuals that may be covered under each waiver and/or set 
expenditure restrictions on a per capita basis (e.g., not to exceed 
$20,000 per year per waiver recipient) or on an aggregate basis 
(e.g., a cost cap applied to all persons under a waiver in the 
State).
	Medicaid regulations require that waiver participants fall 
into one of the following target groups: the aged, persons with 
physical disabilities, persons with mental retardation or 
developmental disabilities (MR/DD), and persons with mental 
illness.  Generally, States must apply for separate waivers to 
serve these different groups. Section 1915(c) also gives States 
the flexibility to define the categories of individuals within 
these broader target groups who may be eligible for certain 
waivers and the services they will receive.  For example, States 
may cover only the elderly for case management services, or only 
individuals with physical disabilities for personal attendant care.  
States also may limit eligibility for services to individuals who 
have certain conditions, such as HIV/AIDS.
	Further, eligibility is limited to individuals who otherwise 
would be eligible for institutional care provided in a hospital, 
nursing facility or intermediate care facility for the mentally 
retarded (ICF/MR).  There are no Federal requirements that describe 
the level and/or severity of functional limitations that individuals 
must have to be admitted to an institutional setting and thus would 
be eligible for a 1915(c) waiver, although States generally determine 
eligibility for long-term care services based on a test of 
applicants' functional limitations for most waiver programs. The 
design of these tests varies across States, but often includes tests 
to determine an applicant's limitations in ability to carry out 
activities of daily living (ADLs) and instrumental activities of 
daily living (IADLs).  
	Although these programs are optional, all States provide some 
HCBS waiver services to certain Medicaid enrollees with long-term 
care needs.  As of June 2003, CMS reported that 246 programs were in 
operation across the country.  In 1999, the most recent year for 
which data are available, 1915(c) waivers served 707,132 individuals. 
CMS estimates that about 875,000 people were served in 2000. The 
most recent expenditure data from fiscal year 2002 showed that total 
Medicaid spending on 1915(c) waivers reached $16.3 billion versus 
$11.2 billion in 1999.
	The cost of providing waiver services to recipients varies 
across target populations (Chart 15-4).  Spending on waivers for 
persons with MR/DD, for example, totaled $12 billion in fiscal 
year 2002, accounting for  73.6 percent of total HCBS waiver 
spending.  Waiver spending on elderly individuals and persons with 
physical disabilities totaled $4 billion in fiscal year 2002, 
accounting for 24.5 percent of total spending on HCBS waivers. 
Waivers for AIDS or AIDS-related conditions (ARC) totaled $66.2 
million (0.4 percent), for technology dependent individuals 
totaled $88.8 million (0.5 percent), and for persons with brain 
injuries $104.7 million (0.6 percent).  In addition, three small 
waiver programs serving individuals with a primary diagnosis of 
mental illness totaled $32.4 million and accounted for about 0.2 
percent of all HCBS waiver expenditures.

CHART 15-4--MEDICAID HCBS WAIVER EXPENDITURES BY TARGET 
POPULATION, 2002



[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]




LEGISLATIVE HISTORY

	Below is a summary of major Medicaid changes enacted in 
public laws passed during 1996 forward.  (For legislative history 
prior to 1996, see previous editions of the Green Book.)

Contract with America Advancement Act of 1996, Public Law 104-121:
	Alcoholics and drug addicts--SSI benefits are terminated for 
individuals receiving disability cash assistance based on a finding 
of alcoholism and drug addiction. Persons who lose SSI eligibility 
still may be eligible for Medicaid if they meet other Medicaid 
eligibility criteria. States are required to perform a 
redetermination of Medicaid eligibility in any case in which an 
individual loses SSI.

Personal Responsibility and Work Opportunity Act of 1996, Public 
Law 104-193:
	Eligibility--A new cash welfare block grant to States, 
Temporary Assistance for Needy Families (TANF), is established. The 
automatic link between AFDC and Medicaid is severed.  Families who 
meet AFDC eligibility criteria as of  July 16, 1996 are eligible for 
Medicaid, even if they do not qualify for TANF. States must use the 
same income and resource standards and other rules previously used 
to determine eligibility, including the pre-reform AFDC family 
composition requirement. A State may lower its income standard, but 
not below the standard it applied on May 1, 1988. A State may 
increase its income and resource standards up to the percentage 
increase in the Consumer Price Index (CPI) subsequent to July 16, 
1996.  States may use less restrictive methods for counting income 
and resources than were required by law as in effect on July 16, 
1996. States are permitted to deny Medicaid benefits to adults and 
heads of households who lose TANF benefits because of refusal to 
work; States may not apply this requirement to poverty-related 
pregnant women and children. 
	Disabled children--The definition of disability used to 
establish the eligibility of children for SSI is narrowed. Children 
who lose SSI eligibility still may be eligible for Medicaid if they 
meet other Medicaid eligibility criteria.  States are required to 
perform a redetermination of Medicaid eligibility in any case in 
which an individual loses SSI and that determination affects his or 
her Medicaid eligibility.
	Aliens--Legal resident aliens and other qualified aliens who 
entered the United States on or after August 22, 1996 are barred 
from Medicaid for 5 years. Significant exceptions are made for such 
aliens with a substantial U.S. work history or a military connection.  
Except for emergency services, Medicaid coverage for such aliens 
entering before August 22, 1996 and coverage after the 5-year ban are 
State options.
	Administration--A State may use the same application form for 
Medicaid as they use for TANF. A State may choose to administer the 
Medicaid Program through the same agency that administers TANF or 
through a separate Medicaid agency. A special fund of $500 million is 
provided for enhanced Federal matching for States' expenditures 
attributable to the administrative costs of Medicaid eligibility 
determinations due to the law.

Balanced Budget Act of 1997, Public Law 105-33:
	Eligibility--The Balanced Budget Act restores Medicaid 
eligibility and SSI coverage for legal immigrants who entered the 
country prior to August 22, 1996 and later become disabled; 
guarantees continued Medicaid eligibility for children with 
disabilities who are expected to lose their SSI eligibility as the 
result of restrictions enacted in 1996; and extends the period that 
States must provide coverage to refugees, asylees, and individuals 
whose deportation has been withheld from 5 to 7 years.  States are 
permitted to provide continuous Medicaid coverage for 12 months to 
all children, regardless of whether they continue to meet income 
eligibility tests. States are permitted to create a new Medicaid 
eligibility category for working persons with disabilities with 
income up to 250 percent of poverty and who would, but for income, 
be eligible for SSI.  Such individuals can "buy into" Medicaid by 
paying a sliding scale premium based on the individual's income as 
determined by the State.
	Payment methodology--The law repeals the Boren amendment, 
which directed that payment rates to institutional providers be 
"reasonable and adequate" to cover the cost of  "efficiently and 
economically operated" facilities, and repeals the law requiring 
States to assure adequate payment levels for services provided by 
obstetricians and pediatricians. The requirement to pay Federally 
qualified health centers and rural health clinics 100 percent of 
reasonable costs is phased out over 6 fiscal years, with special 
payment rules in place during fiscal years 1998-2002 to ease the 
transition.
	Payments for disproportionate share hospitals--This law 
includes several provisions affecting disproportionate share hospital 
(DSH) payments provided to hospitals that treat a disproportionate 
share of the uninsured and Medicaid beneficiaries.  It reduces State 
DSH allotments by imposing freezes and making graduated proportionate 
reductions. Limitations are placed on payments to institutions for 
mental disease. The Act establishes additional caps on the State DSH 
allotments for fiscal years beginning in 1998 and specifies those 
caps for 1998-2002.  States are required to report annually on the 
method used to target DSH funds and to describe the payments made to 
each hospital.
	Managed care--The law eliminates the need for 1915(b) waivers 
to enroll most Medicaid populations in managed care.  States can 
require the majority of Medicaid recipients to enroll in managed care 
simply by amending their State plan. Waivers still are required to 
mandate that children with special health care needs and certain 
dually eligible Medicaid-Medicare beneficiaries enroll with managed 
care entities. The law establishes a statutory definition of primary 
care case management (PCCM), adds it as a covered service, and sets 
contractual requirements for both PCCM and Medicaid managed care 
organizations. The Act also includes managed care provisions that 
establish standards for quality and solvency, and provide protections 
for beneficiaries. The law repeals the provision that requires 
managed care organizations to have no more than 75 percent of their 
enrollment be Medicaid and Medicare beneficiaries, and the 
prohibition on cost sharing for services furnished by health 
maintenance organizations.

Nursing Home Resident Protection Amendments of 1999, 
Public Law 106-004:
	Transfer or discharge of nursing facility residents--This law 
prohibits the transfer or discharge of nursing facility residents, 
both those covered and not covered by Medicaid, as a sole result of a 
nursing home's voluntary withdrawal from participation in the 
Medicaid program, except under certain circumstances.  
	Information for new residents-- For new residents, meaning 
those entering a facility subsequent to the effective date of the 
facility's withdrawal from Medicaid, the following information must 
be provided orally and in writing: (a) notice that the facility does 
not participate in Medicaid; and (b) the facility may transfer or 
discharge such a new resident when that resident is no longer able to 
pay for his/her care, even if such a new resident is covered by 
Medicaid.
	Facility requirements--Facilities that voluntarily withdraw 
from Medicaid are still subject to all applicable requirements of 
Title XIX, including the nursing facility survey, certification and 
enforcement authority, as long as patients covered under Medicaid 
prior to the facility's withdrawal continue to reside in the facility.

1999 Emergency Supplemental Appropriations Act, Public Law 106-31:
	Tobacco settlement payments to States--Amounts recovered or 
paid to States by manufacturers of tobacco products as part of the 
comprehensive tobacco settlement of November 1998 or to any 
individual State based on a separate settlement or litigation shall 
be retained in full by such States.  That is, such States do not 
have to pay the Federal government a portion of these amounts equal 
to the applicable (State-specific) Federal medical assistance 
percentage.
	Restriction on use of tobacco settlement funds--States 
receiving these sums are not permitted to use these funds to pay for 
administrative expenses incurred in pursuing such tobacco litigation.

Medicare, Medicaid, and State Children's Health Insurance Program 
(SCHIP) Balanced Budget Refinement Act of 1999, incorporated by 
reference in the Consolidated Appropriations Act for Fiscal Year 
2000, Public Law 106-113:
	Increase in DSH allotments for selected States--The law 
increases the Federal share of DSH payments to Minnesota, New Mexico, 
Wyoming, and the District of Columbia for each of fiscal years 
2000-2002.
	Administration--The law extends beyond fiscal year 2000 the 
availability of a $500 million fund created to assist with the 
transitional costs of new Medicaid eligibility activities resulting 
from welfare reform, and allows these funds to be used for costs 
incurred beyond the first 3 years following welfare reform.
	Federally qualified health center (FQHC) services and rural 
health clinics (RHCs)--The law slows the phase-out of the cost-based 
system of reimbursement for services provided by FQHCs and RHCs, and 
authorizes a study of the impact of reducing or modifying payments 
to such providers.
	Payments for monitoring services and external review 
requirements--The law provides that States will receive enhanced 
matching payments for medical and utilization reviews for Medicaid 
fee-for-service, and quality reviews for Medicaid managed care, 
when conducted by certain entities similar to peer review 
organizations. It also eliminates duplicative requirements for 
external review, and requires the HHS Secretary to certify to 
Congress that the external review requirements for Medicaid managed 
care are fully implemented.
	Federal matching for disproportionate share hospital 
payments--The law clarifies that Medicaid disproportionate share 
hospital payments are matched at the Medicaid Federal medical 
assistance percentage and not at the enhanced Federal medical 
assistance percentage authorized under title XXI (SCHIP). Outpatient 
drugs--The law allows rebate agreements entered into after the date 
of enactment of this Act to become effective on the date on which the 
agreement is entered into, or at State option, any date before or 
after the date on which the agreement is entered into.
	Disproportionate share hospital transition rule--The law 
extends a provision included in the Balanced Budget Act of 1997 
related to allocation of DSH funds among California's hospitals.

Foster Care Independence Act of 1999, Public Law 106-169:
	 Former foster care children--States are given the option to 
 extend Medicaid coverage to former foster care recipients ages 18, 
 19, and 20, and States may limit coverage to those who were eligible 
 for assistance under Title IV-E before turning 18 years of age. The 
 law also includes a "sense of Congress" statement indicating that 
 States should provide health insurance coverage to all former 
 foster care recipients ages 18, 19, and 20.

Ticket to Work and Work Incentives Improvement Act of 1999, Public
Law 106-170:
	Employed, disabled individuals--States can opt to cover 
working persons with disabilities at higher income and resource 
levels than otherwise permitted (i.e., income over 250 percent of 
the Federal poverty level and resources over $2,000 for an individual 
or $3,000 for a couple). States also may cover financially eligible 
working individuals whose medical condition has improved such that 
they no longer meet the Social Security definition of disability.  
States can require these individuals to "buy in" to Medicaid coverage.  
These individuals pay premiums or other cost-sharing charges on a 
sliding fee scale based on income, as established by the State.

Agriculture Risk Protection Act of 2000, Public Law 106-224:
	Information sharing--This law allows schools operating 
Federally subsidized school meal programs to take a more active role 
in identifying children eligible for, and enrolling such children in, 
the Medicaid and SCHIP programs.  It permits schools to share income 
and other relevant information collected when determining eligibility 
for free and reduced-price school meals with State Medicaid and SCHIP 
agencies, as long as there is a written agreement that limits use of 
the information and parents are notified and given a chance to 
"opt out."
	Demonstration project--The law also establishes a 
demonstration project in one State in which administrative funds 
under the Special Supplemental Nutrition Program for Women, Infants 
and Children (WIC) may be used to help identify children eligible 
for, and enroll such children in, the Medicaid and SCHIP programs.

Children's Health Act of 2000, Public Law 106-310:
	Rights of institutionalized children--The law requires that 
general hospitals, nursing facilities, intermediate care facilities 
and other health care facilities receiving Federal funds, including 
Medicaid, protect the rights of each resident, including the right 
to be free from physical or mental abuse, corporal punishment, and 
any restraints or involuntary seclusions imposed for the purposes 
of discipline or convenience.  Restraints and seclusion may be 
imposed in such facilities only to ensure the physical safety of 
the resident, a staff member, or others.  Additional requirements 
govern reporting of resident deaths, promulgation of regulations 
regarding staff training, and enforcement.  (Other Medicaid 
requirements regarding restraints and seclusion for inpatient 
psychiatric services for persons under age 21 are specified in 
Federal regulations.)
 	Children's rights in community-based settings--The law 
 also includes requirements for protecting the rights of residents 
 of certain non-medical, community-based facilities for children 
 and adolescents, when that facility receives funding under this 
 Act or under Medicaid.  For such individuals and facilities, 
 restraints and seclusion may be imposed only in emergency 
 circumstances and only to ensure the physical safety of the 
 resident, a staff member or others, and less restrictive 
 interventions have been determined to be ineffective.  Use of a drug 
 or medication that is not a standard treatment for a resident's 
 medical or psychiatric condition is prohibited.  Likewise, use of 
 mechanical restraints is prohibited.  Seclusion may be used only 
 when a staff member is providing continuous face-to-face monitoring 
 and when strong licensing/accreditation and internal controls are in 
place.  (Time out is not considered to be seclusion.)  Additional 
requirements govern reporting of resident deaths, promulgation of 
regulations regarding staff training, and enforcement.

Breast and Cervical Cancer Prevention and Treatment (BCCPT) 
Act of 2000, Public Law 106-354:
	Eligibility--The law establishes a new optional coverage 
group under Medicaid for uninsured women who are under age 65, have 
been screened under the Centers for Disease Control and Prevention's 
Breast and Cervical Cancer Early Detection Program and need treatment 
for breast or cervical cancer, and who are not otherwise eligible for 
Medicaid under a mandatory coverage group.  States have the option of 
extending presumptive eligibility to these women; presumptive 
eligibility allows individuals whose family income appears to meet 
applicable financial standards to enroll temporarily in Medicaid, 
until a final formal determination of eligibility is made.  Medicaid 
providers are the only entities qualified to determine presumptive 
eligibility for these women.
	Benefits--Medical coverage is limited to medical assistance 
provided during the period in which the individual requires breast 
or cervical cancer treatment.  
	Financing--The Federal share of Medicaid payments for this 
group uses the enhanced matching rate structure under the State 
Children's Health Insurance Program, which ranges from 65 to 
85 percent.


Medicare, Medicaid, and SCHIP Benefits Improvement and Protection 
Act of 2000, incorporated by reference in Public Law 106-554:
	Disproportionate share hospitals - State disproportionate 
share hospitals (DSH) allotments for 2001 and 2002 are increased. It 
also extends a special DSH payment rule for hospitals in California 
to qualifying facilities in all States, and provides additional funds 
to certain public hospitals not receiving DSH payments. 
	Federally qualified health centers (FQHCs) and rural health 
clinics (RHCs)-- The law replaces cost-based reimbursement with a 
prospective payment system for FQHCs and RHCs.
	Upper payment limit rules--It also modifies proposed rules 
governing upper payment limits on inpatient and outpatient services 
provided by certain types of facilities, and requires that the final 
regulations be issued by the end of 2000.  
	Other provisions--Additional changes affect extensions of 
Section 1115 Medicaid waivers, Medicaid county-organized health 
systems, the Federal medical assistance percentage for Alaska, 
transitional medical assistance for welfare-to-work families, 
determination of presumptive eligibility for children, outreach to 
and enrollment of certain Medicare beneficiaries eligible for 
Medicaid cost-sharing assistance, PACE waivers, and posting of 
information on nursing facility services.

Native American Breast and Cervical Cancer Treatment Technical 
Amendment Act of 2001, Public Law 107-121:
	Eligibility--This law allows States to include in the 
optional Medicaid eligibility category created by the Breast and 
Cervical Cancer Prevention and Treatment (BCCPT) Act of 2000, 
American Indian and Alaskan Native women with breast or cervical 
cancer who are eligible for health services provided under a 
medical program of the Indian Health Service or a tribal 
organization. All provisions under the BCCPT Act of 2000 apply 
to such women.

Public Health Security and Bioterrorism Preparedness and Response 
Act of 2002, Public Law 107-188:
 	Waiver of provider requirements and Medicare+Choice payment 
limits--The law authorizes the Secretary to temporarily waive 
conditions of participation and other certification requirements for 
any entity that furnishes health care items or services to Medicare, 
Medicaid, or SCHIP beneficiaries in an emergency area during a 
declared disaster or public health emergency.  During such an 
emergency, the Secretary may waive:  (a) participation, State 
licensing (as long as an equivalent license from another State is 
held and there is no exclusion from practicing in that State or any 
State in the emergency area), and pre-approval requirements for 
physicians and other practitioners; (b) sanctions for failing to meet 
requirements for emergency transfers between hospitals; (c) sanctions 
for physician self-referral; and (d) limitations on payments for 
health care and services furnished to individuals enrolled in 
Medicare+Choice (M+C) plans when  services are provided outside the 
plan.  To the extent possible, the Secretary must ensure that M+C 
enrollees do not pay more than would have been required had they 
received care within their plan network.  
	Notification to Congress--The law also requires the Secretary 
to provide Congress with certification and written notice at least 
2 days prior to exercising this waiver authority.  It also provides 
for this waiver authority to continue for 60 days, and permits the 
Secretary to extend the waiver period.  
	Evaluation--The Secretary is further required, within 1 year 
after the end of the emergency, to provide Congress with an 
evaluation of this approach and recommendations for improvements 
under this waiver authority.

Health Care Safety Net Amendments of 2002, Public Law 107-251:
	Study of migrant farm workers--This law requires the 
Secretary to conduct a study of the problems experienced by farm 
workers and their families under Medicaid and SCHIP, specifically 
barriers to enrollment, and lack of portability of Medicaid and SCHIP 
coverage for farm workers eligible in one State who move to other 
States on a periodic basis.  The Secretary also must identify 
possible strategies to increase enrollment and access to benefits for 
these families. Strategies to be examined must include: (a) use of 
interstate compacts to establish portability and reciprocity, (b) 
multi-State demonstration projects, (c) use of current law 
flexibility for coverage of residents and out-of-State coverage, (d) 
development of programs of national migrant family coverage, (e) use 
of incentives to private coverage alternatives, and (f) other 
solutions as deemed appropriate.  In conducting the study, the 
Secretary must consult with several groups.  The Secretary must 
submit a report on this study to the President and Congress in 
October 2003. This report shall address findings and conclusions 
and provide recommendations for appropriate legislative and 
administrative action.

Jobs and Growth Tax Relief Reconciliation Act of 2003, Public 
Law 108-27:
	Temporary increase in the Federal medical assistance 
percentage (FMAP)--With respect to certain expenditures for Medicaid 
benefits, this law increases FMAP for all 50 States, the District of 
Columbia and 5 commonwealths and territories for a period of 5 
calendar quarters, including the last 2 quarters of fiscal year 2003 
and the first 3 quarters of fiscal year 2004.  There is a two-step 
process for determining the increase.  First, each State's fiscal 
year 2003 FMAP, as would otherwise be calculated, must be at least 
equal to the State's fiscal year 2002 FMAP, and second, the FMAP 
determined under this step is increased by 2.95 percentage points.  
For the fiscal year 2004 FMAP change, the same calculations 
(substituting fiscal year 2003 for fiscal year 2002) are applied to 
determine the temporary increase.  The law also increases the 
limitation on payments for the commonwealths and territories.
	State eligibility for increased FMAP-- To qualify for the 
increased FMAP payments, a State cannot have a Medicaid plan with 
more restrictive eligibility rules than the plan in effect on 
September 2, 2003.  If a State restores the program eligibility to 
the levels in effect on September 2, 2003, then the State would 
qualify for increased matching payments for the entire quarter in 
which eligibility is reinstated.  If a State expands eligibility 
rules after the beginning of the higher payments (April 1, 2003) and 
before September 2, 2003, the State is not eligible for the higher 
payments for the period beginning on April 1, 2003 to the date that 
eligibility was expanded.  

State Children's Health Insurance Program Allotments Extension Act 
of 2003, Public Law 108-74:
	State eligibility for increased FMAP-This law modifies the 
requirements regarding State eligibility for the temporary increase 
in FMAP payments authorized under Public Law 108-27 (see above). 
Specifically, P.L. 108-74 provides that if a State reduces 
eligibility after September 2, 2003, and later restores eligibility 
to the September 2, 2003 levels, the State would qualify for the 
higher payments from the date of the eligibility restoration rather 
than for the entire calendar quarter.  In addition, if a State 
expands eligibility rules after the beginning of the higher payments 
(April 1, 2003) and before September 2, 2003, the State is eligible 
for the higher payments for the period beginning on April 1, 2003 to 
the date that eligibility was expanded.  

STATE CHILDREN'S HEALTH INSURANCE PROGRAM

The Balanced Budget Act of 1997 (BBA 97; Public Law 105-33) 
established the State Children's Health Insurance Program (SCHIP) 
under a new Title XXI of the Social Security Act.  In general, the 
program offers Federal matching funds to States and territories to 
provide health insurance to certain low-income children.

ELIGIBILITY

Under SCHIP, States may cover children under 19 years of age in 
families with incomes that are above the State's Medicaid eligibility 
standard but less than 200 percent of the Federal poverty level 
(FPL). However, States in which the maximum Medicaid income level for 
children was at or above 200 percent FPL prior to the enactment of 
SCHIP may increase the SCHIP income level by an additional 
50 percentage points above the prior level used under the State's 
Medicaid program.

Not all targeted low-income children necessarily will receive medical 
assistance under SCHIP for two reasons.  First, unlike Medicaid, 
Federal law does not establish an individual entitlement  to benefits 
under SCHIP.  Instead, it entitles States with approved SCHIP plans 
to pre-determined Federal allotments based on a distribution formula 
set in the law.  Second, each State can define the group of targeted 
low-income children who may enroll in SCHIP.  Title XXI allows States 
to use the following factors in determining eligibility: geography 
(e.g., sub-State areas or statewide), age (e.g., subgroups under 19), 
income and resources, residency, disability status (so long as any 
standard relating to that status does not restrict eligibility), 
access to other health insurance, and duration of SCHIP enrollment.  
Title XXI funds cannot be used for children who would have been 
eligible for the State's Medicaid plan under the eligibility 
standards that were in effect prior to March 31, 1997 or for 
children covered by a group health plan or other insurance.

As of fiscal year 2002, the upper income eligibility limit under 
SCHIP had reached 350 percent FPL (in one State; see Table 15-21). 
Twenty-four States and the District of Columbia had established 
upper income limits at  200 percent FPL.  Another 13 States 
exceeded 200 percent FPL.  The remaining  13 States set maximum 
income levels below 200 percent FPL. 

BENEFITS

	States may choose from three options when designing their 
SCHIP programs.  They may expand their current Medicaid program, 
create a new "separate State" insurance program, or devise a 
combination of both approaches. Under limited circumstances, States 
have the option to purchase a health benefits plan that is provided 
by a community-based health delivery system or to purchase family 
coverage under a group health plan that may cover adults as long 
as it is cost-effective to do so.

States that choose to expand Medicaid to new eligibles under SCHIP 
must provide the full range of mandatory Medicaid benefits, as well 
as all optional services specified in their State Medicaid plans.  
States that choose to create separate SCHIP programs may elect any 
of three benefit options: (1) a benchmark benefit package, (2) 
benchmark equivalent coverage, or (3) any other health benefits plan 
that the Secretary determines will provide appropriate coverage to 
the targeted population of uninsured children. 

A benchmark benefit package is one of the following three plans: (1) 
the standard Blue Cross/Blue Shield preferred provider option plan 
offered under the Federal Employees Health Benefits Program (FEHBP), 
(2) the health coverage offered and generally available to State 
employees in the State involved, and (3) the health coverage offered 
by a health maintenance organization (HMO) with the largest 
commercial (non-Medicaid) enrollment in the State involved.

TABLE 15-21--PRELIMINARY SCHIP ENROLLMENT DATA FOR THE 50 STATES AND 
THE DISTRICT OF COLUMBIA FOR  FISCAL YEAR 2002


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


Benchmark-equivalent coverage is defined as a package of benefits 
that has the same actuarial value as one of the benchmark benefit 
packages.  A State choosing to provide benchmark-equivalent coverage 
must cover each of the  benefits in the "basic benefits category."  
The benefits in the basic benefits category are inpatient and 
outpatient hospital services, physicians' surgical and medical 
services, lab and x-ray services, and well-baby and well-child care, 
including age-appropriate immunizations.  Benchmark-equivalent 
coverage also must include at least 75 percent of the actuarial value 
of coverage under the benchmark plan for each of the benefits in the 
"additional service category."  These additional services include 
prescription drugs, mental health services, vision services, and 
hearing services.  States are encouraged to cover other categories of 
service not listed above.  Abortions may not be covered, except in 
the case of a pregnancy resulting from rape or incest, or when an 
abortion is necessary to save the mother's life.

COST SHARING

Cost-sharing refers to the out-of-pocket payments made by 
beneficiaries of a health insurance plan.  Cost-sharing may include, 
for example, monthly premiums, enrollment fees, deductibles, 
copayments, coinsurance and other similar charges.

	Federal law permits States to impose cost-sharing for some 
beneficiaries and some services under SCHIP.  States that choose to 
implement SCHIP as a Medicaid expansion must follow the nominal cost-
sharing rules of the Medicaid program.

If a State implements SCHIP through a separate State program, 
premiums or enrollment fees for program participation may be imposed, 
but the maximum allowable amount is dependent on family income. For 
all families with incomes under 150 percent FPL and enrolled in 
separate State programs, premiums may not exceed the amounts set 
forth in Federal Medicaid regulations.

Additionally, these families may be charged service-related cost-
sharing, but such cost-sharing is limited to (1) nominal amounts 
defined in Federal Medicaid regulations for the subgroup with income 
below 100 percent FPL, and (2) slightly higher amounts defined in 
SCHIP regulations for families with income between 101-150 percent 
FPL.  For families with income above 150 percent FPL, cost-sharing 
may be imposed in any amount, provided that cost-sharing for higher 
income children is not less than cost-sharing for lower income 
children.

Most importantly, the total annual aggregate cost-sharing (including 
premiums, deductibles, copayments and any other charges) for all 
children in any SCHIP family may not exceed 5 percent of total family 
income for the year.  In addition, States must inform families of 
these limits and provide a mechanism for families to stop paying once 
the cost-sharing limits have been reached.

Preventive services are exempt from cost-sharing for all families 
regardless of income.  The Centers for Medicare and Medicaid Services 
(CMS) defines preventive services to include the following:  all 
healthy newborn inpatient physician visits, including routine 
screening (inpatient and outpatient); routine physical examinations; 
laboratory tests; immunizations and related office visits; and 
routine preventive and diagnostic dental services (for example, oral 
examinations, prophylaxis and topical fluoride applications, 
sealants, and x-rays).

FINANCING

The Balanced Budget Act of 1997 appropriated a total of $39.7 billion
forSCHIP for fiscal years 1998 through 2007.   The funding level by 
fiscal year varies across time.  The total annual appropriation for 
each of fiscal years 1998 through 2001 is about $4.3 billion.  This 
annual total drops to about $3.2 billion for fiscal years 2002 
through 2004, then rises to $4.1 billion for fiscal years 2005 and 
2006, with a further increase to $5.0 billion in fiscal year 2007. 
The drop in funding for fiscal years 2002 through 2004, sometimes 
referred to as the "SCHIP dip," was written into SCHIP's authorizing 
legislation due to budgetary constraints applicable at the time the 
legislation was drafted.

Allotment of funds among the States is determined by a formula set in 
law. This formula is based on a combination of the number of low-
income children and low-income, uninsured children in the State, and 
includes a cost factor that represents average health service 
industry wages in the State compared to the national average. A State 
must draw down its entire allotment for a given fiscal year before it 
can access the next year's funding.

States have three fiscal years in which to draw down a given year's 
allotment.  For example, fiscal year 2002 allotments are available 
until the end of fiscal year 2004.  At the end of the applicable 
three-year period, unspent allotments are subject to redistribution 
among only those States that fully expend their allotments, by a 
method to be determined by the Secretary.

In 2000, the Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000 (BIPA) established special redistribution 
rules for unspent fiscal years 1998 and 1999 allotments. The 
reallocation process is the same for each of these two fiscal years 
and is applied to each year separately.  From those States that did 
not fully expend their original allotments for a given year within 
the applicable three-year time frame, a pool of unused funds was 
formed.  From this pool, 1.05% was set aside for redistribution among 
the 5 territories that exceeded their original allotments for that 
year based on each territory's designated proportion of the original 
total appropriation established for the territories.  Then the States 
that fully expended (exceeded) their original allotments for that 
year received redistributed funds equal to their excess spending-12 
States for fiscal year  1998 redistributions and 13 States for 
fiscal year 1999 redistributions.  Finally, the remaining States that 
did not use all their original allotments for these years  retained a 
portion of the remaining unused funds in the pool, equal to the ratio 
of such a State's unspent original allotment to the total amount of 
unspent funds for that fiscal year.  The deadline for spending all
fiscal year 1998 and 1999 reallocated funds was September 30, 2002.

In August 2003, the State Children's Health Insurance Program 
Allotments Extension Act (Public Law 108-74) extended the 
availability of fiscal year 1998 and 1999 reallocated funds through 
the end of fiscal year 2004.  This law also created a special 
redistribution rule for unspent fiscal year 2000 and 2001 SCHIP 
allotments that differs from the approach used for the fiscal year 
1998 and 1999 reallocation process.  The fiscal year 2000 and 2001 
methodology is identical for each of these two years and is applied 
to each year separately.  For example, for fiscal year 2000, each 
State that did not spend its full original allotment by the  3-year 
deadline will retain 50 percent of its unspent funds.  The remaining 
unspent funds across such States will form a pool for redistribution 
among the territories and remaining States that did fully expend 
(and exceeded) their original fiscal year 2000 allotments by the 
3-year deadline.  Of the total redistribution pool, 1.05 percent is 
earmarked for the territories, each of which will receive an amount 
from this earmark that is equal to its designated proportion of the 
total fiscal year 2000 funds originally allotted to the territories.  
The remaining redistribution pool  is divided among those States that 
exceeded their original fiscal year 2000 allotments.  Each such State 
will receive an amount that is based on the proportion of its excess 
spending relative to the total amount of excess spending for all such 
States.  Reallocated fiscal year 2000 and 2001 funds are available 
until the end of fiscal years 2004 and 2005, respectively.  Finally, 
this new law also permits certain States to use up to 20 percent of 
their reallocated fiscal year 1998 through 2001 SCHIP funds for 
Medicaid expenditures for services delivered to Medicaid 
beneficiaries under age 19 who are not otherwise eligible for SCHIP 
and have family income that exceeds 150 percent of the FPL. (See the 
Legislative History section for more details.)

Like Medicaid, SCHIP is a Federal-State matching program. For each  
dollar of State spending, the Federal government makes a matching 
payment drawn from SCHIP allotments.  A State's share of program 
spending for Medicaid is equal to 100 percent minus the Federal 
medical assistance percentage (FMAP). The enhanced SCHIP FMAP is 
equal to a State's Medicaid FMAP increased by the number of 
percentage points that is equal to 30 percent multiplied by the 
number of percentage points by which the FMAP is less than 100
percent. For example, in States with a Medicaid FMAP of 60 percent, 
the enhanced FMAP equals the Medicaid FMAP increased by 
12 percentage points (60 percent + [30 percent multiplied by 
40 percentage points] = 72 percent).  In this example, the State 
share is 100 percent - 72 percent = 28 percent.

Compared with the Medicaid FMAP, which ranges from 50 percent to  
76.62 percent in fiscal year 2003, the enhanced FMAP for SCHIP ranges 
from 65 percent to 83.63 percent.  All SCHIP assistance for targeted 
low-income children, including child health coverage provided through 
a Medicaid expansion, is eligible for the enhanced FMAP. The Medicaid 
FMAP and the enhanced SCHIP FMAP are subject to a ceiling of 
83 percent and 85 percent, respectively. There is a limit on Federal 
spending for SCHIP administrative expenses, which include activities 
such as data collection and reporting, as well as outreach and 
education.  For Federal matching purposes, a 10 percent cap applies 
to State administrative expenses.  This cap is tied to the dollar 
amount that a State draws down from its annual allotment to cover 
benefits under SCHIP, as opposed to 10 percent of a State's total 
annual allotment.

GENERAL PROGRAM CHARACTERISTICS

	The 50 States, the District of Columbia and 5 territories 
operate 56 SCHIP programs.  As of May 2002, 21 had Medicaid 
expansions, 16 had separate State programs, and 19 provided health 
insurance coverage through a combination approach.  Because some 
States had multiple plans for different SCHIP subgroups, in total the 
35 States with separate SCHIP programs (SSPs) actually had 42 
distinct programs identified by CRS.  For example, some States have 
created more than  one SSP for children at different income levels 
with different benefit packages.  As of May 2002, among these 42 
SSPs, 15 were benchmark plans (10 based on the State employees' 
health plan, 4 based on the largest commercial HMO and 1 based 
on FEHBP).  Another 14 SSPs were Secretary-approved programs (11 
modeled after Medicaid, 2 modeled after the State employees' health 
plan and 1 that built upon a comprehensive Medicaid waiver 
demonstration financed through SCHIP).  Ten SSPs were classified as 
benchmark-equivalent (six equivalent to the State employees' health 
plan, two equivalent to FEHBP, one equivalent to the largest 
commercial HMO, and one exceeding the actuarial value of all three 
types of benchmark plan options).  Finally, three SSPs were unique
comprehensive State-based plans that were deemed to meet SCHIP 
requirements under the Balanced Budget Act of 1997. 

SCHIP programs across States are evolving rapidly as evidenced by the 
numerous changes States have made to their original State plans over 
time.  As of February 2003, 150 amendments to original State plans 
had been approved and  17 more were in review.  Several States have 
multiple amendments.  The content of the plan amendments varies among 
States.  For example, some States use amendments to extend coverage 
beyond income levels defined in their original State plans.  Others 
define new copayment standards for program participants.   

Still others modify benefit packages.

In addition to the amendment process, States that want to make changes 
to their SCHIP programs that go beyond what the law will allow may do 
so through what is called an 1115 waiver (named for the section of 
the Social Security Act that defines the circumstances under which 
such waivers may be granted).  The Secretary may waive certain 
statutory requirements for conducting research and demonstration 
projects under SCHIP that allow States to adapt their programs to 
specific needs.  On August 4, 2001, the Bush Administration announced 
the Health Insurance Flexibility and Accountability (HIFA) 
Demonstration Initiative. Using 1115 waiver authority, this 
initiative is designed to encourage States to extend Medicaid and 
SCHIP to the uninsured, with a particular emphasis on Statewide 
approaches that maximize private health insurance coverage options  
and target populations with income below 200 percent FPL.

As of March 2003, CMS had approved 12 SCHIP 1115 waivers in  
10 States. Four additional 1115 waiver proposals were under review at 
that time. Five of the twelve approved waivers are HIFA 
demonstrations in Arizona, California, Colorado, New Jersey, and New 
Mexico.  In eight of the ten States with approved 1115 waivers 
(excluding Maryland and Ohio), SCHIP coverage is expanded to include 
one or more categories of adults  with children, typically parents of 
Medicaid/SCHIP children, caretaker relatives, legal guardians, and/or 
pregnant women.  Two States (Arizona and New Mexico) also cover 
childless adults under their HIFA demonstrations.  In addition to 
expanding coverage to new populations under waivers, some States have 
used this authority for other purposes. Rhode Island will use 
redistributed SCHIP funds to finance coverage of adults with children 
in its waiver program.  Through HIFA, New Jersey will offer the same 
(SCHIP) benefit package to adults covered under its SCHIP and 
Medicaid waiver demonstrations.  Using 1115 waiver authority, both 
Maryland and New Mexico require a 6-month period of no insurance 
prior to enrollment under their waivers.   New Mexico also has 
modified its cost-sharing rules for SCHIP Medicaid expansion 
participants.  Finally, Ohio received approval to implement an 
annual enrollment fee and to give 12 months of continuous 
eligibility for certain beneficiaries in its Medicaid expansion. 

TRENDS IN ENROLLMENT AND EXPENDITURES

Nearly 1 million children (982,000) were enrolled in SCHIP under  
43 operational State programs as of December 1998.  Nearly 2 million 
children (1,979,450) were enrolled in SCHIP during fiscal year 1999 
under 53 operational State programs.   The latest official numbers 
show that SCHIP enrollment reached a total of 5.3 million children 
in fiscal year 2002 (see Table 15-21).  Of this total, 4.0 million 
were covered in separate State programs, and 1.3 million participated 
in SCHIP Medicaid expansions.  In addition, five States also reported 
enrollment of nearly 350,000 adults in fiscal year 2002.  Two of 
these States  (New Jersey and Wisconsin) accounted for nearly three-
fourths of adult enrollment in SCHIP.  Adult enrollment exceeded 
child enrollment in three of these States (New Jersey, Rhode Island, 
and Wisconsin).
	To date, SCHIP spending has fallen well below allotment 
levels for a variety of reasons. Despite the fact that 42 States 
began enrolling children in their SCHIP programs in late 1997 or 
1998 (see Table 15-21), new programs take time to get off the ground 
and participation rates rose more slowly than expected. Table 15-22 
shows total available funds and cumulative spending by State for 
fiscal year 1998 through fiscal year 2002, as of the end of fiscal 
year 2002.  During this period, States had access to fiscal years 
1998 and 1999 redistributed funds as well as their original 
allotments for fiscal years 2000, 2001 and 2002. By the end of fiscal 
year 2002, eight States had spent less than 25 percent of their 
available allotments.  Of these eight States, two had spent less than 
10 percent of these funds.  Another 21 States had used between one-
fourth and one-half of their allotments.  The remaining 22 States 
had expended more than 50 percent of available funds.  Of these 22 
States, 2 had spent more than 75 percent of their allotments. As 
SCHIP enrollment across States grows over time, expenditures under 
the program are likely to account for an ever increasing share of 
available allotments.
	Nationally, through September 2002, $9.4 billion or 
47 percent of available funds had been expended, leaving an unspent 
balance of approximately $10.7 billion from the fiscal years 1998 
through 2002 allotments. As of October 2003, several SCHIP allotment 
accounts are available to the States and territories.  (Accessing 
each account is subject to specific rules.)  These "open accounts" 
include fiscal years 1998 and 1999 reallocated funds (available 
through the end of fiscal year 2004), unspent fiscal years 2000 
and 2001 allotments to be reallocated among all of the States 
and territories based on a special redistribution formula 
(available through the end of fiscal years 2004 and 2005, 
respectively), and the three original allotment accounts for 
fiscal years 2002, 2003, and 2004, not yet subject to 
redistribution (available through the end of fiscal years 2004, 
2005, and 2006 respectively).

LEGISLATIVE HISTORY

Below is a summary of major SCHIP changes enacted in public laws 
beginning with the legislation authorizing the program in 1997:

Balanced Budget Act of 1997 (BBA 1997), Public Law 105-33:
	Creation of SCHIP-Under BBA 1997, the State Children's Health  
Insurance Program was established, effective August 5, 1997. A number 
of provisions specified eligibility criteria; coverage requirements 
for health  insurance; Federal allotments and the State allocation 
formula; payments to States and the enhanced FMAP formula; the 
process for submission, approval and amendment of State SCHIP plans; 
strategic objectives and performance goals, and plan administration; 
annual reports and evaluations; options for expanding coverage of 
children under Medicaid; and diabetes grant programs.

TABLE 15-22--SCHIP PROGRAM ALLOTMENTS AND EXPENDITURES BY STATE, 
FISCAL YEARS 1998-2002  

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


District of Columbia Appropriations Act of 1998, Public Law 105-100:
Increased appropriation-This law increased the fiscal year 1998 SCHIP 
appropriation from $4.275 billion to $4.295 billion.

Omnibus Consolidated and Emergency Supplemental Appropriation Act, 
fiscal year 1999, Public Law 105-277:

Increased appropriation for territories-For fiscal year 1999, an 
additional appropriation of $32 million for the territories was 
provided, bringing the fiscal  year 1999 total appropriation to 
$4.307 billion.

Change in allotment formula affecting some Native American children-
For fiscal year 1998 and fiscal year 1999, the law changed the annual 
State allotment formula by stipulating that children with access to 
health care funded by the Indian Health Service and no other health 
insurance would be counted as uninsured (rather than as insured as 
required under the previously existing law).

The Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of 
1999 (BBRA 1999), incorporated by reference in the Consolidated 
Appropriations Act for Fiscal Year 2000, Public Law 106-113:

	Stabilizing the SCHIP allotment formula-Annual Federal 
allotments to each State are determined in part by States' success 
in covering previously uninsured low-income children under SCHIP.  
Under prior law, the more successful a State was in enrolling 
children in SCHIP, especially early in the program, the greater the 
potential reduction in subsequent annual allotments.  To limit the 
amount a State's allocation can fluctuate from one year to the next, 
BBRA 99 modified the allotment distribution formula and established 
new floors and ceilings.

Targeted, increased allotments-Additional allotments for the 
commonwealths and territories were provided for fiscal years 2000 
through 2007. 

Improved data collection-The law provided new funding for the 
collection of data to produce reliable, annual State-level 
estimates of the number of uninsured children.  These data changes 
will improve research and evaluation efforts.  They also will affect 
State-specific counts of the number of low-income children and the 
number of such children who are uninsured that feed into the formula 
that determines annual State-specific allotments from Federal SCHIP 
appropriations. 

Federal evaluation-New funding also was provided for a Federal 
evaluation  to identify effective outreach and enrollment practices 
for both SCHIP and Medicaid, barriers to enrollment, and factors 
influencing beneficiary dropout.

Additional reports and a clearinghouse-The law also required: (a) an 
inspector general audit  and GAO report on enrollment of Medicaid-
eligible children in SCHIP,  (b) States to report annually the number 
of deliveries to pregnant women and the number of infants who receive 
services under the Maternal and Child Health Services Block Grant or 
who are entitled to SCHIP benefits, and (c) the Secretary of Health 
and Human Services to establish a clearinghouse for the consolidation 
and coordination of all Federal databases and reports regarding 
children's health.

Agriculture Risk Protection Act of 2000, Public Law 106-224:  
See the description of this law in the Medicaid subsection.

Children's Health Act of 2000, Public Law 106-310:

Rights of institutionalized children-The law requires that general 
hospitals, nursing facilities, intermediate care facilities and other 
health care facilities receiving Federal funds, including SCHIP, 
protect the rights of each resident, including the right to be free 
from physical or mental abuse, corporal punishment, and any 
restraints or involuntary seclusions imposed for the purposes of 
discipline or convenience.  Restraints and seclusion may be imposed 
in such facilities only to ensure the physical safety of the 
resident, a staff member or others.  Additional requirements govern 
reporting of resident deaths, promulgation of regulations regarding 
staff training, and enforcement.

Children's rights in community-based settings-The law also includes 
requirements for protecting the rights of residents of certain  
non-medical, community-based facilities for children and adolescents, 
when that facility receives funding under this Act or under Medicaid.  
(Forthcoming regulations are expected to clarify if and how these 
rights apply to such facilities funded by SCHIP.)  For such 
individuals and facilities, restraints and seclusion may be imposed 
only in emergency circumstances and only to ensure the physical 
safety of the resident, a staff member, or others, and only when 
less restrictive interventions have been determined to be 
ineffective. Additional requirements govern reporting of resident 
deaths, promulgation of regulations regarding staff training, and 
enforcement. 

Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act 
of 2000 (BIPA), incorporated by reference into the Consolidated 
Appropriations Act 2001, Public Law 106-554:

	Special redistribution rules for unspent fiscal year 1998 and 
1999 allotments-For each of these years separately, a pool of unspent 
funds is created from the unused allotment amounts of those States 
that did not fully expend their original allotments within the 
applicable 3-year time frame.  From this pool, 1.05 percent is set 
aside for the territories that exceeded their original allotments 
for that year, based on each territory's designated proportion of 
the original total appropriation allotted to the territories. Then 
the States that fully expended (exceeded) their original allotments 
for that year receive redistributed funds from the remaining pool 
equal to their excess spending.  The remaining States that did not 
use all their original allotments for the year retain a portion of 
the remaining funds in the pool, equal to the ratio of such a 
State's unspent original allotment to the total amount of unspent 
funds for that fiscal year. These latter States are permitted to 
use up to 10 percent of their retained fiscal year 1998 funds for 
outreach activities. This allowance is over and above spending for 
such activities under the general administrative cap described 
above.  The deadline for spending all redistributed and retained 
funds from fiscal years 1998 and 1999 is September 30, 2002.  
(See the text for additional information on redistribution of 
unspent SCHIP funds.)

Presumptive eligibility-Under Medicaid presumptive eligibility rules  
States are allowed to temporarily enroll children whose family 
income appears to be below Medicaid income standards, until a final 
formal determination of eligibility is made.  BIPA clarified States' 
authority to conduct presumptive eligibility determinations, as 
defined in Medicaid law, under separate (non-Medicaid) SCHIP 
programs.

Authority to pay SCHIP Medicaid expansion costs from Title XXI 
appropriation-Under prior law, States' allotments under SCHIP paid 
only the Federal share of costs associated with separate (non-
Medicaid) SCHIP programs. The Federal share of costs associated with 
SCHIP Medicaid expansions was paid for under Medicaid.  State SCHIP 
allotments were reduced by the amounts paid under Medicaid for 
SCHIP Medicaid expansion costs.  BIPA authorized the payment of the 
costs of SCHIP Medicaid expansions and the costs of benefits 
provided during periods of presumptive eligibility from the SCHIP 
appropriation rather than the Medicaid appropriation, and as a 
conforming amendment, eliminated the requirement that State SCHIP 
allotments be reduced by these (former) Medicaid payments. Also, 
for fiscal years 1998 through 2000 only, BIPA authorized the 
transfer of unexpended SCHIP appropriations to the Medicaid 
appropriation account for the purpose of reimbursing payments 
associated with SCHIP Medicaid expansion programs.

Public Health Security and Bioterrorism Preparedness and Response 
Act of 2002, Public Law 107-188:

See the description of this law in the Medicaid subsection.

Health Care Safety Net Amendments of 2002, Public Law 107-251:
See the description of this law in the Medicaid subsection.

State Children's Health Insurance Program Allotments Extension Act, 
Public Law 108-74:

Extension of available SCHIP reallocated funds from fiscal years 1998 
and 1999-This law extends the availability of fiscal year 1998 and 
1999 reallocated funds through the end of fiscal year 2004 (rather 
than the end of fiscal year 2002).  

Revision of methods for reallocation of unspent fiscal years 2000 and 
FY2001, and extension of the availability of such funds-The law also 
establishes a new method for reallocating unspent funds from fiscal 
years 2000 and 2001 allotments.  For fiscal year 2000, each State 
(and territory) that did not spend its  full original allotment by 
the 3-year deadline retains 50% of its unspent funds. The remaining 
50 percent from each such State forms a pool of unspent funds for 
redistribution among the territories and other States that did fully 
expend (and exceeded) their fiscal year 2000 allotments by the 3-year 
deadline.  First, 1.05 percent of the total redistribution pool is 
set aside for allocation among the territories, from which each of 
the territories receives an amount equal to its designated proportion 
of the total fiscal year 2000 funds originally allotted to the 
territories.  Then the remaining redistribution pool is allocated to 
each State that fully expended (exceeded) its fiscal year 2000 
original allotment by the 3-year deadline.  The redistribution amount 
for each such State is based on the proportion of its excess spending 
relative to the total amount of excess spending for all such States.  
The same methodology is applied to reallocation of unspent  fiscal 
year 2001 original allotments.  Reallocated funds for fiscal years 
2000 and 2001 are available until the end of fiscal years 2004 and 
FY2005, respectively.

	Authority for qualifying States to use certain funds for 
Medicaid expenditures-The law permits certain States to use not more 
than 20 percent of reallocated fiscal year 1998 through 2001 SCHIP 
funds for Medicaid expenditures for services delivered to Medicaid 
beneficiaries under age 19 whose family income exceeds 150 percent of 
the federal poverty level (FPL) and who otherwise are not eligible 
for SCHIP.  For such services, the additional payments due are based 
on  the SCHIP enhanced federal matching rate (up to the 20 percent 
cap on the use of reallocated funds for this purpose).  Qualifying 
States include those that on or after  April 15, 1997 had an income 
eligibility standard of at least 185 percent of the FPL for at least 
one category of children, other than infants.  (Other qualifications 
apply to States with Statewide waivers under Section 1115 of the 
Social Security Act.)

FEDERAL HOUSING ASSISTANCE 

	A number of Federal programs administered by the U.S. 
Department of Housing and Urban Development (HUD) and the Rural 
Housing Service (RHS) address the housing needs of low-income 
households. Housing assistance has never been provided as an 
entitlement to all households that qualify for aid. Instead, 
Congress has traditionally appropriated funds for a number of new 
commitments each year. Until the 1990s, those commitments generally 
ran up to 40 years, with the result that the appropriations were 
actually spent gradually over many years. More recently, funding has 
been provided 1 year at a time. Those additional commitments have 
expanded the pool of available aid, thus increasing the total number 
of households that can be served. They have also contributed to 
growth in Federal outlays in the past and have committed the 
government to continuing expenditures for many more years to come. 
The traditional housing programs have been augmented over the years 
with additional programs funded through block grants to State and 
local governments. This section describes recent trends in the number 
and mix of new commitments, as well as trends in expenditures for 
both the traditional assistance programs and the more recent block 
grant programs. The section focuses primarily on programs 
administered by HUD.

TYPES OF ASSISTANCE

	The Federal Government has traditionally provided housing 
aid directly to low-income households in the form of rental subsidies 
and mortgage interest subsidies. For the most part, both the number 
of households receiving aid and total Federal expenditures have 
steadily increased, but the growth of households assisted through the 
traditional programs has slowed since the 1980s and, in recent years, 
the number of such assisted households may have declined.  Starting 
in the mid-1980s, a number of statutes were enacted-including the 
Stewart B. McKinney Homeless Assistance Act of 1987 (hereafter 
referred to as the McKinney Act) and the 1990 Cranston-Gonzalez 
National Affordable Housing Act (hereafter referred to as the 1990 
Housing Act) that authorized new, indirect approaches in the form of 
housing block grants to State and local governments. Those 
governments may use the grants for various housing assistance 
activities specified in the laws. Data on the number of households 
assisted through those types of programs are not readily available, 
however.
	A number of different housing assistance programs evolved 
over time in response to changing housing policy objectives. The 
primary purpose of housing assistance has always been to reduce 
housing costs and improve housing quality for low-income households. 
Other goals have included promoting residential construction, 
expanding housing opportunities for disadvantaged groups and 
groups with special housing needs such as the elderly, the disabled, 
and the homeless, promoting neighborhood preservation and 
revitalization, increasing home ownership, and empowering the poor 
to become self-sufficient.
	New housing programs have been developed because of shifting 
priorities among these objectives as housing-related problems changed 
and because of the relatively high Federal costs associated with some 
approaches. Other programs have become inactive as Congress stopped 
appropriating funds for new assistance commitments through them. 
Because housing programs traditionally have involved multiyear 
contractual obligations, however, these so-called inactive programs 
continue to play an important role by serving a large number of 
households through commitments for which funds were appropriated some 
time ago.

Direct Rental Assistance
	Most Federal housing aid is now targeted to very-low-income 
renters through the rental assistance programs administered by HUD 
and the RHS (Schussheim, 2000). Rental assistance is provided through 
two basic approaches: (1) project-based aid, which is typically tied 
to projects specifically produced for low-income households through 
new construction or substantial rehabilitation; and (2) household-
based subsidies, which permit renters to choose standard housing 
units in the existing private housing stock. Some funding is also 
provided each year to modernize units built with Federal aid. Rental 
assistance programs generally reduce tenants' rent payments to a 
fixed percentage-currently 30 percent-of their income after certain 
deductions, with the government paying the remaining portion of the 
rent.
	Almost all project-based aid also is provided through 
production-oriented programs, which include the Public and Indian 
Housing Program, the  section 8 New Construction and Substantial 
Rehabilitation Program, and the section 236 Mortgage Interest 
Subsidy Program-all administered by HUD-and the section 515 Mortgage 
Interest Subsidy Program administered by the RHS.  Today new 
commitments are being funded through only two of these four programs
-a modified version of the section 8 New Construction Program for 
elderly and disabled families only and the section 515 program. In 
addition, some new housing for Native Americans continues to be
developed through the Indian Housing Block Grant Program.
	
	Some project-based aid is also provided through several 
components of HUD's section 8 Existing Housing Program, which tie 
subsidies to specific units in the existing housing stock, many of 
which have received other forms of aid or mortgage insurance through 
HUD. Traditionally, those components have included the section 8 loan 
management set-aside (LMSA) and property disposition (PD) components, 
which are designed to improve cash flows in selected financially 
troubled projects that are or were insured by the Federal Housing 
Administration or to provide deeper subsidies to the occupants; the 
section 8 conversion assistance component, which subsidizes units 
that previously were aided through other programs; and the section 
8 Moderate Rehabilitation Program, which provides subsidies to units 
that have been brought up to standard by the owner.  In recent years, 
few, if any, new commitments have been funded through these programs. 
Today, new funding is predominantly used for tenant protection to 
enable tenants to remain in or move out of projects where rents are 
being raised after the owners opt out of the Federal assistance 
programs. Tenant protection assistance is also used to replace aid 
to households that are being displaced from assisted projects because 
the projects are being demolished.
	Household-based subsidies traditionally have been provided 
through two other components of the section 8 Existing Housing 
Program-section 8 rental certificates and vouchers. These programs 
tie aid to households that choose units meeting certain housing 
standards in the private housing stock. Certificate holders generally 
must occupy units with rents that are within guidelines-the so-called 
fair market rents-established by HUD. Voucher recipients, however, 
are allowed to occupy units with rents above the HUD guidelines 
provided they pay the difference. Starting in 2000, the certificate 
and voucher program are being combined into one program that pays 
the difference between 30 percent of a tenant's income and the 
lesser of the tenant's actual housing cost or a payment standard 
determined by local rent levels. Commitments to aid additional 
households are being made under this program. In addition, because 
of the tenant protection programs discussed above, aid gradually is 
being shifted from project-based to household-based assistance.

Direct Home Ownership Assistance
	Each year, the Federal Government assists some low- and 
moderate-income households in becoming homeowners by making long-term 
commitments to reduce their mortgage interest. Most of this aid has 
been provided through the section 502 program administered by the 
RHS. This program supplies direct mortgage loans at low interest 
rates roughly equal to the long-term government borrowing rates or 
provides guarantees for private loans with interest rates that may 
not exceed those set by the Department of Veterans Affairs (VA). 
Many home buyers, however, receive much deeper subsidies through 
the interest-credit component of this program, which reduces their 
effective interest rate to as low as 1 percent.

	A number of home buyers have received aid through the section  
235 program administered by HUD. That program provides interest 
subsidies for mortgages financed by private lenders. New commitments 
now are being made only through the section 502 program but a small 
number of homeowners continue to receive aid from prior commitments 
made under the section 235 program.  Both programs generally reduce 
mortgage payments, property taxes, and insurance costs to a fixed 
percentage of income, ranging from  20 percent for the RHS program 
to 28 percent for the latest commitments made under the HUD program.

Homeless Programs
	Since the mid-1980s, a number of programs specifically 
designed to address the issue of homelessness have been authorized. 
The still active programs, most of which were authorized by the 
McKinney Act, include the Emergency Shelter Grants Program, the 
Supportive Housing Program, the Shelter Plus Care Program, and the 
Moderate Rehabilitation for Single Room Occupancy Dwellings Program. 
Another program, which is designed to prevent rather than deal with 
homelessness, is the Housing Opportunities for Persons with AIDS 
(HOPWA) Program, authorized by the 1990 Housing Act.
	Under these programs, HUD funds housing assistance indirectly 
in the form of block grants to State and local governments. They in 
turn are required to contribute matching funds under all programs 
except under the Single Room Occupancy Dwellings and HOPWA Programs. 
Funds are distributed by formula or by competition, depending on the 
type of program. Funds may be used for a variety of housing 
activities that may be supported on a short-term, emergency basis or 
on a more permanent basis. Those activities include acquisition, 
rehabilitation, and new construction of facilities, tenant rental 
assistance (including section 8), supportive services, and 
administration costs.

Other Housing Block Grant Programs
	Several programs funded through block grants that are not 
specifically designed to deal with homelessness have been authorized 
since the early 1980s. Most of these programs have been terminated 
or are no longer being funded today.
	Some assistance for the construction or rehabilitation of 
rental housing was funded under two small HUD programs authorized in 
1983, the Rental Housing Development Grants (HoDAG) and the Rental 
Rehabilitation Block Grant Programs.  These programs distributed 
funds through a national competition and by formula, respectively, 
to units of local government that met certain eligibility criteria.
	The 1990 Housing Act authorized several new housing 
assistance approaches, including the Home Ownership and Opportunity 
for People Everywhere (HOPE) Program and the HOME Investment 
Partnerships Block Grant Program. Since 1996, funds have been 
appropriated only for the HOME Program. The HOME Program provides 
Federal grants to State and local governments on a formula basis. 
Currently, participating jurisdictions generally must provide 
matching contributions of at least 25 percent of HOME funds spent in 
each fiscal year. Some or all of the matching requirement may be 
waived for jurisdictions that can show they are financially 
distressed. Funds may be used for tenant-based rental assistance or 
assistance to new home buyers.  They may also be used for 
acquisition, rehabilitation, or in limited circumstances, 
construction of both rental and owner-occupied housing.

TRENDS IN LEVELS AND BUDGETARY IMPACT OF HOUSING AID

	This section examines trends in the levels and the budgetary 
impact of housing aid. Figures are presented only for programs 
administered by HUD. Because of data limitations, figures for the 
number of assisted households are presented only for those 
subsidized through the traditional programs that provide direct 
rental and home ownership assistance. Figures for the budgetary 
impact are shown for all housing programs discussed above.

Trends in Net New Commitments
	Although HUD has been subsidizing the shelter costs of low-
income households since 1937, more than half of all currently 
outstanding commitments under the traditional assistance programs 
were funded over the past 26 years. Between 1977 and 2002, funds were 
appropriated for about 2.7 million net new commitments to aid low-
income renters (Table 15-23). Another 108,000 new commitments were 
funded in the form of mortgage assistance to low- and moderate-income 
home buyers. Between 1977 and 1983, the number of net new rental 
commitments funded each year declined steadily, however, from 354,000 
to 54,000. Trends have been somewhat erratic since that time. During 
the late 1990s relatively few new commitments were funded, ranging 
from less than 8,500 in 1996 to 36,000 in 1998. For fiscal year 2000, 
however, funds were appropriated for nearly 130,000 new commitments 
before declining again to about 34,000 in 2002.
	The production-oriented approach in rental programs was 
sharply curtailed in 1982 in favor of the less costly section 8 
Existing Housing Programs. Between 1977 and 1981, commitments through 
programs for new construction and substantial rehabilitation ranged 
annually from 47 to 69 percent of the total. After1981, the 
proportion never exceeded 32 percent until 1995, when it rose to 
roughly one-half of the total. Because in the late 1990s the number 
of commitments funded	for existing housing has been so low, the 
new construction commitments (primarily for the elderly and disabled) 
have been a relatively high proportion of the total.

Trends in Budget Authority
	Under the direct housing assistance programs, funding for 
additional commitments used to be provided each year through 
appropriations of long-term (up to 40 years) budget authority for 
subsidies to households and through appropriations of budget 
authority for grants to public housing agencies and developers of 
rental housing. Today, most rental subsidies, both for new 
commitments and for the renewal of expiring contracts, are funded 
for 1 year at a time. Only new commitments that subsidize the 
operating costs of projects being built for the elderly and disabled 
are funded for 5-year periods. For the homeless and other housing 
block grant programs, funds are appropriated on an annual basis 
but spend out over periods as long as 10 years.
	Annual appropriations of new budget authority for all 
housing assistance programs combined were cut dramatically during 
the 1980s. They dropped (in 2002 dollars) from a high of $75 billion 
in 1978 to a low of $12 billion in  1988 and 1989 (Table 15-24). 
Those cuts reflect four underlying factors affecting budget authority 
for the direct housing assistance programs: the previously mentioned 
reduction in the number of newly assisted households; the shift 
toward cheaper existing housing assistance; a systematic reduction in 
the average term of new commitments from more than 24 years in 1977 
to less than 5 years recently; and changes in the method for 
financing the construction and modernization of public housing and 
the construction of housing for the elderly and the disabled. 

	TABLE 15-23--NET NEW COMMITMENTS FOR RENTERS AND HOME BUYERS 
	RECEIVING DIRECT HOUSING ASSISTANCE ADMINISTERED BY HUD, BY 
	TYPE OF SUBSIDY, 1980-2002



[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


	Between 1991 and 1994, budget authority levels (in 2002 
dollars) rose sharply to between $23 and $24 billion. Those trends 
reflect primarily the cost of renewing section 8 contracts that 
expired, with contracts being extended for 5-year terms. In addition, 
appropriations for homeless programs and other housing block grant 
programs rose significantly during that period.
	After 1994, budget authority levels dropped again to as low 
as  $12 billion in 1997. That decrease is explained by decreases in 
net budget authority appropriated for direct housing assistance, 
which were only partially offset by increases in appropriations for 
homeless and other housing block grant programs.  The decreases in 
net budget authority for direct assistance reflect several factors: 
a gradual reduction in the terms of renewed contracts from  5 years 
to 1 year; further reductions in funding for new activity; and 
substantial rescissions of budget authority that had been 
appropriated in earlier years.
	The years since 1997 have seen consistent increases in 
budget authority, with the 2002 level of nearly $26 billion more 
than double the 1997 level.

Trends in Outlays
	Total outlays for all housing programs administered by the 
U.S. Department of Housing and Urban Development (HUD) increased 
(in 2002 dollars) steadily from 1977 through 1996, from $7 billion 
to nearly $30 billion  (Table 15-25). The lion's share of that 
increase is explained by increases in outlays for direct housing 
assistance, reflecting both the continuing increase in the number 
of assisted households and increases in the average subsidy in real 
terms.	
		



TABLE 15-24--NET BUDGET AUTHORITY APPROPRIATED FOR HOUSING 
ASSISTANCE ADMINISTERED BY HUD, BY BROAD PROGRAM CATEGORIES, 
1977-2002  


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]



	Several factors have contributed to the growth of average 
subsidies over the 1977-96 period. First, rents in assisted housing 
probably have risen faster than the income of assisted households, 
causing subsidies to rise faster than the inflation index used here-
the Consumer Price Index for All Urban Consumers (CPI-U-X1). Second, 
the number of households that occupy units completed under the 
section 8 New Construction Program rose during the 1980s. Those 
units require larger subsidies compared with the older units that 
were built prior to the 1980s under the Mortgage Interest Subsidy 
and Public Housing Programs.

Third, the share of households receiving less costly home ownership 
assistance has decreased. 
	Since 1996, outlays for all housing assistance programs 
stabilized at around $29 billion through 2001 before rising again to 
nearly $32 billion in 2002.
	The leveling off in constant dollar outlays for direct 
housing assistance in the late 1990s is not easily explained because 
of a lack of reliable data on the underlying factors that may have 
contributed. Nevertheless, several factors may have played a role.
	The number of assisted households has more or less leveled 
off at around 5 million. Further, several cost containment measures 
have been enacted in recent legislation that have slowed down the 
growth in average subsidies in current dollars, thereby helping to 
reduce average subsidies in 2002 dollars. First, rents in assisted 
housing are increasing at a slower rate or are even declining in 
many cases. Because the Federal Government pays part of those rents, 
subsidies have been lower than they would have been otherwise. 
In particular, the maximum allowable rent in the section 8 voucher 
and certificate program has been lowered from the 45th percentile 
to the 40th percentile of the local rent distribution. That decrease 
is being phased in gradually, as households move from their current 
units or turn over their certificate or voucher to a new recipient. 
Also, rents in certain assisted housing projects no longer are 
increased annually, while rent adjustments in other cases are being 
reduced. Second, many assisted households who had been contributing 
little or nothing to their rent are now charged a minimum rent of up 
to $50 per month. Third, preference rules for admitting new tenants 
have been relaxed, thereby allowing a gradual shift to a population 
with somewhat higher incomes. Fourth, in several of the years during 
the period, the reissuing of section 8 certificates and vouchers upon 
turnover has been delayed for 3 months.
	In addition to the legislative changes, some nonlegislative 
factors may have contributed to the stabilization in outlays. First, 
the booming economy of the late 1990s likely increased the incomes of 
many assisted households, thereby resulting in larger shares of the 
rent being paid by them and lower shares by HUD. Second, anecdotal 
evidence suggests that new recipients of section 8 certificates and 
vouchers in some parts of the country have trouble finding units in 
which to use their housing assistance because of very tight housing 
markets or a lack of landlords willing to participate in the 
programs. As a result, the utilization rate of certificates and 
vouchers has been decreasing.
	Future trends in outlays for housing assistance will be 
affected by further changes made by recent legislation. On the one 
hand, the so-called mark-to-market initiative, enacted by the Multi
family Assisted Housing Reform and Affordability Act of 1997, will 
reduce rents in certain section 8 projects with federally insured 
mortgages, thereby reducing outlays for the section 8 program. Under 
this initiative, project rents will be reduced to market levels as 
the section 8 contracts expire. To avoid defaults on the federally 
insured mortgages, HUD will write down, if needed, those mortgages to 
levels that are supportable by the new lower rents. On the other 
hand, a second initiative, enacted in 1999 by the Preserving 
Affordable Housing for Senior Citizens and Families into the 21st 
Century Act, will allow rents to increase in certain section 8 
projects, thereby increasing outlays for section 8. To prevent 
owners from opting out of the Federal assistance programs, rents 
will be raised to market levels. In cases where owners opt out 
anyway, tenants will be enabled to stay in the project through the 
use of vouchers that will be issued at market rent levels even if 
the latter exceed the section 8 fair market rent in the area. The 
extent to which these factors, as well as the slowing economy, 
combined to effect the rise in outlays in 2002 remains unclear.

SCHOOL LUNCH AND BREAKFAST PROGRAMS 

	The School Lunch and School Breakfast Programs provide 
Federal cash and commodity support for meals. The meals are served 
by public and private nonprofit elementary and secondary schools 
and residential child care institutions (RCCIs) that opt to enroll 
and guarantee to offer free or reduced-price meals meeting Federal 
nutrition standards to eligible low-income children.  Both programs 
are "entitlement" programs, and both subsidize participating schools 
and RCCIs for all meals served that meet Federal nutrition standards 
at specific, inflation-indexed rates for each meal. Each program has 
a three-tiered system for per-meal Federal reimbursements to schools 
and RCCIs that: (1) allows children to receive free meals if they 
have family income below 130 percent of the Federal poverty 
guidelines (about $23,900 for a four-person family in the 2003-2004 
school year); (2) permits children to receive reduced-price meals (no 
more than 40 cents for a lunch or 30 cents for a breakfast) if their 
family income is between 130 and 185 percent of the poverty 
guidelines (between about $23,900 and $34,000 for a four-person 
family in the 2003-2004 school year); and (3) provides a small per-
meal subsidy for "full-price meals (the price is set by the school 
or RCCI) served to children whose families do not apply, or whose 
family income does not qualify them for free or reduced-price meals. 
Children in Temporary Assistance for Needy Families (TANF) and food 
stamp households may automatically qualify for free school meals 
without an income application, and the majority actually receive 
them.
	
	In addition to the regular School Lunch program, schools and 
RCCIs may expand their program to cover children through age 18 in 
after-school programs (or other programs operating outside regular 
school schedules).  Federal subsidies are paid to schools operating 
these programs at the free snack rate (discussed in a following 
section on the Child and Adult Care Food program) when they are 
served free to children in lower-income areas.  In other cases, 
subsidies vary by the child's family income (as in the regular 
program).
	The School Lunch Program subsidizes lunches (4.7 billion in 
fiscal year 2002) to children in about 6,000 RCCIs and almost all 
schools (93,000). During fiscal year 2002, average daily 
participation was 28 million students  (57 percent of the children 
enrolled in participating schools and RCCIs); of these, 48 percent 
received free lunches, and 9 percent ate reduced-price lunches (Table 
15-26). The remainder were served full-price (but still subsidized) 
meals. More than 90 percent of Federal funding is used to subsidize 
free and reduced-price lunches served to low-income children. For 
the 2003-2004 school year, per-lunch Federal subsidies (cash and 
commodity support) range from about 36 cents for full-price lunches 
to $2.34 and $1.94 for free and reduced-price lunches. Fiscal year 
2002 Federal school lunch costs (including commodity assistance) 
totaled nearly $6.9 billion (Table 15-26).
	The School Breakfast Program serves far fewer students than 
does the School Lunch Program; about 1.4 billion breakfasts in 71,000 
schools  (and 6,000 RCCIs) were subsidized in fiscal year 2002. 
Average daily participation was 8.1 million children (21 percent of 
the 38 million students enrolled in participating schools and RCCIs). 
Unlike the School Lunch Program, the great majority received free or 
reduced-price meals: 74 percent received free meals, and 9 percent 
purchased reduced-price meals  (Table 15-27). In the 2003-2004 school 
year, per-breakfast Federal subsidies (cash 



TABLE 15-25--OUTLAYS FOR HOUSING ASSISTANCE ADMINISTERED BY HUD,  
BY BROAD PROGRAM CATEGORIES, 1977-2002



[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


only) range from 22 cents for full-price meals to $1.20 and 90 cents 
for free and reduced-price breakfasts, respectively. Fiscal year 
2002 Federal school breakfast funding totaled about $1.5 billion 
(Table 15-27).
		
TABLE 15-26-- SCHOOL LUNCH PROGRAM PARTICIPATION AND FEDERAL COSTS, 
SELECTED FISCAL YEARS 1980-2002 


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS, 
AND CHILDREN (WIC)

	The Special Supplemental Nutrition Program for Women, 
Infants, and Children (the WIC Program) provides food assistance, 
nutrition risk screening, and related services (e.g., nutrition 
education and breastfeeding support) to low-income pregnant and 
postpartum women and their infants, as well as to low-income 
children up to age 5. Participants in the program must have family 
income at or below 185 percent of poverty, and must be judged to be 
nutritionally at risk. Nutrition risk is defined as detectable 
abnormal nutritional conditions; documented nutritionally-related 
medical conditions; health-impairing dietary deficiencies; or 
conditions that predispose people to inadequate nutrition or 
nutritionally related medical problems.
	
TABLE 15-27--SCHOOL BREAKFAST PROGRAM PARTICIPATION AND FEDERAL 
COSTS, SELECTED FISCAL YEARS 1980-2002   


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


	Beneficiaries of the WIC Program receive supplemental foods 
each month in the form of actual food items or, more commonly, 
vouchers for purchases of specific items in retail stores. The law 
requires that the WIC Program provide foods containing protein, iron, 
calcium, vitamin A, and vitamin C, and allows Federal limits on the 
foods that may be provided by the WIC Program. Among the items that 
may be included in a food package are milk, cheese, eggs, infant 
formula, cereals, and fruit or vegetable juices.  U.S. Department of 
Agriculture regulations require tailored food packages that provide 
specified types and amounts of food appropriate for six categories of 
participants: (1) infants from birth to 3 months;  (2) infants from 
4 to 12 months; (3) women and children with special dietary needs; 
(4) children from 1 to 5 years of age; (5) pregnant and nursing 
mothers; and  (6) postpartum nonnursing mothers. In addition to food 
benefits, recipients also must receive nutrition education and 
breast-feeding support (where called for).	
	The Federal cost of providing WIC benefits varies widely 
depending on the recipient and the foods included in the food 
package, as well as differences in retail prices (where vouchers are 
used), food costs (where the WIC agency buys and distributes food), 
and administrative costs (including the significant costs of 
nutrition risk screening, breastfeeding support, and nutrition 
education). Moreover, the program's food costs are significantly 
influenced by the degree to which States gain rebates from infant 
formula manufacturers under a requirement to pursue "cost containment" 
strategies; these rebates total over $1.5 billion a year nationwide 
and pay for the cost of serving a significant portion of the WIC 
population. In fiscal year 2002, the national average Federal cost 
of a WIC food package (after rebates) was $35 a month, and, for each 
participant, the average monthly "administrative" cost (including 
nutrition risk assessments and nutrition education) was about $13.
	The WIC Program has categorical, income, and nutrition risk 
requirements for eligibility. Only pregnant and postpartum women, 
infants, and children under age 5 may participate. As noted above, 
WIC applicants must show evidence of health or nutrition risk, 
medically verified by a health professional, in order to qualify. 
They also must have family income below 185 percent of the most 
recent Federal poverty guidelines (about $28,200 a year for a three-
person family in fiscal year 2004). State WIC agencies may (but 
seldom do) set lower income eligibility cutoff points. Receipt of 
TANF, food stamps, or Medicaid assistance also can satisfy the WIC 
Program's income test, and States may consider pregnant women meeting 
the income test "presumptively" eligible until a nutritional risk 
evaluation is made. Drawing on a 2002 study, almost two-thirds of 
WIC enrollees had family income below the Federal poverty guidelines, 
10 percent of WIC enrollees were cash welfare (TANF) recipients, 
18 percent received food stamps, and 54 percent were covered by 
Medicaid.
	WIC participants receive benefits for a specified period of 
time, and in some cases must be recertified during this period to 
show continuing need. Pregnant women may continue to receive benefits 
throughout their pregnancy and for up to 6 months after childbirth, 
without recertification. Nursing mothers are certified at 6-month 
intervals, ending with their infant's first birthday.
	The WIC Program, which is federally funded but administered 
by State and local health agencies, does not serve all who are 
eligible. It is not an "entitlement" program, and participation is 
limited by the amount of Federal funding appropriated, whatever 
State supplementary funding is provided, and the extent of 
manufacturers' infant formula rebates. In fiscal year 2002, Federal 
spending was $4.37 billion, and the program served a monthly average 
of 7.5 million women, infants, and children: 24 percent women, 
25 percent infants, and 51 percent children. The administration's 
most recent estimate of the total number of persons eligible and 
likely to apply for WIC benefits is 7.5 million persons, although 
other sources suggest the number exceeds 8 million people. Table 
15-28 summarizes WIC participation and Federal costs.

TABLE 15-28--SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMAN, 
INFANTS, AND CHILDREN (WIC) PARTICIPATION AND FEDERAL SPENDING, 
SELECTED FISCAL YEARS 1977-2002  


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]



CHILD AND ADULT CARE FOOD PROGRAM

	The Child and Adult Care Food Program (CACFP) is a 
permanently authorized entitlement under section 17 of the Richard B. 
Russell National School Lunch Act. It provides Federal subsidies for 
breakfasts, lunches, suppers, and snacks served in participating 
nonresidential child care centers (including homeless shelters, Head 
Start centers, and after school care centers) and family or group 
day care homes, as well as for snacks offered in outside-of-school 
programs.  Sponsors giving administrative support for providers 
also are paid limited amounts for their costs. Subsidized meals and 
snacks must meet Federal nutrition standards, and providers must 
fulfill any State or local licensing/approval requirements or minimum 
alternative Federal requirements (or otherwise demonstrate that they 
comply with government-established standards for other child-care 
programs). Federal assistance is made up overwhelmingly of cash 
subsidies based on the number of meals/snacks served or paid for 
administration; about 3 percent is in the form of federally donated 
food commodities. CACFP subsidies to participating centers, homes, 
and outside-of-school programs are available for meals and snacks 
served to children age 12 or under (through age 18 in outside-of-
school settings), migrant children age 15 or under, and handicapped 
children of any age, but preschool children form the majority.
	At the Federal level, the program is administered by the 
Agriculture Department's Food and Nutrition Service (FNS). At the 
State level, a variety of agencies have been designated as 
responsible by the individual States, and, in one State (Virginia), 
the FNS is the designated State agency. Federal CACFP payments 
flow to individual providers either directly from the State agency 
(this is the case with many child care centers able to handle their 
own administrative responsibilities) or through "sponsors" who 
oversee and provide support for a number of local providers (this 
is the case with some child care centers and all day care homes). 
The CACFP dates back to 1968, when Federal assistance for programs 
serving children outside of school ("special food service" programs) 
was first authorized. In 1975, the summer food service and child 
care components of this assistance were first formally separated 
as individual programs.
	In fiscal year 2002, the cost of CACFP cash and commodity 
subsidies for meals/snacks, sponsors' administrative costs, and a 
separate payment to State agencies for audit and oversight was 
$1.8 billion, up $100 million from 2001. Total average daily 
attendance in participating centers, homes, and outside-of-school 
programs was 2.7 million children, slightly higher than 2001 
(2.6 million). 

CENTERS AND OUTSIDE-OF-SCHOOL PROGRAMS

	Child care centers in the CACFP serve an average of 40-60 
children and are of 5 types: (1) public or private nonprofit centers 
(including after school care centers), (2) Head Start centers, (3) 
for-profit proprietary centers (see restrictions noted below), (4) 
outside-of-school programs (often operated by schools), and (5) 
shelters for homeless families. In fiscal year 2002, some 42,000 
centers/sites (17,000 sponsors) with an average daily attendance of 
1.8 million children participated in the CACFP. Two-thirds of 
children in the CACFP were reached through centers or outside-of-
school programs. Of these, 37 percent were in public or private 
nonprofit centers, 28 percent were in Head Start centers, 28 percent 
were in for-profit center, and 7 percent were in outside-of-school 
programs. On the other hand, CACFP funding for centers/programs 
represented half of total CACFP spending, primarily because their 
subsidies are, for the most part, differentiated by individual 
children's family income and larger administrative cost payments 
generally are provided for sponsors of day care homes (see below). 
Proprietary centers can be eligible in one of two ways: (1) if they 
receive Title XX funding for at least 25 percent of their enrollment, 
regardless of the income status of the children they serve (this 
includes cases in which Child Care and Development Block Grant and 
Title XX funds are "pooled" in such a way as to meet the 25 percent 
requirement, even when Title XX money represents a minority of the 
pooled funding); or (2) if children representing at least 25 percent 
of their enrollment or licensed capacity have family income below 
185 percent of the Federal poverty income guidelines (i.e., would 
be eligible for free or reduced price meals or snacks). However, 
authority to participate under the second rule is renewed annually 
under current law and may expire, except in three States (Delaware, 
Iowa, and Kentucky) where it is permanently in place.
	Day care centers may receive daily subsidies for up to two 
meals and one snack or one meal and two snacks for each child, so 
long as they meet Federal nutrition standards. All meals and snacks 
served in centers are federally subsidized to at least some degree; 
different subsidies are provided for breakfasts, lunches/suppers, 
and snacks, and subsidy rates are set in law and indexed for 
inflation annually. However, cash subsidies vary according to the 
family income of each child, and applications for free or reduced-
price meals and snacks normally must be taken. The largest subsidies 
are paid for meals and snacks served to children with family income 
below 130 percent of the Federal poverty income guidelines: for July 
2003-June 2004, these subsidies are 60 cents for each snack, $1.20 
for each breakfast, and $2.19 for each lunch/supper. Smaller 
subsidies are available for meals and snacks served at a reduced 
price (no more than 15 cents for snacks, 30 cents for breakfasts, 
and 40 cents for lunches/suppers) to children with family income 
between 130 and 185 percent of the poverty guidelines: for July 
2003-June 2004, these are 30 cents for snacks, 90 cents for 
breakfasts, and  $1.79 for lunches/suppers. The smallest subsidies 
are paid for meals and snacks served to children who do not qualify 
or apply for free or reduced-price meals and snacks: for July 2003-
June 2004, these are 5 cents for snacks, 22 cents for breakfasts, 
and 21 cents for lunches and suppers. "Independent" centers (those 
without sponsors handling administrative responsibilities) must pay 
for administrative costs associated with the CACFP out of non-
Federal funds or a portion of their meal subsidy payments. In other 
cases, center sponsors may retain a proportion of the meal subsidy 
payments they receive on behalf of their centers to cover their 
costs. Finally, Federal commodity assistance is available to centers, 
generally valued at about 15 cents a meal.
	While Federal subsidies for centers differ by the income of 
the child served the meal/snack, there is no requirement that "free" 
or "reduced-price" meals/snacks be served. Centers may adjust their 
fees to account for Federal subsidies or charge separately for meals 
to account for the subsidies; the CACFP itself does not regulate the 
fees they charge.
	In addition to the regular CACFP, public and private 
nonprofit organizations (including child care centers and schools) 
operating after-school programs any receive CACFP subsidies for 
snacks served free in their programs to children  (through age 18) in 
lower-income areas, at the free snack rate noted above. In Delaware, 
Illinois, Michigan, Missouri, Pennsylvania, New York, and Oregon, 
Federal subsidies also are offered for free suppers, at the free 
lunch/supper rate noted above.

FAMILY AND GROUP DAY CARE HOMES

	CACFP-subsidized day care homes serve an average of 4-6 
children; just under 40 percent of children in the CACFP are in day 
care homes, and about half the money spent under the CACFP supports 
meals and snacks served in homes. In fiscal year 2002, 165,000 home 
sites (with some 1,000 sponsors) received subsidies for an average 
daily attendance of some 900,000 children. As with centers, payments 
are provided for no more than two meals and one snack (or one meal 
and two snacks) a day for each child. Unlike centers, day care homes 
must participate under the auspices of a public or (most often) 
private nonprofit sponsor that typically has 100 or more homes under 
its supervision; CACFP day care home sponsors receive monthly 
administrative payments (separate from meal subsidies) based on the 
number of homes for which they are responsible. Also unlike centers, 
day care homes receive cash subsidies (but not commodities) that 
generally do not differ by individual children's family income. 
Instead, there are two distinct subsidy rates. "Tier I" homes (those 
located in low-income areas or operated by low-income providers) 
receive higher subsidies for each meal/snack they serve: for July 
2003-June 2004, all lunches and suppers are subsidized at $1.83 each, 
all breakfasts at 99 cents, and all snacks at 54 cents. "Tier II" 
homes (those not located in low-income areas or without low-income 
providers) receive smaller subsidies: for July 2003-June 2004, these 
are $1.10 for lunches/suppers, 37 cents for breakfasts, and 15 cents 
for snacks. However, Tier II providers may seek the higher Tier I 
subsidy rates for individual low-income children for whom financial 
information is collected and verified.

WORKFORCE INVESTMENT ACT (WIA)

	WIA, enacted in August 1998, repealed the Job Training 
Partnership Act (JTPA) on July 1, 2000, and replaced it with Title I 
of WIA, Workforce Investment Systems.  The purpose of WIA is to 
provide workforce investment activities that increase the employment, 
retention, and earnings of participants.  WIA programs are intended 
to increase occupational skills attainment by participants, and, as a 
result, improve the quality of the workforce, reduce welfare 
dependency, and enhance the productivity and competitiveness of the 
Nation.  WIA authorizes several job training programs including Adult 
Employment and Training Activities, Youth Activities, and Job Corps.
	Under WIA's adult program, adults receive services through a 
coordinated service delivery system overseen by local workforce 
investment boards.  This system, called the "One-Stop" system, is 
intended to provide a "seamless" system of services to improve 
employment opportunities for individuals. Through one-stop centers 
individuals receive core services, such as outreach, initial 
assessment of skills and needs, and job search and placement 
assistance.  Through one-stop centers, eligible individuals also 
receive access to intensive services such as comprehensive 
assessments and development of individual employment plans, and 
to training services such as occupational skills training and on-
the job training.
	Anyone age 18 and older is eligible to receive core services.  
To be eligible to receive intensive services, an individual has to 
have received at least one core service, have been unable to obtain 
or retain employment through core services and need intensive 
services to obtain or retain employment. To be eligible to receive 
training services, an individual has to have received at least one 
intensive service, have been unable to obtain or retain employment 
through such services, have the skills and qualifications to 
successfully participate in select training programs that are 
directly linked to employment opportunities in the local area, and be 
unable to obtain other grant assistance, including Pell grants, or 
need assistance above the levels provided by such other grants.
	As shown in Table 15-29 of WIA adult participants who received 
intensive or training services and exited the program during program 
year 2001,  43 percent were white, 29 percent were black, and 
22 percent were Hispanic.  Seventy-three percent were low-income and 
80 percent were unemployed at the time of entry in the program.
	Among the 73 percent of low-income "exiters" who received 
intensive or training services, 44 percent received intensive services 
only and 56 percent received training services.  Of the low-income 
exiters who received intensive or training services and were 
unemployed at entry, 72 percent entered employment in the first 
quarter after exit.  Of all low-income exiters who received intensive 
or training services, the average earnings of those with earnings in 
the first quarter after exit was $3,649. 
	Under WIA's youth program, youth, who are generally required 
to be low-income, receive services such as tutoring and study skills 
training, alternative high school services, and summer youth 
opportunities.  Services to youth are provided through grants to 
providers made on a competitive basis.  At least 30 percent of the 
funds allocated to local areas have to be spent on activities for 
out-of-school youth.
		
TABLE 15-29--CHARACTERISTICS OF WIA ADULT EXITERS WHO RECEIVED 
INTENSIVE OR TRAINING SERVICES,  PROGRAM YEAR 2001


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


	As shown in Table 15-30, of WIA youth participants who exited 
the program during program year 2001, 28 percent were white, 
33 percent were black, and 34 percent were Hispanic.  Ninety-four 
percent were low-income.
	In FY2003, an estimated $899 million is expected to be spent 
to serve 545,600 adults under WIA Adult Activities, and an estimated 
$994 million is expected to be spent to serve 445,800 youth under 
Youth Activities.  Data on participation and budget authority for 
recent years are provided in Table 15-31.
	Job Corps, authorized by Title I-C of WIA, serves low-
income youth  ages 16-24 who demonstrate both the need for and the 
ability to benefit from an intensive and wide array of training, 
career development, job placement, and support services in a 
residential setting.  The program is administered by DOL through 
contracts with large and small corporations and nonprofit 
organizations for the operation of 90 centers, and through 
interagency agreements with the U.S. Departments of Agriculture and 
the Interior for the operation of 28 additional centers on public 
lands.

TABLE 15-30--CHARACTERISTICS OF WIA YOUTH EXITERS, PROGRAM YEAR 2001


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

	In program year 2001 (July 1, 2001-June 30, 2002), nearly 
68,000 new students enrolled in Job Corps Centers, 60 percent of whom 
were male.  In that same year, 47 percent of new students were 
African-American, 29 percent were white, 18 percent were Hispanic, 
4 percent were American Indian, and 2 percent were Asian or Pacific 
Islanders.  Seventy-seven percent of new students had dropped out of 
high school; the average grade level for reading at enrollment was 
7.5. Twenty percent of new students in program year 2001 came from 
families on public assistance.

TABLE 15-31--WIA JOB TRAINING PROGRAMS FOR ADULTS AND YOUTH:  
NEW ENROLLEES, FEDERAL APPROPRIATIONS, AND OUTLAYS, 
FISCAL YEARS 1999-2003  


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


	Of all Job Corps members who left the program in program 
year 2001, 76 percent were placed in jobs, full-time advanced 
education or training, or the military.  The average length of stay 
in Job Corps in program year 2001 was  7.6 months.

In FY2003, an estimated $1.5 billion is expected to be spent to 
serve 68,454 youth under the Job Corps.  Data on participation and 
budget authority for recent years are provided in Table 15-32.

TABLE 15-32--JOB CORPS FEDERAL APPROPRIATIONS, OUTLAYS, 
AND NEW ENROLLEES, FISCAL YEARS, 1999-2003



[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


HEAD START

	Head Start began operating in 1965 under the general 
authority of the Economic Opportunity Act of 1964. Head Start 
provides a wide range of services to primarily low-income children, 
ages 0 to 5, and their families. Its goals are to improve the social 
competence, learning skills, and health and nutrition status of 
low-income children so that they can begin school on an equal basis 
with their peers from higher-income households. The services provided 
include cognitive and language development; medical, dental, and 
mental health services (including screening and immunizations); and 
nutritional and social services. Parental involvement is extensive, 
through both volunteer participation and employment of parents as 
Head Start staff. Formal training and certification as child care 
workers is provided to some parents through the Child Development 
Associate Program. Head Start's eligibility guidelines require that 
at least 90 percent of the children served come from families with 
incomes at or below the poverty line. At least 10 percent of the 
enrollment slots in each local program must be available for children 
with disabilities. In fiscal year 2002, 912,345 children were served 
in Head Start Programs, at a total Federal cost of $6.5 billion. In 
May 2002, 21 percent of Head Start families received TANF benefits. 
Table 15-33 provides historical data on participation in and funding 
of the Head Start Program, while Table 15-34 provides characteristics 
of children enrolled in the program.

TABLE 15-33--HEAD START ENROLLMENT AND FEDERAL FUNDING, FISCAL 
YEARS 1965-2002


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


LOW-INCOME HOME ENERGY ASSISTANCE PROGRAM (LIHEAP)

BACKGROUND

The Low-Income Home Energy Assistance program (LIHEAP) is a block 
grant program under which the Federal government gives annual grants 
to States, the District of Columbia, U.S. territories and 
Commonwealths, and Indian tribal organizations in order to operate 
home energy assistance programs for low-income households. Originally 
established in 1981 by Title XXVI of Public Law 97-35, the program 
has been reauthorized and amended several times, most recently in 
1998, when Public Law 105-185 reauthorized LIHEAP through FY2004. 
The statute authorizes appropriations for both regular LIHEAP grants 
and for contingency funds.  This program is operated out of the 
Division of Energy Assistance in the Office of Community Services, 
Administration for Children and Families, within  the Department of 
Health and Human Services (HHS).

Regular funds are allocated to States according to a three-tier 
formula prescribed in the LIHEAP statute as amended by the Human 
Services Reauthorization Act (HSRA) of 1984 (Public Law 98-558). The 
particular tier used for the allocations is determined by the size of 
the appropriation for that fiscal year. For funding levels below 
$1.975 billion a Tier I rate, determined in 1981, is applied. For 
allocations from $1.975 up to $2.25 billion a new Tier II rate is 
applied. At the Tier II rate, States are subject to a hold-harmless 
level where their new Tier II allocation must be at least as great 
as the allocation the State received in 1984. Those States with the 
greatest percentage increase in their allocations and which are not 
at a hold-harmless level must have their allocations ratably reduced 



TABLE 15-34--CHARACTERISTICS OF CHILDREN ENROLLED IN HEAD START, 
 SELECTED FISCAL YEARS 1980-2002


 [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


until the hold-harmless provision for States below that level is met. 
The Tier II formula is required by law to account for variations in 
heating and cooling needs of the States, variations in types of 
energy used, variations in energy prices, and variations in the low-
income population and their heating and cooling methods, while using 
the most current data available.

For funding levels at or above $2.25 billion a Tier III rate is 
applied. The Tier III rate uses the Tier II methodology but there 
are additional requirements for distributing funds. States that would 
have received less than 1 percent of a total $2.25 billion allocation 
must be allocated funds using the rate they would have experienced 
at a hypothetical $2.14 billion allocation (if this rate is greater 
than the calculated rate at $2.25 billion).  In both the Tier II and 
Tier III rates, a State will not be allocated fewer funds than the 
State received in 1984.  However, the proportion of total regular 
funds each State receives may differ substantially from the 
proportion received in 1984.  

For FY2003 the LIHEAP appropriation was $1.7 billion with an 
additional $100 million transferred from the FY2001 Supplemental 
Appropriations.  The total of $1.8 billion was then subject to a 
0.65 percent rescission, resulting in an allocation for regular 
LIHEAP funds in FY2003 of $1,788,300,000. Contingency funds are 
released and allocated at the discretion of the President and the 
Secretary of HHS and can be done at any point in the fiscal year.  
In FY2003, $200 million in supplemental contingency funds were 
released to  States in January. All States in FY2003 received a 
proportion of these contingency funds, which were primarily allocated
in the same manner as regular LIHEAP funds.  

Table 15-35 displays LIHEAP allocations by State (including  
tribal organizations but excluding U.S. territories). As noted in the 
table's  footnotes, the funding allotments include LIHEAP contingency 
funds released  in a given fiscal year. 

FEDERAL REQUIREMENTS FOR THE ALLOTMENTS

	Decisions regarding LIHEAP are made by the States under broad 
Federal rules.  Federal rules allow States to use LIHEAP funds for 
the following activities: aid in paying heating or cooling bills; 
low-cost weatherization projects (limited to 15 percent of allotment 
unless the grantee has a waiver for up to 25 percent); services to 
reduce the need for energy assistance (limited to 5 percent of 
allotment); assistance with energy-related emergencies (with a 
reasonable amount reserved, based on prior years' data, until 
March 15 of each program year); and development or implementation of 
a leveraging incentive program that may be used by grantees to 
attract funds from non-Federal sources. Up to 10 percent of LIHEAP 
funds may be used for administrative and planning costs. Federal 
rules also allow carryover of up to 10 percent funds into the next 
fiscal year.

States decide the mix and dollar range of benefits, choose how 
benefits are provided, and decide which agencies will administer the 
program. When paying home energy suppliers directly, States are 
required to give HHS assurances that suppliers will charge the 
eligible households the difference between the amount of the 
assistance and the actual cost of home energy. Also, States may use 
LIHEAP funds to provide tax credits to energy suppliers that supply 
home energy to low-income households at reduced rates. Tables 15-36 
and 15-37 present estimates by State for FY2001 of total dollars 
spent on heating, cooling, emergency, and weatherization assistance 
as well as the number of households receiving benefits and average 
benefits (as of Fall 2003, these are the latest data available).

TABLE 15-35--LOW-INCOME HOME ENERGY ASSISTANCE PROGRAM 
STATE ALLOTMENTS, FISCAL YEARS 1999-2003


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]



TABLE 15-36--LOW-INCOME HOME ENERGY ASSISTANCE PROGRAM ESTIMATED 
HEATING AND COOLING ASSISTANCE AND AVERAGE BENEFITS, 
FISCAL YEAR 2001




[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]



ELIGIBILITY STANDARDS

	Federal law limits eligibility to households with incomes up 
to 150 percent of the Federal poverty income guidelines (or, if 
higher, 60 percent of the State median income). States may adopt 
lower income limits, but these limits may not be less than 110 
percent of the poverty guidelines. The term "household" is defined as 
any individual or group of individuals who are living together as one 
economic unit and for whom residential energy is customarily purchased 
in common, or who make undesignated payments for energy in the form of 
rent. States may choose to make eligible for LIHEAP assistance any 
household where at least one member is a recipient of Temporary 
Assistance for Needy Families (TANF), Supplemental Security Income 
(SSI), Food Stamps, or certain needs-tested veterans' programs. 

	Within these limits, States decide which, if any, types of 
assistance to provide, what income limits to use, and whether to impose 
other eligibility tests. However, Federal law gives priority for aid to 
households with the greatest energy needs or cost burdens, especially 
those households that include disabled or elderly individuals or young 
children. Federal rules require States to treat owners and renters 
"equitably," to adjust benefits for household income and home energy 
costs, and to have a system of "crisis intervention" assistance for 
those in immediate need. LIHEAP assistance does not reduce eligibility 
or benefits under other Federal aid programs targeted to low-income 
individuals and families. Federal rules also require outreach 
activities, coordination with the Department of Energy's weatherization 
program, annual audits and appropriate fiscal controls, and fair 
hearings for those aggrieved.

PLANNING AND ADMINISTRATION

	States are required to submit an application for funds to the 
Secretary of HHS. As part of the application, the chief executive 
officer of the State (Indian tribe, or territory), or a designee, is 
required to make several assurances related to eligibility 
requirements, anticipated use of funds, as well as satisfy planning 
and administrative requirements.

	States must provide for public participation and public 
hearings in the development of the State plan, including making the 
plan, and any substantial revisions, available for public inspection 
and allowing public comments. Public Law 98-558 requires States to 
engage an independent person or organization to prepare an audit at 
least once every 2 years.  However, the Single Audit Act of 1984 
(Public Law 98-502) supersedes this requirement in most cases, 
requiring States to conduct an annual audit for all Federal financial 
assistance received.


TABLE 15-37--LOW-INCOME HOME ENERGY ASSISTANCE PROGRAM ESTIMATED 
CRISIS AND WEATHERIZATION ASSISTANCE AND ESTIMATED AVERAGE BENEFITS,  
FISCAL YEAR 2001



[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


Section 607(a) of Public Law 98-558 directs HHS to collect annual 
data, including information on the number of LIHEAP households in 
which at least one household member is 60 years old or handicapped.

AVAILABLE SOURCES OF FUNDS

Several sources of Federal and non-Federal funds are available for 
State LIHEAP programs:   

-	Federal LIHEAP block grant allotments;

-	LIHEAP emergency contingency allotment for weather 
emergencies (these funds can only be released at the President's 
directive);

-	LIHEAP leveraging incentive awards (established by Public 
Law 101-501 to reward States that have acquired non-Federal home 
energy resources for low-income households); 

-	Residential Energy Assistance Challenge (REACH) grants 
which award funds to demonstration projects to increase energy 
efficiency and reduce the vulnerability of low-income households 
(REACH grants receive  25 percent of the LIHEAP leveraging 
incentive allocation);

-	LIHEAP carryover (States can request that up to 10 percent 
of their Federal LIHEAP funds be carried over for use in the next
fiscal year);

-	Oil overcharge funds (disbursed by the Department of Energy 
from settlements related to oil price overcharges pursuant to the 
Emergency Petroleum Act of 1973. States determine how to allocate 
these funds among several eligible activities, including LIHEAP); and

-	State and other funds.  (States may use their own funds to 
supplement LIHEAP benefits or administrative costs. Other funds 
include reimbursements to LIHEAP agencies for taking applications for 
low-income weatherization programs or winter heating protection 
programs.)

PERFORMANCE MEASUREMENT

The LIHEAP statute provides that Federal LIHEAP funds should serve 
low-income households that pay high home energy costs relative to 
income and that have very young, disabled, or elderly individuals.  
HHS has developed performance goals and measures to enable it to 
quantify State performance. The performance goals are to increase 
the percentage of LIHEAP recipient households having: a household 
member 5 years old or younger; a household member at least 60 years 
old; and the lowest income households with the highest energy costs. 
Achievement of these goals will be measured using specially developed 
benefit-targeting and burden-targeting indexes. The agency intends to 
measure performance using a FY2001 baseline. The data collected are 
intended to help States improve program outreach and management, and 
to assist HHS in determining how best to offer technical assistance 
to States.

VETERANS BENEFITS AND SERVICES

	The Department of Veterans Affairs (VA) offers a wide range 
of benefits and services to eligible veterans, members of their 
families, and survivors of deceased veterans. VA programs include 
veterans compensation and pensions, readjustment benefits, medical 
care, and housing and loan guaranty programs. The VA also provides 
life insurance, burial benefits, and special counseling and outreach 
programs. In fiscal year 2002, Federal appropriations for veterans 
benefits and services were nearly $53 billion (Table 15-38).
	Service-connected compensation is paid to veterans who have 
disabilities from injuries and illnesses traceable to a period of 
active-duty military service. The amounts of monthly payments are 
determined by disability ratings that are based on presumed average 
reductions in earning capacities caused by the disabilities. 
Disability ratings generally range from 10 percent to 100 percent 
in 10-percent intervals; however, some disabilities are determined 
to be service-connected, but are given a zero-percent rating. Death 
compensation, or dependency and indemnity compensation, is paid to 
surviving dependents of veterans who died as a result of service-
connected causes. In fiscal year 2002, about 2.4 million disabled 
veterans and 308,000 survivors received about $22 billion in 
compensation payments.
	Veterans pensions are means-tested cash benefits paid to war 
veterans who have become permanently and totally disabled from 
non-service-connected causes, and to survivors of such disabled 
and impoverished war veterans. Under the current or "improved law" 
program, benefits are based on family size, and the pensions provide 
a floor of income. For 2002, the basic benefit before subtracting 
other income sources is $12,516 for a veteran with one dependent, 
$9,556 for a veteran living alone. Somewhat less generous benefits 
are available to survivors; a surviving spouse with no children 
could receive two-thirds ($6,497) of the basic benefit amount given 
a single veteran. About 581,000 persons received about $3.1 billion 
in veterans pension payments in fiscal year 2002.
	Several VA programs support readjustment, education, and 
job training for veterans and military personnel who meet certain 
eligibility criteria. The largest of these programs was the 
Montgomery GI bill (MGIB). The MGIB provides educational assistance 
to persons, who as members of the Armed Forces or the Selected 
Reserve, elect to participate in the program after  June 30, 1985. 
The purposes of the MGIB are to assist service members leaving the 
Armed Forces in their readjustment into civilian life, to provide 
an incentive for the recruitment and retention of qualified personnel 
in the Armed Forces, and to develop a more educated and productive 
work force. To participate in the MGIB, active duty military 
personnel contribute $100 per month, for the first  12 months of 
enlistment. Benefit levels are contingent upon length of service. 
To receive the maximum benefit of $800 per month for 36 months, 
service members must generally serve continuously for 3 years. 
Those who enlist and serve for less than three years will 
receive $650 a month.

TABLE 15-38--BUDGET AUTHORITY FOR VETERANS BENEFITS AND SERVICES, 
DEPARTMENT OF VETERANS AFFAIRS, FISCAL YEARS 1980-2002


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]



	The VA also provides vocational rehabilitation to disabled 
veterans. In fiscal year 2002, spending for VA readjustment programs 
was more than  $2 billion (Table 15-38).  In addition, the Department 
of Labor also provides employment counseling and job training for 
veterans.
	The VA provides a comprehensive array of inpatient and 
outpatient medical services through 172 medical centers, 137 
nursing homes, 43 domiciliaries, 684 outpatient clinics, and 206 
readjustment counseling centers (Vet centers). Public Law 104-262 
reformed eligibility rules for VA medical services.  These reforms 
not only simplified the rules, but give the VA greater flexibility 
in how it provides medical care to veterans.  Past eligibility 
rules were seen as emphasizing inpatient over outpatient care and, 
thus, impeded the efficient use of VA medical resources. Under the 
new eligibility rules, the VA provides free medical care, both 
inpatient and outpatient, to veterans for service-connected 
conditions and to low-income veterans for nonservice-connected 
conditions. For 2002, veterans with an income of $29,168 or less 
and married or with one dependent (plus $1,630 for each additional 
dependent) or $24,304 or less if single would meet the low-income 
criterion for free medical care. As facilities and other resources 
permit, the VA provides care to veterans for nonservice-connected 
conditions with incomes that exceed these limits; however, copayments 
are required. Again, as facilities and other resources permit, the 
VA provides nursing home care to veterans, with priority going to 
those with service-connected disabilities. The VA also contracts 
with private facilities and/or medical providers when it is 
determined to be in the interests of the veteran and cost effective 
for the VA. VA-operated nursing home care is augmented by 
VA-supported care through contracts with private community nursing 
homes and with per diem payments for veterans in State-run homes 
for veterans.
	In fiscal year 2002, VA medical treatment programs cost 
$23 billion (Table 15-38). VA medical services were provided to about 
4.8 million separate applicants, resulting in about 732,000 inpatient 
episodes and 47 million outpatient visits (Table 15-39).

WORKERS' COMPENSATION

OVERVIEW

Since 1911, every State has adopted a workers' compensation law, but 
there are no national standards for this system.  Before the passage 
of these laws, compensation for work-related injury or death was the 
exception rather than the rule, as employees had to sue their 
employers for negligence, and this could be difficult to prove. The 
goal of workers' compensation programs is to provide prompt, adequate 
benefits to injured workers' while at the same time limiting 
employers' liabilities.  Workers' compensation has become a 
substantial component of the U.S. social insurance system and a 
significant element of the overall cost of employment (See Table 
15-40.)  With this system employers can expect more predictable costs 
than under the law of negligence, while employees are spared lengthy 
and uncertain litigation.  (While the elimination of lawsuits was 
fairly well achieved at first, significant amounts of litigation have 
re-emerged in recent years.)  Another purported benefit is that 
employers have a tangible incentive to improve workplace safety.
Although workers' compensation laws differ from State to State, they 
tend  to have common features based on the same overall principles:

-	Victims of work-related injuries are entitled to receive 
prompt reasonable compensation for injury, and in case of death 
dependents receive income and burial benefits.  However, employees 
and survivors are barred from suing the employers except under 
unusual circumstances or if the employer does not pay compensation. 
Negligence and fault are largely immaterial and do not affect the 
worker's right of recovery.
-	Employers pay all costs, either directly or through 
insurance.  A variety of public and private sector insurance 
mechanisms are used (see Table 15-41), with larger employers tending 
to "self-insure," which means to bear the financial risks themselves.

TABLE 15-39--NUMBER OF RECIPIENTS OF VETERANS BENEFITS AND SERVICES, 
FISCAL YEARS 1980-2002


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


TABLE 15-40--FINANCIAL DIMENSIONS OF WORKERS' COMPENSATION


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]



TABLE 15-41--BENEFIT PAYMENTS BY INSURANCE ARRANGEMENT 



[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


-	Cases are handled in the first instance by the employing 
firm or its insurer. A State government appeals mechanism is 
available to resolve disputed claims with relatively little 
complexity or delay. Fees to lawyers and witnesses are minimized 
and costs of litigation are reduced or reimbursable to workers' 
regardless of the outcome.

-	There is no provision for "pain and suffering" or other 
non-economic damages, or for punitive damages.  The purpose of 
the system is to make the worker economically whole (or nearly so), 
not to implement a wider conception of justice.

-	Cash compensation is based on lost earnings or earning 
capacity. Typically, the benefit for total disability is two-thirds 
of lost earnings, paid for the term of the disability or a maximum 
allowable period.  Benefits are not subject to Federal income tax.  
Injury-related medical costs are to be fully covered, although the 
majority of States have established some cost controls (e.g., fee 
schedules, utilization reviews), and a number of States limit 
employees' choice of physician.

-	The States also have put into place mechanisms to facilitate 
and encourage the worker's return to the labor market through 
vocational rehabilitation, in order to minimize losses to both 
workers and employers. Moreover, the payment of less than 100 percent
of normal earnings could be interpreted as a return-to-work 
incentive.

-	State compensation laws also have established special funds 
and provisions to compensate special situations, such as aggravation 
of  injuries from previous jobs.

BENEFITS

Workers' compensation provides two kinds of benefits, income 
replacement and medical care.  The income benefit for total 
disability is set at a specified fraction of the worker's usual 
earnings for as long as he or she is unable to return to work. Partial 
disability is compensated proportionately to total disability  
according to the estimated fraction of earning capacity that has been 
lost. The replacement rate even for total disability is less than 
100 percent for two reasons.  First, the benefit is not subject to 
Federal (and usually not to State) income tax, and second, the 
decrease in income discourages fraudulent claims and gives an 
incentive to claimants to return to work as soon as possible. Table 
15-42 indicates the variations in benefit formulas by State for 
permanent total disability. In order to provide a "basic" level of 
income support and to limit program costs, benefits are subject to 
various maximums and minimums, which are defined in State law in 
terms of the State average weekly wage (SAWW).  As shown in the table, 
maximums range from $1069 (Iowa) to $323 (Mississippi). The 
variations result both from differences in the SAWW and from 
differences in the percentage limitation - with maximums varying from 
200 percent of SAWW (Iowa) to nearly 67 percent (California, Delaware 
and Mississippi).
  	There are no direct cost-of-living increases in benefits. 
However, for those whose benefit is determined by the maximum or 
minimum, their benefit would change as those benchmarks change in 
step with the SAWW.  Benefits may be reduced ("offset") to reflect 
income support from other sources, such as Social Security or 
private pension plans, under provisions varying greatly from State to 
State.  (The table notes only those States that end benefits 
completely at a presumed retirement age.)
	In cases of death, benefits are paid in similar fashion - as 
a percentage of previous earnings - but with various time limits. The 
limit can be a specific time period, such as 10 years, but more often 
the benefit continues until the spouse remarries (or reaches a 
specified age) and the youngest child reaches age 18. No payment is 
due if there are no immediate "dependents" as defined by State law. 
These provisions are in keeping with the philosophy of workers' 
compensation as a practical method of maintaining the worker's role 
as breadwinner, rather than a liability-based system of distributive 
justice.

	The medical benefit in principle is straightforward: whatever 
care is necessary to heal the work-related injury.  In practice many 
disputes arise.  The principal points of contention include such 
questions as: Was the injury work-related?  Did it aggravate a 
previously existing condition?  What treatments are medically 
necessary?  How much should providers be reimbursed?  Who chooses 
the providers?  Such questions have been extensively litigated, and 
the answer in each case will depend on the particulars of the 
situation and the development of case law in each State.  By statute, 
the States have established procedures for physician selection and 
for resolving disputes, and mandated various programs of vocational 
rehabilitation.  Cost containment mechanisms also have been adapted 
from innovations in the health insurance arena.  However, the 
workers' compensation medical system remains separate from health 
insurance, even from the insurance plan of the same employer, and 
is governed by its own body of law. Cases of occupationally caused 
disease, as opposed to traumatic injury, present special problems 
because causation may be difficult to prove.  Symptoms may not 
develop until long after exposure, exposure that may itself have 
occurred over a long period of low doses of a harmful substance or 
stress.  Moreover, the resulting illness may be indistinguishable 
from illness that could have other, non-work causes, e.g., lung 
cancer or on-the-job heart attack.  Early workers' compensation 
laws dealt with these ambiguities restrictively, some by  
disqualifying all illnesses (as opposed to injury), some by 
excluding "diseases of ordinary life," some by enumerating specific 
diseases as "occupational."  Since 1970 the States have made all 
illnesses compensable, at least in principle, though some 
distinctions still are made, such as a lower level of payments 
for illness.

TABLE 15-42--MAXIMUM BENEFITS FOR PERMANENT TOTAL DISABILITY, 
JANUARY 2002


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]



FEDERAL ROLE

With few exceptions (to be described presently), the rights and 
obligations of workers' compensation are defined and overseen 
pursuant to State law. Some coordination on the national level is 
afforded by organizations such as the International Association of 
Industrial Accident Boards and Commissions [www.iaiabc.org], the 
National Association of Insurance Commissioners [www.naic.org], and 
the National Council on Compensation Insurance [www.ncci.com] (which 
develops research and statistics used in setting insurance rates 
and terms).

Calls have been made from time to time for the Federal government to 
set minimum national standards for workers' compensation.  When the 
Occupational Safety and Health Act (P.L. 91-596) was passed in 1971, 
the subject was broached via a provision in that act establishing a 
commission to study workers' compensation.  The commission made many 
recommendations, 19 of which it deemed essential, in areas including 
worker eligibility, disease coverage, rehabilitation services, and 
size and duration of cash benefits (National Commission, 1972). In 
the next decade or so, Congressional investigation of these matters 
aided in inducing some reforms, but did not result in the passage of 
Federal mandates for the States.  As of 1998, the States were, on 
average, in compliance with 12.8 of the commission's 19 "essential" 
recommendations (LRP Publications 1998, Table III-B).  Expenditure on 
cash benefits, however, has been estimated at less than half of what 
would be required by adoption of the subsequent model act of the 
Council of State Governments. 

Federal Employees Compensation Act (FECA)-The Federal government 
directly provides or oversees workers' compensation or similar 
benefits for certain groups of workers.  The largest of these is 
the Federal workforce, which is covered by the Federal Employees 
Compensation Act (FECA, 5 U.S.C., Chapter 81) rather than by State 
law.  FECA is administered by the Office of Workers' Compensation 
Programs (OWCP), in the U.S. Department of Labor, through 12 district 
offices located across the United States.  Eligible workers include 
(along with the regular executive, legislative, and judicial branch 
employees) civilian defense workers, medical workers in veterans' 
hospitals, and the 800,000 employees of the Postal Service. 
Additionally, special legislation extends coverage to Peace Corps 
and VISTA (Volunteers In Service To America) volunteers; Federal 
petit or grand jurors; volunteer members of the Civil Air Patrol; 
Reserve Officer Training Corps Cadets; Job Corps, Neighborhood Youth 
Corps, and Youth Conservation Corps enrollees; and non-Federal law 
enforcement officers under certain circumstances involving crimes 
against the United States.

	During FY2001, the program provided workers' compensation 
coverage for approximately 2.7 million workers.  In that year the 
program paid approximately 2.2 billion in benefits to nearly 280,000 
workers, including 165,915 new cases. Of the benefits paid, almost 
$1.5 billion was for wage-loss compensation, $617 million for 
medical and rehabilitation services, and $128 million for death 
benefits.

While FECA greatly resembles most State workers' compensation 
programs, it also has a number of distinctive features, among 
which the most important are:

-	 A benefit formula that, at 75 percent of pay, is somewhat 
more generous than the usual level of State benefits, 66-2/3 percent 
(although FECA recipients without any dependents receive 66- 2/3 
percent);
-	Full salary continuation for up to 45 days before switching 
to FECA benefits;
-	No maximum cap for workers throughout the General Schedule 
of positions up to and including GS-15;
-	An appeals process, putatively non-adversarial and contained 
within the Department of Labor, whose appeals board's decision is 
final. 

	Longshore and Harbor Workers' Compensation Act (LHWCA)--The 
Longshore and Harbor Workers' Compensation Act (33 U.S.C.  901-950) 
covers injuries that occur during maritime employment on navigable 
waters of the United States.  Benefits are paid by the employers, 
with oversight by the Office of Workers' Compensation Programs 
(OWCP) in the U.S. Department of Labor rather than State 
governments.  The program was originally established in response to 
a Supreme Court decision (Southern Pacific Co. v. Jensen, 244 U.S. 
205) holding that State workers' compensation laws did not apply on 
the nation's navigable waters.  The exact extent of coverage under 
LHWCA has been changed from time to time, but essentially, maritime 
employment includes the building, repairing, loading or unloading 
of vessels. The term navigable waters includes places beyond those 
where a boat could float, such as land that adjoins water at a pier, 
wharf, dry dock, or terminal.  Areas not just on a pier or wharf, 
but also nearby, can be included if they are used for loading, 
unloading, repairing, or building vessels.  The law exempts 
shipyards dealing with recreational boats under 65 feet in length 
and certain land operations of yards dealing exclusively with 
smaller commercial vessels, e.g., work boats under 1,600 tons gross.
	LHWCA also covers several miscellaneous classes of employees 
through extensions to the law:
-	The Defense Base Act (August 16, 1941) covers employees on 
overseas military, air, or naval bases or other areas under public 
works contracts performed by contractors with U.S. government 
agencies;
-	The Nonappropriated Fund Instrumentalities Act (June 19, 
1952) covers civilian employees in post exchanges or service clubs 
of the armed forces; and
-	The Outer Continental Shelf Lands Act (August 7, 1953) 
covers mineral exploration and production workers such as those on 
offshore drilling platforms.

The law is more generous than most State workers' compensation laws 
in some respects, notably: (a) payments for permanent total 
disability and for death receive annual cost-of-living increases, 
and (b) compensation is available for occupationally-caused disease 
that manifests itself after retirement has begun. This provision 
was added in 1984 due to concern over diseases caused by asbestos.

The law also allows an injured worker to sue third parties (rather 
than the employer or a co-worker) who may be at fault for his or 
her injuries.  For example, when an individual working for a repair 
firm is injured on a vessel, there may be a claim of negligence 
against the vessel and its owner.  However, under the  1972 
amendments (P.L. 92-576) the worker cannot bring claims under the 
doctrine of "seaworthiness," which would entail absolute liability 
on the part of the owner.

In FY2001, 23,480 lost-time injuries were reported under the Act by  
330 self-insured employers and 410 insurance carriers. At the end 
of FY2001, 14,830 workers were continuing to receive compensation 
payments. Benefits paid in Calendar 2000 totaled $675 million, of 
which $511 million was for wage-loss and survivor benefits and 
$164 million in medical costs.  Federal administrative costs were 
$25 million.

Black Lung Program--As part of the Coal Mine Health and Safety Act 
of 1969 (P.L. 91-173, now codified at 30 U.S.C. 901 et seq.), 
which mandated reductions in miners' exposure to coal dust, income 
and medical support was offered to those who contract black lung 
disease.  While dust control has yielded some success in a reduction 
of new cases, nearly 5,000 new claims are still being received each 
year and more than 60,000 primary beneficiaries remain on the rolls, 
at a total cost of $400 million per year.

	Former miners who suffer total disability or death due to 
coal workers pneumoconiosis or related diseases are eligible for 
medical and income benefits. The medical benefit consists of 
diagnostic testing (available for all claimants) and services 
needed due to the disease, including drugs, durable medical equipment, 
home nursing visits, and hospitalization.  The base rate of the 
income benefit is set at three-eighths of the Federal salary for an 
employee in grade GS-2, Step 1, i.e., a base rate of $535 per month 
in calendar year 2003.  The benefit is augmented if the miner (or 
his survivor) has dependents, up to as much as double the base rate 
when there are three or more dependents. Black lung benefits are not 
subject to Federal income tax but may be taxed by the States. The 
benefits may be subject to offsets, depending on when the initial 
claim was made, against various other income support systems such 
as workers' compensation, disability insurance, and Social 
Security.
	The program is administered by the Division of Coal Mine 
Workers' Compensation, (a component of the Office of Workers' 
Compensation Programs in the Department of Labor), and is funded 
primarily by a tax on coal production.  In its fiscal year 2003 and 
2004 budgets, the Administration proposed a refinancing to eliminate 
a debt of $7.7 billion that the black lung fund owes to the Treasury.  
Much of this would be achieved through intra-governmental transfers 
with no external effect, but the plan also would entail extending 
the life of the coal tax, which currently is scheduled to end 
in 2014.

Radiation Exposure Compensation Act (RECA)--RECA (42 USC 2210, 
note) was passed in 1990 as a form of government compensation to 
three groups of people who suffered injury due to atmospheric 
testing of nuclear weapons in the Western States, namely, (a) 
civilian government  and contractor workers who participated in 
the tests, (b) civilians who may have been injured by the fallout 
thereof ("downwinders"), and (c) mining and milling workers who 
produced uranium for weapons.  Proof of causation is not necessary; 
rather, the claimant need show only that he/she was potentially 
exposed to radiation in a manner specified in the Act and has 
contracted one of the specified types of cancer. 

More specifically:
-	Atomic test participants qualify if they were employed and  
present on site.  They receive $75,000.
-	Downwinders qualify if they were in the "affected area" 
(certain counties in the Mountain States) for two years during 
1951 to 1958 (or throughout the month of July 1962).  They receive 
$50,000.
-	Uranium miners and millers qualify if they worked in the 
mines at any time from 1947 to 1971 and received specified 
cumulative doses of radiation.  They receive $150,000 and 
necessary medical treatment.

The program is administered by the Department of Justice, Civil 
Division, and payment is in the form of a lump sum.  Declining 
amounts have been authorized to be appropriated for each year 
through 2011, with 143 million being the amount for fiscal year 2003.

Energy Employees Compensation--The Energy Employees Occupational 
Illness Compensation Program Act (42 USC 7384 et seq.) was passed in  
recognition of the vital role played and the special hazards 
encountered by those who worked in the production of nuclear weapons 
and components. The Act provides lump sum compensation of 150,000 
(and necessary medical expenses) to those who contract certain 
illnesses such as cancer and berylliosis after having worked in 
plants making atomic weapons and related facilities (the "nuclear 
weapons complex").  There also are provisions to help former workers 
obtain regular workers' compensation (in addition to the lump sum 
benefit) and to obtain needed records from government contractors. 
The lead agency is the Department of Labor, with additional roles 
played by the Department of Energy and the National Institute for 
Occupational Safety and Health.

	The program was initiated in July 2001, and by January 30,
2003 some  30,000 applications had been received.  Of those, 6,423 
had been approved and  $460 million in benefits had been paid out. 
About 12,000 cases were pending. Railroad Workers and Seamen--
Rather than looking to workers' compensation coverage, workers in 
these industries obtain redress for injuries by filing suit under 
specialized Federal statutes.  For railroad workers, the Federal 
Employers' Liability Act (45 U.S.C. 51-60) mandates the common law 
principle of comparative negligence, but with various modifications 
generally more favorable to the worker than traditional common law.  
For seamen, the Merchant Marine Act of 1920, commonly known as the 
Jones Act (46 U.S.C. 688 et seq.), provides similar standards.

MAJOR DEVELOPMENTS SINCE 1980

The influence of the National Study Commission and subsequent 
Congressional interest prompted liberalization of benefits in many 
States in the 1980s, especially in the matter of "benefit adequacy," 
i.e. amounts under the basic wage replacement formula.  From 1972, 
when benefits averaged 0.68 percent of overall payroll, payments 
grew continuously, peaking at 1.66 percent in 1992 (Thomason et 
al., 2001).  In addition to benefits formula liberalization, medical 
cost inflation played a role.  By the 1990s, employer and insurance 
groups were campaigning for relief from their State legislatures, 
arguing, among other things, that workers' compensation costs 
figure prominently as an indicator of "business climate" that 
influences business location decisions.

TABLE 15-43--BENEFITS AS A PERCENTAGE OF COVERED WAGES BY STATE, 
1997 VERSUS 2000



[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]



Thus, starting in 1992, economic and political reaction to the 
previous expansion in benefits led to an opposite kind of "reform," 
one which emphasized cost control.  The types of measures adopted 
include: promotion of prompt return  to work (with incentives for 
both employer and employee); some reduction of benefit levels, 
streamlining of dispute settlement procedures; medical cost control; 
efforts against fraud; higher deductibles in employers' insurance 
policies; and mandates for workplace safety programs (Burton, 2001; 
Conway & Svenson, 1998). As a result of such measures, expenditures 
on benefits declined significantly, from 1.66 percent of payroll in 
1992 to 1.03 percent by 2000.

Table 15-43 provides a State-by-State breakdown of the benefit/wage  
ratio, comparing 2000 with 1997.  Much of the variation among 
States at any point in time is determined by the mix of industries 
that are prevalent in each.  The States with the highest payout 
rates in 2000 (West Virginia, Alaska, and Montana) have substantial 
activity in extractive industries (mining, forestry and fisheries) 
with inherently high injury rates.  The jurisdictions with the lowest 
rates (District of Columbia, Massachusetts, and Virginia) are 
largely involved with technology, finance and service industries.  
Nevertheless, standards established in State legislation and 
administration have some effect on benefit costs and, more clearly, 
in the relatively sudden increases and decreases seen in recent years.  
(Changes in statistical methods between the years also may have 
played a role.)




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