[Federal Register Volume 59, Number 8 (Wednesday, January 12, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-547]
[[Page Unknown]]
[Federal Register: January 12, 1994]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
42 CFR Parts 435 and 436
[MB-020-FC]
RIN 0938-AB07
Medicaid Program; Deduction of Incurred Medical Expenses
(Spenddown)
AGENCY: Health Care Financing Administration (HCFA), HHS.
ACTION: Final rule with comment period.
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SUMMARY: This final rule with comment period permits States flexibility
to revise the process by which incurred medical expenses are considered
to reduce an individual's or family's income to become Medicaid
eligible. This process is commonly referred to as ``spenddown.'' Only
States which cover the medically needy, and States which use more
restrictive criteria to determine eligibility of the aged, blind, and
disabled, than the criteria used to determine eligibility for
Supplemental Security Income (SSI) benefits (section 1902(f) States)
have a spenddown.
These revisions permit States to: Consider as incurred medical
expenses projected institutional expenses at the Medicaid reimbursement
rate, and deduct those projected expenses from income in determining
eligibility; combine the retroactive and prospective medically needy
budget periods; either include or exclude medical expenses incurred
earlier than the third month before the month of application (States
must, however, deduct current payments on old bills not previously
deducted in any budget period); and deduct incurred medical expenses
from income in the order in which the services were provided, in the
order each bill is submitted to the agency, or by type of service.
All States with medically needy programs using the criteria of the
SSI program may implement any of the provisions. States using more
restrictive criteria than the SSI program under section 1902(f) of the
Social Security Act may implement all of these provisions except for
the option to exclude medical expenses incurred earlier than the third
month before the month of application.
DATES: These regulations are effective March 14, 1994.
To ensure that comments will be considered, we must receive them at
the appropriate address, as provided below, no later than 5 p.m. on
March 14, 1994.
ADDRESSES: Mail written comments (original and 3 copies) to the
following address: Health Care Financing Administration, U.S.
Department of Health and Human Services, Attention: MB-020-FC, P.O. Box
26676, Baltimore, MD 21207.
If you prefer, you may deliver your written comments (original and
3 copies) to one of the following addresses:
Room 309-G, Hubert H. Humphrey Building, 200 Independence Ave., SW.,
Washington, DC, or
Room 132, East High Rise Building, 6325 Security Boulevard, Baltimore,
MD.
Due to staffing and resource limitations, we cannot accept comments
by facsimile (FAX) transmission.
In commenting, please refer to file code MB-020-FC. Comments
received timely will be available for public inspection as they are
received, beginning approximately three weeks after publication of this
document, in room 309-G of the Department's offices at 200 Independence
Ave., SW., Washington, DC, on Monday through Friday of each week from
8:30 a.m. to 5 p.m. (phone: 202-690-7890).
FOR FURTHER INFORMATION, CONTACT: Richard Coyne, (410) 966-4458.
SUPPLEMENTARY INFORMATION:
I. Background
States must provide Medicaid to categorical groups of individuals
who are eligible to receive cash payments under one of the existing
cash assistance programs established under the Social Security Act (the
Act). In addition, States may provide Medicaid to the medically needy;
that is, to those individuals who meet the categorical group
requirements, have sufficient income to meet basic living expenses and,
thus, are ineligible for a cash assistance program but who have
insufficient income to pay for medical expenses. Sections 1902(a)(17)
and 1903(f)(2) of the Act provide that, for individuals applying as
medically needy, certain incurred medical expenses must be deducted
from income if income exceeds the eligibility standard established by
the State. The process is commonly referred to as ``spenddown.''
In the medically needy program, the spenddown process currently
operates as follows: The State selects one or more medically needy
budget periods between 1 and 6 months and a medically needy income
level, against which countable income is measured. If countable income,
after certain deductions are taken, is equal to or less than the income
standard (medically needy income level), the individual (or family) is
eligible for Medicaid. If the income is higher than this standard, the
individual nevertheless may be eligible for Medicaid if, by deducting
incurred medical expenses (i.e., spending down the ``excess'' income),
the income equals or falls below the standard.
Section 1902(f) of the Act contains a similar provision for
deduction of incurred medical expenses from income. This spenddown
applies to categorically needy and medically needy aged, blind, and
disabled individuals in States using more restrictive eligibility
criteria than those of the Supplemental Security Income (SSI) program.
These States are known as section 1902(f) States. In those States,
section 1902(f) of the Act requires that, in determining how much
income is to be counted when determining eligibility, the Medicaid
agency must deduct from income: (1) any SSI benefit received; and (2)
any additional benefit paid by the State. If, after these deductions
are taken, income is equal to or less than the State established income
standard, the individual is eligible for Medicaid. If income is higher
than the standard, the agency must deduct incurred medical expenses
from the individual's countable income to determine whether or not he
or she is eligible.
States using section 1902(f) criteria may elect to have medically
needy programs. Individuals who become eligible for Medicaid by meeting
the section 1902(f) spenddown are categorically needy unless the
section 1902(f) State has a medically needy program. In section 1902(f)
States with medically needy programs, an individual who spends down in
order to meet the income test will be either medically needy or
categorically needy. If he or she is an SSI or State supplement
recipient, or meets the income test for SSI or a State supplement, he
or she will be categorically needy. Otherwise, when the individual
spends down, he or she will be medically needy. Once a section 1902(f)
State elects to use more restrictive standards than those which the
State is otherwise obligated to use under title XIX for those who will
qualify as medically needy, its spenddown rules are governed by section
1902(f).
The statutory authority behind the general medically needy and
section 1902(f) spenddowns is different. Under the general medically
needy spenddown in section 1902(a)(17), States must take into account,
except to the extent prescribed by the Secretary, the costs incurred
for medical care or any other type of remedial care recognized under
State law. Under section 1902(f), the spenddown language is broader.
That is, the Secretary has not been granted the same authority to
impose a limit: States must deduct from an individual's countable
income incurred expenses for medical care as recognized under State
law. However, section 1902(f) allows States to limit the deductible
amount of expenses by recognizing only the limited amount under State
law.
All States are currently required by section 1902(a)(34) of the Act
to provide Medicaid benefits 3 months prior to the month in which an
application is filed, subject to certain conditions. These conditions
are that the individual (a) received covered services under the State
plan at any time during that 3-month period, and (b) would have been
eligible for Medicaid at the time services were received if he or she
had applied.
II. Provisions of the Proposed Rule
Summary of Provisions
On September 2, 1983, we published in the Federal Register (48 FR
39959) a proposed rule (NPRM) to solicit comments on five sets of
proposed changes to spenddown procedures (Provisions A through E, as
described below). Our proposals are summarized below.
We proposed that all States with medically needy programs,
including those using more restrictive eligibility criteria than SSI
under section 1902(f) of the Act, be permitted to choose option A. In
the NPRM we specified that a literal interpretation of section 1902(f)
of the Act would prevent these States from implementing the remaining
options (Provisions B through E).
Provision A--Allow States to Consider Projected Institutional Expenses
at the Medicaid Rate as Incurred Medical Expenses
We proposed that all States, including those using more restrictive
eligibility criteria than SSI, be permitted to count as incurred
medical expenses in calculating whether spenddown requirements are met,
projected institutional expenses (not subject to payment by a third
party) at the Medicaid reimbursement rate instead of using only the
private patient rate, as is currently required.
Provision B--Allow States To Combine Retroactive and Prospective
Medically Needy Budget Periods
For those States that choose to have a medically needy program, we
proposed the use of more flexible budget periods. These are periods
over which an individual's income and medical expenses are compared to
the State's medically needy income level to determine whether or not
the individual is eligible. Specifically, States would be able to
choose a medically needy budget period of up to 6 months that could
include all or part of the 3-month period before an application for
Medicaid (the retroactive period). Under current regulations, the 3-
month retroactive period must be treated separately from whatever
prospective budget period is chosen by the State.
Provision C--Permit States To Exclude from Incurred Medical Expenses
Those Bills for Services Furnished More Than 3 Months Before a Medicaid
Application
Except for current payments on older bills not previously applied
in the spenddown process, we proposed that States be permitted to
exclude from incurred medical expenses those bills for services
furnished more than 3 months before the month of application or
redetermination. Current regulations and policy require that States
deduct all incurred expenses that an individual incurs before
application, regardless of the date of the service, if they have not
already been used in another budget period, if the individual is still
liable for them, or if the individual has paid for them in the current
budget period.
Provision D--Permit States to Apply Incurred Medical Expenses to the
Spenddown Process in Chronological Order.
We proposed that States with a medically needy program may deduct
incurred medical expenses from income in chronological order, rather
than in the order specified in current regulations, which is by type of
expenditure. The chronological order the State chooses can be either
the order in which the services are furnished, or the order in which
the bills are presented to the agency.
Provision E--Allow States To Limit Deductible Medical Expenses to
Services Covered Under the State Plan
We proposed to allow States to exclude services that are not
covered in their State plan from incurred medical expenses, except for
Medicare and health insurance premiums, Medicaid deductibles,
copayments or similar cost-sharing charges imposed by health insurance.
Current regulations require that States deduct all incurred medical
expenses recognized under State law that are not subject to payment by
a third party.
Revision of NPRM Scope
We have decided to withdraw Provision E from all States. We explain
our reasons under the analysis and response to public comments section
of this preamble.
III. Analysis and Response to Public Comments
In response to our request for comments on the September 2, 1983,
NPRM, we received 107 letters, 32 from client advocacy groups, 26 from
individuals, 18 from providers or provider organizations, 15 from State
governmental agencies, 13 from legal advocacy groups, and 3 from
religious affiliated groups. The specific comments are grouped
according to the five provisions identified in the NPRM.
Comments on Specific Provisions of the NPRM
Provision A--Allow States to Consider Projected Institutional Expenses
at the Medicaid Rate as Incurred Medical Expenses
It should also be noted that Provision A does not govern
implementation of section 1929(b)(3) of the Act, which permits States
to project medical expenses in determining eligibility for medical
assistance for home and community care under section 1929. Regulations
governing section 1929 will be published separately.
Comment: Several commenters objected to Provision A, believing that
allowing States to project institutional expenses at the Medicaid rate
contravenes the law. They believe that since the law requires
accounting for ``incurred'' expenses and since expenses are incurred at
the private patient payment rate, a projection of expenses, as a part
of accounting for incurred expenses, should only be at the private
patient payment rate.
Response: We do not agree with the commenters. In the preamble to
the NPRM, we noted that ``[i]t is currently permissible for States to
project anticipated institutional expenses at the private patient
rate'' but that we were proposing to revise regulations to also
``provide that States may count institutional expenses (not subject to
payment by a third party) at the Medicaid reimbursement rate instead of
the private payment rate in calculating spenddown.'' (48 FR 39960). As
discussed in more detail below, we have analyzed the issue further and
have concluded that it is inappropriate to project expenses at the
private patient payment rate.
First, the spenddown rules in sections 1902(a)(17) and 1902(f) of
the Act provide for reducing income by ``incurred'' expenses (i.e.,
expenses for which the individual is liable). Under these provisions,
the Secretary does not have to allow States to project any expenses
since projection involves treating an expense as incurred before the
liability arises. However, States are permitted to project expenses
under the Secretary's general rulemaking authority in sections 1102 and
1902(a)(4) of the Act because projection may be necessary for the
efficient operation of the Medicaid program.
The assumption underlying the projection of expenses is that
liability for the expenses will subsequently arise since only the
amounts for which the individual is ultimately liable can be used to
reduce income. However, when the private patient payment rate is higher
than the Medicaid rate and expenses are projected at the private
payment rate, liability for the projected expenses may not actually
arise. That is, once expenses are projected and spenddown liability is
met, the provider may charge expenses only at the Medicaid rate as
specified in Sec. 447.15. Thus, expenses projected at the private
payment rate will actually be incurred at the Medicaid rate, and the
State will need to reconcile the amounts accordingly. This
reconciliation would make the projection at the private payment rate
less efficient than if the projection were done initially at the
Medicaid rate. Further, when expenses ultimately incurred at the
Medicaid rate are insufficient to meet the person's spenddown
liability, the determination of eligibility would have been in error.
Only using the Medicaid rate to project expenses avoids these problems.
Therefore, we are allowing projections only at the Medicaid
reimbursement rate.
Comment: A number of commenters argued that the use of the Medicaid
reimbursement rate is arbitrary and generally less than the private
rate.
Response: States are required by section 1902(a)(13)(A) of the Act
to pay for long-term care services using rates that are reasonable and
adequate to meet the costs that efficiently and economically operated
facilities must incur to provide care that conforms to applicable State
and Federal laws, regulations, and quality and safety standards. We are
clarifying in these final regulations at Secs. 435.831(g)(1),
435.831(i), 436.831(g)(1), and 436.831(i) that States may project
institutional expenses only at the Medicaid rate.
Comment: Many commenters were concerned that if a State uses the
Medicaid rate rather than the private rate in the spenddown process, it
could take longer to reduce excess income using the usually lower
Medicaid rate. Thus, it would delay eligibility. A number of commenters
were concerned that certain individuals may have insufficient income to
pay the private institutional rate, yet have income in excess of the
Medicaid reimbursement rate.
Response: As we proposed, an individual is eligible whenever
incurred medical expenses, including projected institutional expenses,
equal or exceed the individual's excess income over the State's income
standard. (The amount of income exceeding the State's income standard
is referred to as an individual's spenddown liability.) In some
instances the amount of projected institutional expenses at the
Medicaid rate may not be enough to meet the individual's spenddown
liability. In that case, the individual remains ineligible. However,
the individual will become eligible when actually incurred
institutional expenses at the private rate reduce income enough to
establish eligibility.
As indicated in response to an earlier comment, the State Medicaid
rate is the appropriate amount to use in projecting expenses because it
reduces the need to reconcile projected and actually incurred expenses
and helps to avoid erroneous determinations of eligibility. If an
individual is not eligible because his or her spenddown liability
exceeds institutional expenses projected over the budget period at the
Medicaid rate, the State must determine eligibility based on deducting
actually incurred institutional expenses or based on a combination of
expenses actually incurred at the private payment rate and remaining
expenses projected at the Medicaid rate. (If eligibility results and
eligibility is retroactive to the first day of the month because the
State provides coverage in whole months, expenses incurred at the
private payment rate prior to the determination of eligibility remain
valid. Ordinarily, a participating provider may charge an eligible
individual no more than the Medicaid rate. However, these charges need
not be adjusted since the charges were incurred at the private payment
rate and since the charges were part of expenses needed to qualify the
individual for Medicaid under the spenddown. Otherwise, the adjustment
could result in the individual no longer being eligible for Medicaid
during the month. Furthermore, unless required under State law or the
terms of the State's provider agreement, Medicaid providers need not
accept all Medicaid eligible individuals as Medicaid patients. Thus,
during the period prior to the determination of Medicaid eligibility,
the provider could be viewed as only accepting the patient as a private
payment patient. Charges incurred after the determination of
eligibility may not exceed the Medicaid rate.)
Example: The individual is in the institution as of the first
day of the month. The monthly spenddown liability is $1,500. The
projected Medicaid rate for the month is $1,200 ($40 per day). The
private rate is $1,800 per month ($60 per day). Since projected
monthly expenses at the Medicaid rate ($1,200) are not sufficient to
meet the spenddown liability ($1,500), the individual is not
eligible. However, after remaining in the institution for 15 days
the individual has actually incurred expenses of $900 at the private
rate ($60 x 15 days). The projected institutional expenses at the
Medicaid rate for the remaining days in the month are $600 ($40 x
15 days). Thus, as of the 15th day of the month the combination of
actually incurred bills ($900) plus projected expenses at the
Medicaid rate ($600) equal the spenddown liability ($1,500) and the
individual is eligible.
Comment: Several commenters expressed concern that institutional
providers that admit individuals at the private rate will be paid only
at the usually lower Medicaid rate. This payment differential may have
negative effects, both on providers and beneficiaries. Providers will
receive less compensation under the proposal, and it may cause
providers to admit fewer potential Medicaid patients.
Response: It is not clear why the commenters believe that
institutional providers will be paid less as a direct result of the
policy to require States to project expenses at the Medicaid payment
rate. Providers can charge patients at the private payment rate for
expenses incurred prior to the determination of Medicaid eligibility
when spenddown liability was unmet. The individual is responsible for
the full amount of those charges. Providers do not have to accept the
Medicaid rate until after the individual becomes eligible. Therefore,
by using the lower Medicaid rate, there may be a delay in meeting
spenddown. This delayed eligibility could actually entitle providers to
the higher rate for a longer period.
Comment: Some commenters objected to the exclusion of expenses
incurred in an acute care facility when considering projection of
institutional expenses in spenddown.
Response: As noted in the NPRM, we excluded projection of expenses
in acute care facilities because these expenses are not as recurring
and predictable as are expenses in long-term care facilities. We
believe that it is not as easy to anticipate the cost of a stay in a
hospital or to predict when it may occur as it is to anticipate long-
term care costs. While acute care facility expenses may not be
projected, they are valid medical expenses and may be deducted from
excess income in spenddown when they actually occur.
Comment: A number of commenters suggested that the regulations be
revised to include actually incurred institutional expenses in addition
to projected institutional expenses.
Response: There was no intention on our part to exclude actually
incurred institutional or other medical expenses from spenddown.
Actually incurred (past) institutional expenses may be deducted along
with projected (future) additional institutional expenses. In view of
the comments indicating confusion on this point, we are revising
paragraph (i) in both Secs. 435.831 and 436.831 of the final
regulations to clarify this.
Comment: Several commenters pointed out that eligibility begins not
on the first day of institutionalization as indicated in the NPRM, but
on the day on which an individual incurs medical expenses (including
projected institutional expenses) equal to or exceeding the spenddown
liability.
Response: We generally agree with these comments. In States that
elect partial month coverage, the first day of eligibility is the day
that deduction of incurred medical expenses reduces income to the
income standard. In States with full month coverage, eligibility begins
on the first day of the month in which spenddown liability is met.
However, a State may not begin eligibility later than the beginning of
the budget (spenddown) period if the individual is subject to the post-
eligibility process and, under the post-eligibility process, would owe
the provider more than the individual has in contributable income. This
issue can occur when the State uses either a monthly budget period or a
multi-month budget period. We are revising paragraph (i) (paragraph (e)
in the NPRM) in both Secs. 435.831 and 436.831 of the regulations to
reflect these points. (It should be noted that regardless of when
eligibility begins in a budget period, expenses used to meet spenddown
liability are not reimbursable under Medicaid. Since these expenses may
be deductible from income in the post-eligibility process under the
requirements of section 1902(r)(2) of the Act, States may need to
reduce the otherwise reimbursable amount of provider charges by
spenddown expenses to prevent the transfer of spenddown liabilities to
the Medicaid program. The three examples in the response to the fifth
comment below show in detail how the spenddown and post-eligibility
policies interact in these cases.)
We considered beginning eligibility in all cases on the first day
of the budget period in which spenddown liability is met. However, this
option could increase State administrative burdens without advantaging
recipients in cases not covered by the exception in Secs. 435.831(i)(3)
and 436.831(i)(3). Many States use eligibility and claims payment
systems that are automated to pay claims beginning with the date of
eligibility. These States would have to weed out bills from the first
day of the budget period (up to 6 months before) that were used to meet
spenddown liability to ensure that their automated systems do not pay
those bills. Under these rules, no such weeding is required in States
that begin eligibility with the day spenddown is met. (Note that these
States would have to begin eligibility on the first day of the budget
period in cases where the individual, in the post-eligibility process,
would otherwise owe the provider more than he or she has in
contributable income.) In States that provide coverage in whole months,
weeding is required only from the first day of the month in which
spenddown is met to the day spenddown is met. The failure of the
individual to identify all of his or her incurred expenses before the
spenddown determination is made can have an adverse effect on the date
of the individual's eligibility. In these cases, States may, but are
not required to reopen the spenddown determination and take the
additional expenses into account. (For individuals in partial-month
coverage States who are subject to the post-eligibility process for the
partial month, income and income deductions (e.g., the personal needs
allowance) should be prorated in the post-eligibility process to
reflect the number of days of eligibility.)
Comment: Some commenters advocated permitting States to project
copayments, deductibles, and insurance premiums in addition to
projecting institutional expenses. Other commenters argued that States
should be permitted to deduct any projected medical expense that is
predictable.
Response: This provision is intended to cover only projection of
long-term care institutional expenses, at the Medicaid reimbursement
rate, as they are constant and predictable.
We believe expenses mentioned in the comment such as deductibles or
coinsurance, which are generally associated with the utilization and
varying costs of other medical services, are difficult to predict.
Because of the difficulty in determining what kinds of care, and what
amounts, are predictable, we have limited the application of this
provision to long-term care institutional expenses. Regardless of
whether States implement this provision, they are still required to
deduct actually incurred copayments, deductibles and insurance premiums
in spenddown. We further discuss State flexibility concerning
copayments and deductibles under the comments and responses on
Provision E.
Comment: Several commenters asked how a State would apply the
projection of institutional expenses option if it also chooses to
combine the retroactive and prospective budget periods under Provision
B.
Response: If the budget period includes part or all of the 3-month
retroactive period, institutional and other medical expenses actually
incurred during that portion of the retroactive period would be added
to projected institutional expenses in the prospective period. An
individual is eligible if the combined total of actually incurred plus
projected medical expenses equals or exceeds his or her spenddown
liability for the budget period.
Comment: Commenters suggested that we revise the regulations to
clarify that States may continue to use a 1-month budget period for
institutional cases.
Response: We agree that a clarification to the proposed regulations
is needed on this point. In regard to medically needy eligibility, the
proposed regulations at Secs. 435.831 and 436.831 specify that, ``[t]he
agency must use a budget period of not more than 6 months to compute
income.'' It is clear that any budget period between 1 and 6 months may
be used. However, it was not clear in the proposed rule that a State
may use more than one budget period.
For example, under the proposed rule, a State may use a 6-month
budget period for all medically needy individuals. Or, the State may
use one budget period for institutionalized individuals in long-term
care facilities (e.g., 1 month), and another for noninstitutionalized
individuals. A third option would be for a State to use different
budget periods for different groups of institutionalized individuals or
use different budget periods for different groups of
noninstitutionalized individuals.
We believe States should have the flexibility to prescribe
different spenddown periods to simplify the administration of their
Medicaid programs. For example, for effective and efficient
administration in cases where the individual is institutionalized, the
State may wish to use the same time period for determining spenddown
liability that the State uses to determine the Medicaid contribution
toward the cost of care. Allowing States to prescribe the spenddown
period in these cases permits States to align the budget period used
for spenddown purposes with the budget period used in the post-
eligibility process. Thus, a State that uses a 6-month period for
determining medically needy spenddown liability for
noninstitutionalized individuals and a 1-month period for determining
contributions toward the costs of care for the institutionalized may
wish to begin new 1-month spenddown periods for medically needy
recipients who become institutionalized. Alternatively, the State may
wish to determine contributions toward the costs of care in 6-month
periods to coincide with the 6-month medically needy spenddown period
used. In either situation, administrative simplification could be
achieved in some cases by using the same income calculation for both
the determination of spenddown liability and the determination of the
contribution toward the costs of care. However, if a State imposes
different spenddown budget periods in different situations, the
variations should have general application and not be applied on an
individual-by-individual basis, and the variations should be based on
reasonable standards. We are clarifying this point in the regulations
by revising Secs. 435.831(a) and 436.831(a) to specify that States are
not limited to the use of a single budget period, but must use budget
periods of not more than 6 months to compute income.
Comment: Several commenters asked for clarification on how
projection at the Medicaid reimbursement rate will be used by a State
when an individual enters an institution during the month rather than
on the first day of the month.
Response: As noted in the response to an earlier comment, actually
incurred institutional and other medical expenses are added to
projected institutional expenses during a budget period. If the
combined total of these expenses exceeds an individual's spenddown
liability, the individual is eligible on the day that liability is met
(or on the first day of the month in full-month coverage States or, if
the exception in Secs. 435.831(i)(3) and 436.831(i)(3) applies, on the
first day of the budget period whether the State uses a monthly budget
period or a multi-month budget period). Thus, depending on individual
circumstances, an individual could be eligible on the first day of the
budget period, on the first day of institutionalization occurring on or
after the first day of the budget period, or at some other time during
the budget period, as illustrated by the following examples.
Example 1. The individual enters the institution on the 16th of
the month. The monthly spenddown liability is $500. The projected
institutional expenses at the Medicaid rate to the end of the month
are $800 ($1,600 monthly rate). The individual has also incurred
$600 in other medical expenses before the month of application,
which remain the individual's current liability. Because the
individual has $600 of other medical expenses, the spenddown is met
on the first day of the monthly budget period (before the first day
of institutionalization).
Example 2. The facts are the same as in Example 1 except that
the individual has no previously incurred medical expenses, only
institutional expenses. In this case based on projection of expenses
at the Medicaid rate, the individual may become eligible on the
first day of institutionalization (the 16th of the month). (Although
the State may be a full-month coverage State, retroactivity to the
first day of the month would have no effect because the individual
has no previously incurred medical expenses.)
Example 3. The individual enters the institution on the 16th of
the month. The monthly spenddown liability is $900. The projected
institutional expenses at the Medicaid rate to the end of the month
are $800 (one-half of the $1,600 monthly rate). The individual has
no other expenses at this time. Based on projection of institutional
expenses at the Medicaid rate, the individual does not meet
spenddown. Thus, the individual will not be eligible on the 16th of
the month. The individual may become eligible at a later time during
the month should the amount of actually incurred and any remaining
projected expenses (e.g., the amount after application of any
reasonable limits established by the State) equal or exceed the
spenddown liability. In such a case, eligibility would still be
retroactive to the first day of the month in full-month coverage
States. (When a combination of incurred and projected expenses is
used, ``remaining projected expenses'' does not include any expenses
that have already been incurred. Further, any expense used to meet
spenddown liability is not reimbursable under Medicaid.)
Comment: Commenters asked how income would be applied to the cost
of care after an individual is determined eligible when the Medicaid
rate is used instead of the private payment rate.
Response: There is no change in the treatment of income once an
individual is eligible for Medicaid. Regulations at 42 CFR 435.725,
435.733, 435.832 and 436.832 specify how an eligible individual's
income is to be applied to the cost of institutional care. For
clarification, we provide some examples.
Example 1: An individual's monthly income for post-eligibility
purposes is $925. The monthly Medicaid rate is $1,000. The monthly
spenddown liability is $600. The individual is in the institution as
of the first day of the month. Since the projected monthly Medicaid
rate ($1,000) exceeds the monthly spenddown liability ($600), the
individual is considered eligible on the first of the month. Thus,
the post-eligibility treatment of income rules apply. First, to
account for the individual's responsibility for $600 in spenddown
liability, the State should consider as a starting point for the
amount it will pay to the institution only $400 of the $1,000 in
institutional charges. However, from the individual's $925 in
income, the State would deduct $630 ($30 protected for personal
needs and $600 in unreimbursable medical expenses reflecting the
individual's spenddown liability). (Income also would be protected
for the maintenance of the individual's spouse and family under
specified circumstances and, at the option of the State, for the
maintenance of the individual's community home.) This leaves $295 in
income that can be contributed toward the $400 in institutional
charges taken into account in the post-eligibility process. Thus, of
the original $1,000 bill, the Medicaid program would contribute $105
($400--$295) and the individual would contribute $895 ($600 in
spenddown liability plus $295 determined in the post-eligibility
process).
Example 2: The State uses a 3-month budget period. Eligibility
is being determined for the last quarter of the year. The
individual's monthly income for post-eligibility purposes is $910
($2,730 for the quarter). The 3-month Medicaid rate is $3,720 ($40
per day x 31 days per month x 3 months). The 3-month spenddown
liability is $2,250 ($750 per month). The individual is in the
institution as of the first day of the quarter (October 1). Since
the projected Medicaid rate for the quarter ($3,720) exceeds the
spenddown liability for the quarter ($2,250), the individual is
eligible on the first day of the quarter. Thus, the post-eligibility
treatment of income rules apply.
First, the State would begin eligibility with, and apply the
post-eligibility rules for, the same 3-month period used in the
spenddown calculations. (The State may begin eligibility with the
month or day spenddown liability is met, if later, and apply the
post-eligibility rules for the shorter period only if the later date
does not cause the individual's share of the institutional charges
for the spenddown period to exceed the individual's contributable
income for the period.) To account for the individual's
responsibility for $2,250 in spenddown liability, the State would
consider as a starting point only $1,470 of the $3,720 in
institutional charges. However, from the individual's $2,730 in
income, the State would deduct $2,340 ($90 protected for personal
needs for the quarter and $2,250 in unreimbursable medical expenses
reflecting the individual's spenddown liability). (Income also would
be protected for any other allowable deductions.) This leaves $390
in income that can be contributed toward the $1,470 in institutional
charges taken into account in the post-eligibility process. Thus, of
the original $3,720 in charges, the Medicaid program would
contribute $1,080 ($1,470-$390) and the individual would contribute
$2640 ($2,250 in spenddown liability plus $390 determined in the
post-eligibility process).
Example 3: An individual's monthly income for post-eligibility
purposes is $1,820. The monthly Medicaid rate is $1,200 ($40 per
day), and the private rate is $1,800 ($60 per day). The monthly
spenddown liability is $1,500. The individual is in the institution
as of the first day of the month and the State projects
institutional expenses at the Medicaid rate.
Since projected monthly expenses as of the first day of the
month at the Medicaid rate ($1,200) are not sufficient to meet the
spenddown liability ($1,500), the individual is not eligible.
However, after remaining in the institution for 15 days the
individual has actually incurred expenses of $900 at the private
rate ($60 x 15 days). The projected institutional expenses at the
Medicaid rate for the remaining days in the month are $600 ($40 x
15 days). Thus, as of the 15th day of the month, the individual is
eligible and the rules on post-eligibility treatment of income
apply.
The same post-eligibility procedure described in Examples 1 and
2 apply to Example 3. Since the individual has $900 in actually
incurred expenses and another $600 in projected expenses, the
individual has met the spenddown liability of $1,500. However,
because the individual remains liable for the $1,500 in
institutional charges, reimbursable institutional expenses are
reduced to zero. Therefore, no additional steps apply in the post-
eligibility process. The individual would be expected to use $1,500
of his or her $1,820 in income to cover institutional charges,
leaving the individual with $30 earmarked for personal needs and
$290 for discretionary use.
It should be noted that if the individual were to incur
additional noninstitutional health care expenses during the period
of Medicaid eligibility, the State, at its option, can have the
individual contribute more of his or her discretionary income toward
total health care costs included in the State plan. This can be done
by substituting the noninstitutional expenses (for which the State
would otherwise pay) for a corresponding amount of projected
institutional costs in the spenddown calculation. The individual
becomes liable for the noninstitutional expenses as part of his or
her spenddown liability and has to contribute remaining
discretionary income toward the replaced institutional costs under
the post-eligibility calculation.
For example, assume that the individual in this example incurs
$200 in noninstitutional physical therapy expenses included in the
State plan and the State substitutes those expenses for $200 of the
$600 in projected institutional charges. The individual's spenddown
liability of $1,500 is now composed of $900 in actual institutional
charges, $400 in projected institutional charges, and $200 in
physical therapy expenses. The otherwise reimbursable institutional
charges of $1,500 are then reduced to $200 to offset the $1,300 in
institutional charges that are deductible from income. Under the
post-eligibility procedures, the individual would have $290 that can
be contributed toward the cost of care ($1,820 total income, less
$1,500 in unreimbursable health care expenses, less $30 projected
for personal needs) and, thus, would be responsible for the $200 in
reimbursable institutional charges. The individual is now
responsible for $1,700 (instead of $1,500) in health care costs
($1,300 in institutional charges used to meet spenddown liability,
$200 in noninstitutional physical therapy expenses used to meet the
spenddown liability, and $200 in institutional charges under the
post-eligibility process). This leaves the individual with $90 in
discretionary income instead of $290, with Medicaid paying $200
less.
Comment: Commenters requested clarification on how to apply the
projection option when an individual leaves the institution before the
end of the budget period: if eligibility is based on projected
institutional expenses that are, in part, not actually incurred, how
would a State handle this?
Response: This would be treated by a State as a change of
circumstances. Whenever a change of circumstances occurs during a
budget period, a State is required by regulations at Sec. 435.916 to
make a redetermination. The State should be alert for other changes in
circumstances (e.g., changes in levels of institutional care) that
could affect the projected amount of expenses and make any necessary
redeterminations.
Comment: Commenters asked that we clarify how projection of
institutional expenses would operate when a third party is responsible
for payment of a portion of an individual's institutional care. For
example, if the first 60 days of institutionalization are paid by a
third party, could those expenses be counted as a deduction from an
individual's income under the spenddown process?
Response: Except for the legislative change discussed in the note
below, we have made no changes to the policy on treatment of expenses
for which there is third party liability. Thus, in these final rules,
as proposed (Secs. 435.831(d) and 436.831(d)), we continue existing
policy that only incurred medical expenses that are not subject to
payment by a third party may be deducted from income. In the above
comment's example, expenses for the first 60 days of
institutionalization, for which a third party is liable, are not
allowable deductions under this provision or under existing
regulations.
Note: Under 1987 legislation, States are required to deduct
health care expenses reimbursed under another State or local public
program. This amendment will be dealt with more fully in separate
regulations.
Comment: Several commenters thought that the provision for
projection of institutional expenses at the Medicaid rate would be
difficult to administer. They added that if there are many changes in
the Medicaid rate, States would be required to reassess eligibility.
Response: As discussed in response to an earlier comment, we have
concluded that the Medicaid rate is the only appropriate rate to use
for projecting institutional expenses. If a State finds projecting at
the Medicaid rate undesirable, the State may discontinue the practice
of projecting expenses and instead, use expenses as they are actually
incurred.
Comment: Several commenters expressed the opinion that the
potential economic impact was greater than what we estimated in the
NPRM and the commenters believe that we should develop regulatory
impact and/or regulatory flexibility analyses.
Response: We reviewed our estimates in light of the commenters'
criticisms and concluded that the impacts of the provision are not such
as to require regulatory impact or regulatory flexibility analyses. We
acknowledge that these provisions will result in some economic effects.
However, we do not believe that the impacts will approach the amounts
(e.g., $195 million for provision ``A'' alone) that some of the
commenters estimated. Further discussion about our estimate is included
in section V (Regulatory Impact Statement) of the preamble.
Provision B--Allow States To Combine Retroactive and Prospective
Medically Needy Budget Periods
Comment: Some commenters questioned the statutory basis for this
revision. They asked whether the statute gives us the authority to make
this option available to States.
Response: We base our revisions to the medically needy budget
period on section 1102 of the Act, which gives the Secretary general
authority to adopt rules necessary for the efficient operation of the
Medicaid program, and section 1902(a)(17) of the Act, which authorizes
us to prescribe standards for determining eligibility for Medicaid
consistent with the objectives of the program and is also the authority
for the medically needy spenddown program. We also base our revisions
on section 1902(a)(34) of the Act, which mandates and describes the 3-
month retroactive period for an individual who was (or upon application
would have been) eligible for such medical assistance at the time care
and service were furnished in the retroactive period. If a State uses a
6-month budget period, when it looks at the eligibility of an
individual had he or she applied at a particular time, it would look at
6 months' worth of income. The regulation permits States to view
section 1902(a)(34) of the Act in this manner, rather than considering
the retroactive period as a special and discrete period.
Comment: Some commenters opposed this provision because, in their
view, combining the retroactive and prospective eligibility periods
violates comparability requirements between the medically needy and
categorically needy in section 1902(a)(17) of the Act, since the
combined eligibility period affects only the medically needy.
Response: We disagree with the commenters' views. We believe that
comparability requirements are not violated because the Act contains
different requirements for categorically and medically needy groups.
This position was upheld by the Supreme Court in the Atkins v. Rivera
decision (477 U.S. 154 (1986)). The Court found that the length of the
medically needy budget period (or spenddown period) was not required by
comparability to be the same as the budget period used for the
categorically needy.
Comment: Some commenters argued that combining the retroactive
period with the prospective period results in a potentially longer
budget period, which means that individuals must incur medical expenses
over a longer period of time. Few providers are willing to extend
credit over, for example, a 6-month period.
Response: The proposed combined budget period can be no longer than
the prospective period allowed under the existing requirements
specified in Secs. 435.831 and 436.831. Presently, the prospective
period may be no more than 6 months in length. The proposal, depending
on State choices, may result in a combined budget period of 2 to 6
months. Thus, the combined budget period can be no longer than the
maximum (6 month) period permitted under existing regulations.
Comment: Several commenters asked how States would apply this
provision when a prospective budget period would not apply. For
instance, if an individual dies after filing an application for
Medicaid, and has unpaid medical bills in the 3-month period before the
application was filed, there is no prospective period.
Response: When there is no prospective period because the
individual dies before the prospective period could begin, eligibility
would be determined for the three month retroactive period only. This
is consistent with our policy for terminating a wholly prospective
budget period when a recipient dies. In cases where an individual dies
after the prospective period has begun and the State has elected to
combine the retroactive and prospective period, the combined period
would terminate with the death of the recipient. In still other cases
where the individual, though alive, seeks eligibility only for the
retroactive period in a State that has elected to combine the
retroactive and prospective period, the combined period would still be
used to determine eligibility. States, under policies of general
applicability, may treat the entire retroactive period as one budget
period or divide the retroactive period into monthly budget periods.
Any portion of the retroactive period may be added to the first
prospective period for a combined period not to exceed 6 months.
Comment: Some commenters suggested that we revise the regulations
by clarifying that the combined budget period would not automatically
include the entire 3-month retroactive period if the individual has no
medical expenses in that period.
Response: The commenter is correct that an individual may be
determined eligible for Medicaid in the 3-month period before the month
of application only if an individual received covered services under
the State plan at any time during that period and would have been
Medicaid eligible at the time services were received if he or she had
applied. This is based on section 1902(a)(34) of the Act and
regulations at Sec. 435.914. This principle is very clearly specified
in Sec. 435.914. However, we have revised Secs. 435.831(a) and
436.831(a) to clarify that the retroactive budget period begins no
earlier than the first month in the 3-month retroactive period in which
the individual received covered services.
Comment: Many commenters opposed the revision to permit States to
combine the retroactive period with the prospective period because
States are permitted to consider an individual's income over a longer
period, potentially 6 months, rather than just the 3 months of the
retroactive period. Under the existing rule, an individual who was, for
example, hospitalized and out of work for a 3-month period could apply
for Medicaid after he or she had returned to work and have eligibility
determined solely on the 3-month period before application when no
income was received. If the individual met other eligibility
requirements, that individual could have been eligible. Under the
proposal, and these final rules, States have the option to consider
income over an additional 3-month period extending from the date of
application. When a longer budget period is used, greater income is
available to the individual and, when measured against the State's
income standard, that same individual might not be eligible for
Medicaid.
Response: Individuals may apply for Medicaid to cover high medical
expenses that are incurred during a very short period of time, as in
the above example, in the 3-month period before an application, or they
may wish to cover expenses incurred over a longer period. We believe
that it is appropriate to consider available income over a longer
period than just a period when acute illness may affect a person's
employment or other income. Therefore, we believe the option for States
to select the use of a combined budget period is appropriate.
Comment: Several commenters asked why we are making these revisions
when they know of no evidence that individuals abuse the current system
by manipulating the timing of an application for Medicaid to suit their
needs.
Response: We agree that it is difficult to document the extent to
which individuals may be abusing the existing system. The potential for
abuse exists, however, and we believe States should have the
flexibility to control it if it occurs.
Comment: A number of commenters advocated giving individuals the
option to choose the start of the budget period, rather than giving the
State that option. The commenters were concerned that a State might
begin the budget period in the retroactive period, counting income
received in such period, when the individual may have had no covered
expenses in the period. The commenters believe that the individual
should have the option of restricting the budget period to the first
month in the retroactive period in which covered services were
received.
Response: As discussed in response to an earlier comment, we have
revised Secs. 435.831(a) and 436.831(a) to clarify that the retroactive
period begins no earlier than the first month in the period in which
covered services were received. Therefore, there is no need for the
individual to elect such a restriction.
Comment: Some commenters believed that the current method of
separating the retroactive period from the prospective period is easier
to administer than the proposed method of combining the two periods.
Response: Since this provision is optional, States may select
whichever method is easier for them to administer.
Comment: Some commenters suggested that we require the use of a
monthly budget period instead of a flexible period from 1 to 6 months.
Response: Existing regulations, Secs. 435.831 and 436.831, permit
States to select a prospective budget period extending from 1 to 6
months. Administrative flexibility for States was a major consideration
in proposing revisions to the budget period. It is our view that
requiring the use of a monthly budget period not only restricts State
flexibility from that currently existing, but requires that a State
spend more time evaluating eligibility. Of course, States that prefer
the use of a 1-month period may continue to use it. Therefore, we have
decided to retain the flexible budget period as proposed.
Provision C--Permit States To Exclude From Incurred Medical Expenses
Those Bills for Services Furnished More Than Three Months Before a
Medicaid Application
Comment: Several commenters noted that the Act does not place a
limit on the age of bills for medical expenses to be deducted from
income in the spenddown process, nor does it authorize us to place
limits on the age of bills.
Response: We agree with the commenters with respect to States that
elect to use the eligibility criteria prescribed in section 1902(f) of
the Act. Under that provision, States are required to deduct incurred
expenses without regard to when the expenses were incurred. However, as
noted in the NPRM, section 1902(a)(17) of the Act gives us the
authority to prescribe the extent to which costs of medical care may be
deducted from income when determining Medicaid eligibility. We believe
this authority permits us to place limits on the age of medical bills
to be applied to the spenddown process in States that do not elect to
use the more restrictive eligibility criteria permitted under section
1902(f) of the Act. We have decided to use the authority to set limits
on the bills which must be taken into account by authorizing States to
adopt certain limits on which bills will be taken into account.
Comment: A few commenters opposed this provision because it appears
to penalize individuals when providers do not promptly furnish bills.
These commenters suggested that expenses cannot be deducted from income
until the provider's bill is received. One commenter suggested that we
revise the regulations to specify that the age of the expense is
measured by the billing date rather than the date the service was
furnished.
Response: We believe that it would be reasonable for States to use
the date the service was furnished if the individual incurred (that is,
became liable for) the expense at that time. We do not believe that
individuals will be penalized for delays in billing by providers
because other documentation could be furnished to verify that expenses
were incurred. For example, a State could verify an expense by
telephoning the provider. A State may presume that liability arises
when services are rendered unless evidence is presented to the
contrary. In such a case, the State should determine when the liability
arose and use the resulting date.
We are persuaded, however, by numerous comments on this issue that
a rigid 3-month limit on deductible medical bills would restrict rather
than enhance State flexibility. Note that the existing regulations and
interpretations specify that States must deduct all medical expenses
incurred before application, no matter how far back in time the
expenses are incurred if they have not already been used in another
budget period, if the individual is still liable for them, or if the
individual has paid for them in the current budget period. We are
modifying Secs. 435.831(d)(5) and 436.831(d)(5) of the proposed
regulations, redesignated in these final regulations as
Secs. 435.831(g)(2) and 436.831(g)(2), to specify that in determining
deductible incurred medical expenses, States have the option to include
(or exclude) expenses incurred earlier than the third month before the
month of application. The period chosen by the State must be specified
in the State plan. We are also clarifying in new Secs. 435.831 (f)(2)
and (f)(4) and 436.831 (f)(2) and (f)(4) that expenses must be deducted
in any spenddown calculation for the retroactive eligibility period if
the expenses were incurred in the retroactive period, were a current
liability of the individual in the period for which the spenddown
calculation is made, and had not been previously deducted from income
in establishing Medicaid eligibility.
Comment: Some commenters objected to this provision on the basis
that it is not any easier for States to administer than the existing
provisions. Under the proposal, States must continue to assure that
bills are applied no more than once in meeting the spenddown liability,
and that a bill remains the current liability of an individual.
Response: As we mentioned before, since this revision is optional,
States may choose either to use it or retain the existing method. There
are certain advantages, however, to applying a limit to the age of
medical bills. Limiting bills to expenses incurred no more than 3
months before the month of application (or the age established by the
State, as discussed earlier) reduces the burden on the State of proving
that a bill is no longer an individual's current liability. Bills older
than the State set age limit would not generally be applied in
spenddown whether or not an individual remains liable for the bill.
Comment: Commenters pointed out that States often find that it
takes more than 3 months to determine the extent of liability when a
third party is responsible for a medical bill. The commenters suggested
that these bills be dated from the point at which liability is
determined.
Response: We acknowledge that there may be a delay in determining
the extent of the individual's liability when a third party may be
liable for some or all of the expenses. However, we do not agree that
the State should change how it determines the age of a bill as a
result. As we explained in response to an earlier comment, the age of a
bill is measured from the date the expense is incurred--that is, the
date the liability arises. (We have clarified in new Secs. 435.831(d)
and 436.831(d) that an expense is incurred on the date liability for
the expense arises.) The date of the determination of the extent of the
individual's liability is treated as the date the individual's
liability begins. That is the date from which the age of the
individual's expenses is measured. We see no reason why the State
should use any other date.
When a third party may be liable for part or all of an expense, any
portion of the expense that can be attributed to the individual with
reasonable certainty should be treated as the individual's liability
and included in the spenddown calculation pending the final
determination of third party liability. When there is a reasonable
question of the extent of the third party's liability, the State may,
but is not required to, include the questionable portion in the
spenddown calculation on an interim basis pending the final
determination of liability. In either case, the date the individual
incurs the expense in question is the date of the determination that
there is no third party liability for the expense or, if earlier, the
date that the State elects to include the questionable amount in the
spenddown calculation pending the determination of third party
liability. When there is a determination of third party liability for
the expense, the amount in question is excluded (retroactively, if
necessary) in spenddown calculations.
Comment: Commenters suggested that we use the phrase, ``3 months
before the month of application'', rather than ``3 months before the
date of application''.
Response: We agree with the commenters as this is a more flexible
approach. Therefore, we are revising proposed Secs. 435.831(d)(5) and
436.831(d)(5), designated as Secs. 435.831(g)(2) and 436.831(g)(2) in
the final rule, to specify that States may include bills incurred
earlier than 3 months before the month of application.
Comment: Some commenters thought that the use of a 3-month period
is arbitrary.
Response: Under section 1902(a)(17) of the Act, we have authority
to prescribe the extent to which costs of medical care may be deducted
from income. We believe that permitting States to limit the
applicability of medical expenses to the 3-month period before the
month in which a Medicaid application is filed or to include earlier
expenses is reasonable in that it affords States some administrative
relief, while recognizing that individuals may be liable for old bills.
It also corresponds to the 3-month period in section 1902(a)(34) of the
Act and, therefore, is not arbitrary. We believe that Congress'
decision to restrict the retroactivity of eligibility to 3 months
provides a suitable guideline for determining how far back States
should be required to look in accounting for incurred health care
expenses since both cases reflect efforts to provide a measure of
coverage for services received before application is made for medical
assistance.
Comment: Commenters were concerned that this provision penalizes
individuals who, in trying to pay their own medical bills, may not
apply for Medicaid until they are far behind in payments, often more
than 3 months after the bills were incurred. Commenters suggested that
we revise the regulations so that an individual may deduct an entire
bill older than 3 months if the individual verifies that he or she is
still liable for the bill.
Response: By permitting an individual who actually makes payment on
old bills to deduct the amount paid toward the spenddown, the
regulation addresses an objective of section 1902(a)(17) of the Act for
the medically needy. That objective is that an individual's income for
purposes of Medicaid eligibility should be reduced to cover the costs
of his or her uncovered medical care since if the individual spends
this income on medical care, he or she will not have that income
available for maintenance needs. However, if the individual does not
pay the old bills, the individual's income need not be reduced by the
amount of a liability which the individual may never satisfy. To give
an individual a one shot lifetime opportunity to reduce income for each
unpaid bill encourages individuals to forgo making payment on their
liability for medical care. The regulation permits States to minimize
this disincentive to paying old bills.
Comment: Some commenters (State agencies) proposed that medical
expenses which may be used to meet the spenddown be limited to those
expenses that are incurred within the current budget period.
Response: It would be unnecessarily harsh to limit income
deductions to newly incurred expenses, especially when an expense is
incurred shortly before the current budget period. We believe the
requirement to deduct income for expenses incurred in the retroactive
eligibility period is a reasonable compromise between deducting income
for all old expenses and deducting income only for newly incurred
expenses. Therefore, we did not adopt the commenter's suggestion.
Comment: Commenters questioned our rationale for the revisions,
stating that they knew of no evidence that individuals abuse the
present system.
Response: Concern about abuse of the existing spenddown methods was
not the motivation behind these proposals. The primary objectives of
these revisions were to give States greater flexibility to reasonably
administer their Medicaid programs and to ensure that eligibility was
appropriately based on need. In our communications with States, we were
convinced that certain spenddown requirements, although originally well
intended, had unintended results. Deduction of older medical bills, for
example, was difficult for States to administer, as noted in the NPRM,
because we required that States verify whether an individual remained
liable for an old bill. In addition, because bills incurred before the
eligibility period were deductible only if they were unpaid, as
specified under prior policy, an incentive was created for individuals
not to pay their bills. The revisions, therefore, are intended to
alleviate administrative problems for States and, by only requiring the
deduction of payments on older bills, create an incentive for
individuals to pay older bills.
Comment: Commenters suggested that any incurred medical expenses
not deducted from income during a budget period should be carried over
to the next budget period. They suggested that the expenses be carried
forward whether the spenddown liability was met (that is, an individual
became eligible) or not met (that is, expenses were insufficient to
meet the spenddown requirement) during the first budget period.
Response: We agree, in part, with the commenters. When an
individual's incurred expenses exceed his or her spenddown liability
(that is, the person becomes eligible without deducting all of the
expenses) and when the excess expenses are unpaid, the excess expenses
are deductible from excess income in subsequent budget periods, but
only under certain conditions. HCFA requires the carryover of excess
(that is, unused) expenses to account more fully for incurred
unreimbursable expenses in determining whether the Medicaid income
standard is met. If States were not required to carry over excess
expenses, the spenddown provision would be practically meaningless when
an individual with a small monthly amount of excess income incurs a
large medical expense. In such a case, the individual could only apply
the small amount of excess income in 1 month based on that expense. We
have concluded that such a result would not be in keeping with the
objective of the spenddown provision to account for unreimbursable
expenses incurred for necessary care recognized under State law.
Therefore, this final rule provides that medical expenses not deducted
from income during one budget period must be carried over and deducted
in the succeeding budget periods under the conditions described below.
Proposed Secs. 435.831(d)(6) and 436.831(d)(6) (designated as
Secs. 435.831(f)(3) and 436.831(f)(3) in the final rule) provide that
medical expenses not deducted from income during one budget period must
be carried over and deducted in the next budget period. These proposed
rules were applicable, however, only when the individual was eligible
in the first budget period after meeting the spenddown liability. We
are revising what are now Secs. 435.831(f)(3) and 436.831(f)(3) to
clarify when excess, unpaid expenses are deductible in subsequent
budget periods. In order for excess expenses to be carried over under
this provision, eligibility must be established for the budget period
in which the excess expenses were unused and in each subsequent budget
period in which any part of the excess remains unused; in addition, the
spenddown provision must apply in each such subsequent period. (To
relieve States of the burden of carrying over such excess expenses
indefinitely, specific excess amounts need not be carried over beyond
the first subsequent period in which there is no eligibility or no
excess income.)
It should be noted that the ``carryover'' concept is used in these
regulations to describe the ongoing deduction of unused and unpaid
expenses, as contrasted to the deduction of expenses based on their
being incurred in the retroactive eligibility period or, at State
option, earlier. We make a distinction between the two kinds of
expenses because of the option for States to disregard old expenses
(i.e., expenses incurred prior to the retroactive eligibility period).
One of the reasons for allowing old expenses to be disregarded is the
administrative difficulty States may encounter in verifying and
documenting whether liability for the expense continues. Once an old,
or current, expense is initially verified and documented, it should not
be unduly difficult to determine the extent of continuing liability
from one budget period to another as long as the agency is maintaining
contact with the individual. For this reason, we require that the
unused, unpaid portion of such expenses be carried over from one budget
period to the next, but only for as long as the individual is eligible
in each such period (ensuring continuing contact with the agency). On
this basis, we are providing that deductible expenses incurred before
the month of application may become carryover expenses if they remain
unused and unpaid after eligibility is established. The limit a State
may place on the deductibility of expenses incurred before the
retroactive eligibility period does not affect how long expenses remain
deductible under the carryover provision. The age limit that can be
placed on old expenses relates to how long before the retroactive
eligibility period expenses can be incurred and be deductible rather
than to how long they remain deductible thereafter.
Comment: Commenters suggested that we revise the regulations so
that both paid and unpaid bills may be carried over from one budget
period to the next.
Response: We do not agree with the views of the commenters on this
point. The spenddown process is based on the principle that an
individual's actual income is reduced by incurred medical expenses
(that is, expenses for which he or she is liable) to the point at which
his or her income is equal to or below the State's medically needy
income standard. Once the individual is determined eligible for
Medicaid, the State Medicaid program pays medical expenses covered
under its State plan that were not used to satisfy the spenddown. The
individual remains liable for payment of incurred bills that he or she
deducted in the spenddown process.
When an individual pays a bill, his or her income (or resources) is
reduced, thus reducing the countable amount of remaining income (or
resources) in determining whether the individual is eligible (or
remains eligible) for medical assistance. Therefore, there is less
justification for deducting the payment in a later spenddown
calculation. In contrast, an enforceable unpaid bill remains a current
claim on the individual's income or resources that should be taken into
account when the payment is made.
Comment: Commenters suggested that individuals should be able to
carry over not only noncovered medical expenses from one budget period
to the next, as we proposed in Secs. 435.831(d)(6) and 436.831(d)(6),
but also expenses covered under the State plan.
Response: When an individual is determined eligible, with the
exception of bills deducted in spenddown, medically necessary expenses
covered under the State plan are normally paid by Medicaid. Hence,
there would be no covered expenses to carry over. In a State that
places payment limits on the amount, duration or scope of services
included in the State plan, however, bills for services that exceed the
State's limits are not paid by Medicaid, even though the services are
included in the State plan. In this situation, there would be
unreimbursed noncovered expenses. Expenses exceeding amount, duration
or scope limits (like unpaid, unused old bills the State elects to
deduct) must be carried over and deducted from income in the next
budget period when an individual is eligible in the immediately
preceding budget period (or periods).
Comment: Some commenters suggested that we define current payments
on old bills to include only those bills being repaid on a negotiated
payment schedule.
Response: We have defined ``current payments'' in
Secs. 435.831(f)(5) and 436.831(f)(5) to mean only those payments made
in the current budget period. Our intent in proposing that current
payments on old bills be counted as deductions from income was to
provide an incentive for individuals to pay those old bills, no matter
how small the payments might be. We believe that to count only payments
made on a negotiated payment schedule would act as a disincentive for
individuals to repay the old bills not subject to a payment schedule.
Comment: Some commenters objected to this provision on the basis
that placing limits on the age of bills which can be deducted in
spenddown acts as a disincentive for individuals to pay old bills.
Response: We do not believe there is a greater disincentive for
individuals to pay old bills under the proposal than under the policy
in existence at the time of the proposed rule or under the existing
method. In fact, the policy in existence at the time of the proposed
rule specified that bills incurred before the eligibility period could
be deducted from income only if they were unpaid. Current policy allows
current payments and unpaid bills to be deducted. This appears to be a
direct incentive for individuals not to pay old bills. Therefore, we
believe no revisions are necessary with regard to this comment.
Provision D--Permit States To Apply Incurred Medical Expenses to the
Spenddown Period in Chronological Order
Comment: Commenters argued that the Act does not authorize us to
revise regulations to permit States to deduct medical expenses in
chronological order.
Response: As noted earlier, we have authority under section
1902(a)(17) of the Act to prescribe the extent to which medical costs
may be deducted from income for the medically needy. This covers the
order in which incurred medical expenses will be counted.
Comment: Some commenters proposed that this provision be extended
to States using more restrictive eligibility criteria than SSI, under
section 1902(f) of the Act.
Response: We believe it is useful to clarify our earlier, and
perhaps overly broad, statement in the NPRM that this provision cannot
be applied to the eligibility process as specified in section 1902(f)
of the Act.
Section 1902(f) provides for the deduction of ``incurred expenses
for medical care as recognized under State law'' in determining
eligibility of certain individuals. As a consequence, that deduction
process must allow for consideration of expenses recognized under State
law. Section 1902(a)(17), on which these medically needy regulations
are largely based, provides for taking into account ``except to the
extent prescribed by the Secretary, the costs * * * incurred for
medical care or for any type of remedial care recognized under State
law'' (emphasis supplied). Thus, while eligibility of the medically
needy generally can be determined using the provisions of these
regulations, the eligibility of those medically needy in the States
that use the more restrictive eligibility criteria permitted by section
1902(f) must be determined using expenses for medical care recognized
under State law (including any limitations enacted under State law on
the deductible amount of such expenses from income). However, there is
nothing in section 1902(f) that precludes consideration of medical
costs in chronological order for purposes of the spenddown specified in
section 1902(f). Therefore, we are extending this option to States that
determine eligibility under the criteria in section 1902(f).
Comment: Some commenters objected to this provision because
insurance premiums, copayments, and deductibles and other cost sharing
amounts deducted in chronological order may not count toward spenddown
if there are a large number of other medical bills incurred early in
the budget period. The commenters believe that these items should be
deducted no matter when they are incurred.
Response: Many States find it administratively difficult to deduct
incurred expenses out of the sequence in which the expenses are
submitted to the agency or the sequence in which the services are
provided. Because one of the objectives of the Medicaid program is the
use of efficient methods of administration and since the sequential
deduction of incurred expenses is one such method, we consider it
appropriate to permit States to deduct expenses from income in
chronological order.
Comment: Some commenters suggested that the proposal is inequitable
because individuals with identical medical bills during a budget
period, when deducted in chronological order, can have different
eligibility determinations.
Response: First, we point out that two individuals in truly
identical situations, meaning that the individuals have the same
medical bills incurred in the same order, would be treated identically
under the rule. In other cases, the individuals are not identical. They
may have the same amount of medical expenses but the bills are not
identical. In these cases, assuming other eligibility factors are met
and the bills are sufficient to meet spenddown liability, both
individuals will be eligible for Medicaid under this provision. The
difference is in which bills are paid once eligibility begins. For
example, if one individual incurs mostly covered services early in the
spenddown period, any remaining bills for noncovered services left over
after the spenddown liability is met would not be paid by the State
because they are not covered in the State plan. Conversely, if a second
individual incurring mostly noncovered medical expenses early in the
spenddown period is determined eligible, any bills for covered services
remaining after meeting the spenddown liability would be paid by the
State. We acknowledge that this result may disadvantage the first
individual. However, we believe that in the interest of efficient
operation of the programs, States should be allowed to deduct expenses
in chronological order if they wish to do so.
Comment: Some commenters were concerned that under this proposal an
individual's eligibility or ineligibility depends on when a doctor
mails the bills or on the arbitrary order in which an eligibility
worker itemizes medical bills.
Response: Eligibility does not depend on when a doctor mails bills
but on the date the service was furnished; an individual can document
this date without a bill. In addition, eligibility workers are not
allowed to choose an arbitrary order but must itemize bills in the
manner prescribed by regulations.
Comment: Commenters suggested that the result of this proposed
provision may be that individuals will defer medical care for services
covered under the State plan if they know that the State will pay for
those expenses once they are eligible for Medicaid.
Response: We have no evidence that indicates that individuals will
manipulate the proposed system as suggested by the commenters. On the
contrary, we believe that medical needs will continue to determine
utilization of medical services.
Comment: Commenters requested that we clarify the proposed
regulations by specifying that there is no change in the existing
policy that medical expenses which will satisfy the spenddown include
those expenses incurred by the individual, the family or financially
responsible relatives.
Response: This regulation does not change the existing regulations
requiring the use of family members' medical expenses in the spenddown
(except by recodifying at Secs. 435.831(e) and 436.831(e) in the final
rule, to take into account other changes made by this regulation). By
making these changes, we do not mean to reaffirm the validity of this
facet of the existing regulations in cases where the courts have set it
aside. Numerous Courts of Appeals decisions have not upheld the
underlying assumption of the existing regulations in the context of the
standard filing unit cases. These courts' interpretation of section
1902(a)(17)(D) preclude States from counting medical expenses of family
members (other than a spouse for a spouse and parents for their minor
children). Nevertheless, the United States District Court for the
Northern District of California has held that States in the Ninth
Circuit must continue to deduct the medical expenses of family members
in determining the spenddown, as long as the present regulations remain
extant. States outside of the Ninth Circuit should assess the
continuing validity of the existing regulations for spenddown purposes
in light of any applicable court order invalidating the use of the AFDC
standard filing unit rule for purposes of Medicaid eligibility. The
existing regulations would continue to apply to the extent that they do
not explicitly conflict with the court order.
Comment: We received a suggestion that States establish a limit on
deduction of projected medical expenses incurred by ineligible family
members that are not covered under the State plan. If actual bills
exceed this limit, the State could credit the excess amount in the
current or the next spenddown period.
Response: This suggestion goes beyond the scope of the proposal.
Provision E--Allow States to Limit Deductible Medical Expenses to
Services Covered Under the State Plan
Comment: Commenters questioned our legal authority for making this
proposal. They believe that the Act does not authorize us to permit
States to exclude bills for services that are not paid for under the
State plan.
A large number of commenters were not in favor of this proposal
because, in their view, it might have a negative impact on individuals,
since many individuals require noncovered services. A variety of
concerns were expressed. Some commenters were concerned that this
proposal would delay eligibility for some individuals if noncovered
medical expenses could not be deducted. Other commenters predicted that
the proposal would cause individuals to pay a greater share of their
medical bills.
Response: Except in States that determine eligibility under section
1902(f) of the Act, we believe adequate legal authority exists in
section 1902(a)(17) of the Act, which delegates to the Secretary of HHS
the authority to prescribe the extent to which incurred expenses will
be taken into account in determining eligibility for Medicaid under the
medically needy option. However, we have decided to withdraw the option
and continue the current policy (with respect to expenses incurred in
the current budget period and the 3-month retroactive eligibility
period) because the option would have a potentially severe negative
impact on applicants and recipients. We now believe that offering
States this administrative option would reduce a person's Medicaid
eligibility or the amount of medical assistance provided. Further,
Congress passed legislation in 1988 amending the Social Security Act
(section 1902(r)(1)) to override a similar option we provided States in
the post-eligibility process. We believe it would be inconsistent with
the direction taken by Congress in the post-eligibility process to
allow a similar limitation in the spenddown process.
Comment: Some commenters predicted that this proposed provision
would result in increased Medicaid expenditures because individuals
will choose to obtain more costly services known to be covered under
the Medicaid plan, rather than less costly, possibly noncovered
services. Further, they predict that individuals will wait to seek
medical treatment if those expenses are not deductible in the spenddown
process instead of getting early treatment for a medical condition.
Response: While we have withdrawn this option, studies of the
effects of cost-sharing on utilization and health status have been
inconclusive. Therefore, it is not clear that patterns of utilization
of medical care would have been significantly altered if we had adopted
this option and States had implemented it.
Comment: Some commenters questioned why the NPRM did not offer this
option to States using more restrictive eligibility criteria than SSI,
under section 1902(f) of the Act.
Response: As discussed earlier, this option has been dropped
altogether.
Comment: A commenter suggested that, for purposes of the spenddown
provision, we define the term ``medical expenses included in the plan''
as all services provided to categorically needy individuals.
Response: We have withdrawn the option for States to limit
deductible medical expenses to those for services included in the State
plan. Therefore, we have not considered the commenter's suggestion in
the context of that option. (States are required to continue deducting
nonreimbursable expenses for premiums, deductibles, and coinsurance and
for necessary care that is recognized under State law, whether or not
such expenses are included in the State plan.)
However, while States are required to deduct expenses for services
not included in the State plan, States may continue to place reasonable
limits on the deductible amount. Therefore, we considered the
commenter's suggestion in this context, and we disagree with the
suggestion. (This issue does not arise in States that determine
eligibility under section 1902(f) of the Act because the inclusion or
exclusion of services under State plans is not a factor in the
spenddown process in these States.) States may provide a different
range of services for the categorically needy than they do for the
medically needy population. The spenddown procedures in Provisions A
through D apply to medically needy individuals and apply both for AFDC-
related cases and for the aged, blind, and disabled. Individuals
eligible as medically needy are eligible for only those specific
services that a State has chosen to provide to its medically needy
population. If ``included in the State plan'' referred to services for
the categorically needy, as the commenter suggested, the State would be
unable to place reasonable limits on the deductible amount of expenses
in the spenddown process, which only applies to the medically needy in
States that are not determining eligibility under section 1902(f). We
find no compelling program reason for such a restriction. Therefore, we
believe that it is appropriate to allow each State to define ``included
services'' for purposes of applying ``reasonable limits'' to mean
services a State provides to medically needy individuals (rather than
only to categorically needy individuals). In this way, the State may
place reasonable limits on the deductible amounts of expenses for the
medically needy except those included in the State plan. (It should be
noted that ``reasonable limits'' refers to the amount, rather than the
type, of expense that is deductible. For example, States may limit the
amount, but not the type, of health insurance premiums that are
deductible.)
Comment: Commenters predicted that this provision will be error
prone in practice, as eligibility workers and providers will need to
distinguish correctly between covered and noncovered services to deduct
only covered services during spenddown accurately.
Response: We withdrew the option because of its negative impact on
applicants and recipients.
Comment: Several States disagreed with our proposal that States may
not place amount, duration or scope limits on covered services in the
spenddown process, even though the State applies those limits when
paying for services furnished to Medicaid-eligible individuals. These
commenters contended that their authority to place amount, duration and
scope limits on services they pay for under Medicaid is an extension of
their authority to decide which services they will cover under the
State plan. They believe that this is an unnecessary restriction on the
right to control their Medicaid program.
Response: We do not agree with the commenters on this point. Under
existing regulations, which have not been revised, States may place
reasonable limits on the deductible amount of expenses not included in
the State plan but may not limit the deduction of expenses included in
the State plan. (Expenses ``included'' in the State plan are those for
services which are listed in the State plan, whether or not Medicaid
will pay for them. By contrast, ``covered'' expenses are a subset of
``included'' expenses. Covered expenses are expenses for services for
which Medicaid will pay if furnished to the individual by a Medicaid
provider. Expenses incurred for services which are for care which
exceed State plan limits on amount, duration, and scope are not
considered to be covered expenses.) The basic requirement in section
1902(a)(17) is that incurred expenses recognized under State law be
taken into account in the spenddown process. We believe that this is in
keeping with the thrust of this requirement to require the deduction
from income of expenses recognized under State law when the State has
also included the expenses in the State plan, even though the State
limits the amount of such expenses it pays for. We, therefore, allow
States to limit the deductions only for incurred expenses recognized
under State law that are not included in the State plan.
As we explained in response to a comment under Provision A
concerning projecting institutional expenses, we find adequate
authority for this policy in existing sections of the Act. The
Secretary has authority under section 1902(a)(17) of the Act to
prescribe the extent to which costs of medical care may be deducted
from income in medically needy programs.
Comment: One State pointed out that it is reasonable to require
that States deduct insurance premiums, as this encourages individuals
to continue insurance coverage. The commenter argued that it is not
logical, however, for us to require that States deduct coinsurance and
deductibles on services that are not covered under the plan. An
individual still benefits from the insurance coverage because he or she
must pay only the deductible or coinsurance rather than 100 percent of
the charge.
Response: As we explained in the response to the first comment in
this section, Congress passed legislation on the post-eligibility
process requiring the deduction of expenses for deductibles and
coinsurance in the post-eligibility process. It would be inconsistent
with the direction taken by Congress to allow States to exclude these
expenses in the spenddown process altogether. Therefore, States are
required to deduct a reasonable amount of these expenses from income.
We rely on the authority in section 1902(a)(17) of the Act to allow
States to place reasonable limits on the deductible amounts of these
cost-sharing expenses even though no such limits are allowable in the
post eligibility process.
IV. Summary of Changes to the Regulations
In this final rule, we are making the revisions proposed in the
NPRM with the following modifications based on our review and analysis
of public comments.
1. We are revising proposed Secs. 435.831(e)(1) (designated as
Sec. 435.831(g)(1) in this final rule) and Sec. 436.831(e)(1)
(designated as Sec. 436.831(g)(1) in this final rule) to clarify that
incurred medical expenses may include projected institutional expenses
at the Medicaid reimbursement rate. We are not revising
Sec. 435.732(c)(3) (redesignated as Sec. 435.121(f)(1)(iii)) to make
the same clarification since that section applies to States with more
restrictive criteria than SSI.
2. We are also clarifying in Secs. 435.831(i) and 436.831(i)
(proposed Secs. 435.831(e)(1) and 436.831(e)(1)) that an
institutionalized individual is eligible when incurred medical
expenses, including projected institutional expenses, reduce an
individual's income to the income standard, rather than on the first
day of institutionalization as indicated in the NPRM.
3. We are revising Secs. 435.831(a) and 436.831(a) to clarify that
an agency is not limited to the use of a single budget period to
compute income. However, an agency must use budget periods of not more
than 6 months to compute income.
4. In addition to other changes noted, we are revising paragraph
(d) as proposed in Secs. 435.831 and 436.831 by transferring most of
its contents to new paragraphs (e), (f) and (g) and cross-referring to
those sections.
a. New paragraph (e) in both sections includes the contents of
paragraph (d)(1)(ii)(A), (B), and (C) as paragraphs (e)(1), (2), and
(3) respectively.
b. New paragraph (f)(3) in both sections consists of the contents
of proposed paragraph (d)(6).
c. New paragraph (h) in both sections consists of the contents of
paragraph (d)(1)(i), (ii), and (iii) as paragraphs (h)(2), (1), and
(3), respectively.
d. New paragraphs (g)(1), (2) and (3) in both sections contain the
contents of paragraphs (d)(4), (5), and (3), respectively.
5. We are revising Secs. 435.831(d)(5) and 436.831(d)(5)
(redesignated as Secs. 435.831(g)(2) and 436.831(g)(2)) to specify that
an agency is not required to deduct expenses incurred earlier than 3
months before the month of application for Medicaid, clarifying that
the 3-month period is measured from the month of application, rather
than from the date of application as specified in the NPRM.
6. We are clarifying in Secs. 435.831(e)(3) and 436.831(e)(3)
(Secs. 435.831(d)(1)(ii)(C) and 436.831(d)(1)(ii)(C) in the proposed
rule) that a State must deduct expenses for necessary medical and
remedial services included in the State plan even when those services
exceed agency limitations on amount, duration or scope.
7. We are adding a new paragraph (f)(1) to Secs. 435.831 and
436.831 to show that the State must deduct expenses incurred during the
month of application and any of the preceding 3 months to the extent
the individual's liability arose in that period and the expenses have
not been deducted previously. We are also adding a new paragraph (f)(2)
to show the State must deduct current payments on old bills not
previously deducted.
V. Request for Additional Public Comments
We invite comments on the bases for and the consequences of
extending additional flexibility to States using the more restrictive
eligibility criteria of section 1902(f) of the Act to implement any of
the provisions in this rule. Because of the large number of comments we
receive, we cannot acknowledge or respond to them individually. If
appropriate, we will respond to public comments received on this issue
in a future Federal Register publication.
VI. Regulatory Impact Statement
Executive Order 12291 requires us to prepare and publish a
regulatory impact analysis for regulations that are likely to have an
annual effect on the economy of $100 million or more, cause a major
increase in costs or prices, or meet other threshold criteria that are
specified in the Executive Order. Consistent with the Regulatory
Flexibility Act, 5 U.S.C. 601-612, we prepare and publish a regulatory
flexibility analysis for regulations unless the Secretary certifies
that the regulations will not have a significant economic impact on a
substantial number of small entities. (For purposes of the Regulatory
Flexibility Act, small entities include all nonprofit and most for-
profit providers.) Under both the Executive Order and the Regulatory
Flexibility Act, such analyses must, when prepared, show that the
agency issuing the regulations has examined alternatives that might
minimize an unnecessary burden or otherwise ensure that the regulations
are cost-effective.
In the NPRM published on September 2, 1983 (48 FR 39959), we
examined the five separate provisions contained in these regulations
for the significance of their annual economic impact. In four of the
five proposed provisions (B, C, D and E), we could not quantify
estimates, but we were confident that any impacts would not meet the
threshold criteria of the Executive Order or the Regulatory Flexibility
Act. However, for provision A (Consideration of Projected Institutional
Expenses at the Medicaid Rate as Incurred Medical Expenses), we
estimated total Federal and State savings of $18 million.
In light of the public comments received regarding Provision A and
because of the need to analyze the effects of these final regulations,
we reviewed the analysis noted in the NPRM. After reviewing our data
and assumptions, we have concluded that the current impact of Provision
A will increase from the original estimate of $18 million to $65
million. This increase is a reflection of Medicaid program growth
through 1993.
Savings will occur in the few cases in which an institutionalized
individual will not become eligible or will be found eligible later in
time because his or her income significantly exceeded the medically
needy income level and the State Medicaid payment rate was used in the
eligibility calculation rather than whatever rate the institution chose
to charge. Delay or denial of an individual's eligibility will reduce
State expenditures and Federal contributions, resulting in negligible
savings. Some individuals whose eligibility is delayed and who are
spending down at the private payment rate, rather than the lower
Medicaid rate during that period, will spend down to the income
standard quicker and become eligible for Medicaid sooner. Further, this
provision is optional and it is an option only for States with
medically needy programs that are not section 1902(f) States. At this
time, we do not expect that it will be adopted by all or most States.
In addition, some States have already adopted interpretations of the
existing regulations on the spenddown process that are very close to
our final rule. For all these reasons, we now believe that this
provision will have a negligible net impact.
For these reasons, we have found that the effect of the provisions
of this final rule will not meet the threshold criteria of Executive
Order 12291. Further, we have determined, and the Secretary certifies,
that this final rule will not result in an annual economic impact that
will affect significantly a substantial number of small entities.
Therefore, we conclude that neither a regulatory impact nor a
regulatory flexibility analysis is required.
VII. Paperwork Reduction Act
These changes do not impose information collection requirements;
consequently, they need not be reviewed by the Executive Office of
Management and Budget under the authority of the Paperwork Reduction
Act of 1980 (44 U.S.C. 3501 et seq.).
List of Subjects
42 CFR Part 435
Aid to families with dependent children, Aliens, Categorically
needy, Contracts (agreements--state plan), Eligibility, Grant-in-aid
program--health, Health facilities, Medicaid, Medically needy,
Reporting requirements, Spend-down, Supplemental security income (SSI).
42 CFR Part 436
Aid to Families with Dependent Children, Aliens, Contracts
(Agreements), Eligibility, Grant-in-Aid program--health, Guam, Health
facilities, Medicaid, Puerto Rico, Supplemental security income (SSI),
Virgin Islands.
A. 42 CFR part 435 is amended as set forth below:
PART 435--ELIGIBILITY IN THE STATES, DISTRICT OF COLUMBIA, THE
NORTHERN MARIANA ISLANDS, AND AMERICAN SAMOA
1. The authority citation for part 435 continues to read as
follows:
Authority: Sec. 1102 of the Social Security Act, (42 U.S.C.
1302), unless otherwise noted.
2. Section 435.831 is revised to read as follows:
Sec. 435.831 Income eligibility.
The agency must determine income eligibility of medically needy
individuals in accordance with this section.
(a) Budget periods. (1) The agency must use budget periods of not
more than 6 months to compute income. The agency may use more than one
budget period.
(2) The agency may include in the budget period in which income is
computed all or part of the 3-month retroactive period specified in
Sec. 435.914. The budget period can begin no earlier than the first
month in the retroactive period in which the individual received
covered services. This provision applies to all medically needy
individuals except in groups for whom criteria more restrictive than
that used in the SSI program apply.
(3) If the agency elects to begin the first budget period for the
medically needy in any month of the 3-month period prior to the date of
the application in which the applicant received covered services, this
election applies to all medically needy groups.
(b) Determining countable income. The agency must deduct the
following amounts from income to determine the individual's countable
income.
(1) For individuals under age 21 and caretaker relatives, the
agency must deduct amounts that would be deducted in determining
eligibility under the State's AFDC plan.
(2) For aged, blind, or disabled individuals in States covering all
SSI recipients, the agency must deduct amounts that would be deducted
in determining eligibility under SSI. However, the agency must also
deduct the highest amounts from income that would be deducted in
determining eligibility for optional State supplements if these
supplements are paid to all individuals who are receiving SSI or would
be eligible for SSI except for their income.
(3) For aged, blind, or disabled individuals in States using income
requirements more restrictive than SSI, the agency must deduct amounts
that are no more restrictive than those used under the Medicaid plan on
January 1, 1972 and no more liberal than those used in determining
eligibility under SSI or an optional State supplement. However, the
amounts must be at least the same as those that would be deducted in
determining eligibility, under Sec. 435.121, of the categorically
needy.
(c) Eligibility based on countable income. If countable income
determined under paragraph (b) of this section is equal to or less than
the applicable income standard under Sec. 435.814, the individual or
family is eligible for Medicaid.
(d) Deduction of incurred medical expenses. If countable income
exceeds the income standard, the agency must deduct from income medical
expenses incurred by the individual or family or financially
responsible relatives that are not subject to payment by a third party.
An expense is incurred on the date liability for the expense arises.
The agency must determine deductible incurred expenses in accordance
with paragraphs (e), (f), and (g) of this section and deduct those
expenses in accordance with paragraph (h) of this section.
(e) Determination of deductible incurred expenses: Required
deductions based on kinds of services. Subject to the provisions of
paragraph (g), in determining incurred medical expenses to be deducted
from income, the agency must include the following:
(1) Expenses for Medicare and other health insurance premiums, and
deductibles or coinsurance charges, including enrollment fees,
copayments, or deductibles imposed under Sec. 447.51 or Sec. 447.53 of
this subchapter;
(2) Expenses incurred by the individual or family or financially
responsible relatives for necessary medical and remedial services that
are recognized under State law but not included in the plan;
(3) Expenses incurred by the individual or family or by financially
responsible relatives for necessary medical and remedial services that
are included in the plan, including those that exceed agency
limitations on amount, duration, or scope of services.
(f) Determination of deductible incurred expenses: Required
deductions based on the age of bills. Subject to the provisions of
paragraph (g), in determining incurred medical expenses to be deducted
from income, the agency must include the following:
(1) For the first budget period or periods that include only months
before the month of application for medical assistance, expenses
incurred during such period or periods, whether paid or unpaid, to the
extent that the expenses have not been deducted previously in
establishing eligibility;
(2) For the first prospective budget period that also includes any
of the 3 months before the month of application for medical assistance,
expenses incurred during such budget period, whether paid or unpaid, to
the extent that the expenses have not been deducted previously in
establishing eligibility;
(3) For the first prospective budget period that includes none of
the months preceding the month of application, expenses incurred during
such budget period and any of the 3 preceding months, whether paid or
unpaid, to the extent that the expenses have not been deducted
previously in establishing eligibility;
(4) For any of the 3 months preceding the month of application that
are not includable under paragraph (f)(2) of this section, expenses
incurred in the 3-month period that were a current liability of the
individual in any such month for which a spenddown calculation is made
and that had not been previously deducted from income in establishing
eligibility for medical assistance;
(5) Current payments (that is, payments made in the current budget
period) on other expenses incurred before the current budget period and
not previously deducted from income in any budget period in
establishing eligibility for such period; and
(6) If the individual's eligibility for medical assistance was
established in each such preceding period, expenses incurred before the
current budget period but not previously deducted from income in
establishing eligibility, to the extent that such expenses are unpaid
and are:
(i) Described in paragraphs (e)(1) through (e)(3) of this section;
and
(ii) Carried over from the preceding budget period or periods
because the individual had a spenddown liability in each such preceding
period that was met without deducting all such incurred, unpaid
expenses.
(g) Determination of deductible incurred medical expenses: Optional
deductions. In determining incurred medical expenses to be deducted
from income, the agency--
(1) May include medical institutional expenses (other than expenses
in acute care facilities) projected to the end of the budget period at
the Medicaid reimbursement rate;
(2) May, to the extent determined by the State and specified in its
approved plan, include expenses incurred earlier than the third month
before the month of application (except States using more restrictive
eligibility criteria under the option in section 1902(f) of the Act
must deduct incurred expenses regardless of when the expenses were
incurred); and
(3) May set reasonable limits on the amount to be deducted for
expenses specified in paragraphs (e)(1), (e)(2), and (g)(2) of this
section.
(h) Order of deduction. The agency must deduct incurred medical
expenses that are deductible under paragraphs (e), (f), and (g) of this
section in the order prescribed under one of the following three
options:
(1) Type of service. Under this option, the agency deducts expenses
in the following order based on type of expense or service:
(i) Cost-sharing expenses as specified in paragraph (e)(1) of this
section.
(ii) Services not included in the State plan as specified in
paragraph (e)(2) of this section.
(iii) Services included in the State plan as specified in paragraph
(e)(3) of this section but that exceed limitations on amounts,
duration, or scope of services.
(iv) Services included in the State plan as specified in paragraph
(e)(3) of this section but that are within agency limitations on
amount, duration, or scope of services.
(2) Chronological order by service date. Under this option, the
agency deducts expenses in chronological order by the date each service
is furnished, or in the case of insurance premiums, coinsurance or
deductible charges, the date such amounts are due. Expenses for
services furnished on the same day may be deducted in any reasonable
order established by the State.
(3) Chronological order by bill submission date. Under this option,
the agency deducts expenses in chronological order by the date each
bill is submitted to the agency by the individual. If more than one
bill is submitted at one time, the agency must deduct the bills from
income in the order prescribed in either paragraph (h)(1) or (h)(2) of
this section.
(i) Eligibility based on incurred medical expenses.
(1) Whether a State elects partial or full month coverage, an
individual who is expected to contribute a portion of his or her income
toward the costs of institutional care or home and community-based
services under Secs. 435.725, 435.726, 435.733, 435.735 or 435.832 is
eligible on the first day of the applicable budget (spenddown) period--
(i) If his or her spenddown liability is met after the first day of
the budget period; and
(ii) If beginning eligibility after the first day of the budget
period makes the individual's share of health care expenses under
Secs. 435.725, 435.726, 435.733, 435.735 or 435.832 greater than the
individual's contributable income determined under these sections.
(2) At the end of the prospective period specified in paragraphs
(f)(2) and (f)(3) of this section, and any subsequent prospective
period or, if earlier, when any significant change occurs, the agency
must reconcile the projected amounts with the actual amounts incurred,
or with changes in circumstances, to determine if the adjusted
deduction of incurred expenses reduces income to the income standard.
(3) Except as provided in paragraph (i)(1) of this section, in
States that elect partial month coverage, an individual is eligible for
Medicaid on the day that the deduction of incurred health care expenses
(and of projected institutional expenses if the agency elects the
option under paragraph (g)(1) of this section) reduces income to the
income standard.
(4) Except as provided in paragraph (i)(1) of this section, in
States that elect full month coverage, an individual is eligible on the
first day of the month in which spenddown liability is met.
(5) Expenses used to meet spenddown liability are not reimbursable
under Medicaid. To the extent necessary to prevent the transfer of an
individual's spenddown liability to the Medicaid program, States must
reduce the amount of provider charges that would otherwise be
reimbursable under Medicaid.
B. 42 CFR part 436 is amended as set forth below:
PART 436--ELIGIBILITY IN GUAM, PUERTO RICO, AND THE VIRGIN ISLANDS
1. The authority citation for part 436 continues to read as
follows:
Authority: Sec. 1102 of the Social Security Act (42 U.S.C.
1302), unless otherwise noted.
2. Section 436.831 is revised to read as follows:
Sec. 436.831 Income eligibility.
The agency must determine income eligibility of medically needy
individuals in accordance with this section.
(a) Budget periods. (1) The agency must use budget periods of not
more than 6 months to compute income. The agency may use more than one
budget period.
(2) The agency must include in the budget period in which income is
computed all or part of the 3-month retroactive period specified in
Sec. 435.914. The budget period can begin no earlier then the first
month in the retroactive period in which the individual received
covered services.
(3) If the agency elects to begin the first budget period for the
medically needy in any month of the 3-month period prior to the date of
application in which the applicant received covered services, this
election applies to all medically needy groups.
(b) Determining countable income. The agency must, to determine
countable income, deduct amounts that would be deducted in determining
eligibility under the State's approved plan for OAA, AFDC, AB, APTD, or
AABD.
(c) Eligibility based on countable income. If countable income
determined under paragraph (b) of this section is equal to or less than
the applicable income standard under Sec. 436.814, the individual is
eligible for Medicaid.
(d) Deduction of incurred medical expenses. If countable income
exceeds the income standard, the agency must deduct from income medical
expenses incurred by the individual or family or financially
responsible relatives that are not subject to payment by a third party.
An expense is incurred on the date liability for the expense arises.
The agency must determine deductible incurred expenses in accordance
with paragraphs (e), (f) and (g) of this section and deduct those
expenses in accordance with paragraph (h) of this section.
(e) Determination of deductible incurred expenses: Required
deductions based on kinds of services. Subject to the provisions of
paragraph (g) of this section, in determining incurred medical expenses
to be deducted from income, the agency must include the following: (1)
Expenses for Medicare and other health insurance premiums, and
deductibles or coinsurance charges, including enrollment fees,
copayments, or deductibles imposed under Sec. 447.51 or Sec. 447.53 of
this chapter;
(2) Expenses incurred by the individual or family or financially
responsible relatives for necessary medical and remedial services that
are recognized under State law but not included in the plan;
(3) Expenses incurred by the individual or family or by financially
responsible relatives for necessary medical and remedial services that
are included in the plan, including those that exceed agency
limitations on amount, duration or scope of services;
(f) Determination of deductible incurred expenses: Required
deductions based on the age of bills. Subject to the provisions of
paragraph (g) of this section, in determining incurred medical expenses
to be deducted from income, the agency must include the following:
(1) For the first budget period or periods that include only months
before the month of application for medical assistance, expenses
incurred during such period or periods, whether paid or unpaid, to the
extent that the expenses have not been deducted previously in
establishing eligibility;
(2) For the first prospective budget period that also includes any
of the 3 months before the month of application for medical assistance,
expenses incurred during such budget period, whether paid or unpaid, to
the extent that the expenses have not been deducted previously in
establishing eligibility;
(3) For the first prospective budget period that includes none of
the months preceding the month of application, expenses incurred during
such budget period and any of the 3 preceding months, whether paid or
unpaid, to the extent that the expenses have not been deducted
previously in establishing eligibility;
(4) For any of the 3 months preceding the month of application that
are not includable under paragraph (f)(2) of this section, expenses
incurred in the 3-month period that were a current liability of the
individual in any such month for which a spenddown calculation is made
and that had not been previously deducted from income in establishing
eligibility for medical assistance;
(5) Current payments (that is, payments made in the current budget
period) on other expenses incurred before the current budget period and
not previously deducted from income in any budget period in
establishing eligibility for such period; and
(6) If the individual's eligibility for medical assistance was
established in each such preceding period, expenses incurred before the
current budget period but not previously deducted from income, to the
extent that such expenses are unpaid and are:
(i) Described in paragraphs (e)(1) through (e)(3) of this section;
and
(ii) Are carried over from the preceding budget period or periods
because the individual had a spenddown liability in each such preceding
period that was met without deducting all such incurred, unpaid
expenses.
(g) Determination of deductible incurred medical expenses: Optional
deductions. In determining incurred medical expenses to be deducted
from income, the agency--
(1) May include medical institutional expenses (other than expenses
in acute care facilities) projected to the end of the budget period at
the Medicaid reimbursement rate;
(2) May, to the extent determined by the agency and specified in
its approved plan, include expenses incurred earlier than the third
month before the month of application; and
(3) May set reasonable limits on the amount to be deducted for
expenses specified in paragraphs (e)(1), (e)(2), and (g)(2) of this
section.
(h) Order of deduction. The agency must deduct incurred medical
expenses that are deductible under paragraphs (e), (f), and (g) of this
section, in the order prescribed under one of the following three
options:
(1) Type of service. Under this option, the agency deducts expenses
in the following order based on type of service:
(i) Cost-sharing expenses as specified in paragraph (e)(1) of this
section.
(ii) Services not included in the State plan as specified in
paragraph (e)(2) of this section.
(iii) Services included in the State plan as specified in paragraph
(e)(3) of this section but that exceed agency limitations on amount,
duration, or scope of services.
(iv) Services included in the State plan as specified in paragraph
(e)(3) of this section but that are within agency limitations on
amount, duration, or scope of services.
(2) Chronological order by service date. Under this option, the
agency deducts expenses in chronological order by the date each service
is furnished, or in the case of insurance premiums, coinsurance, or
deductibles charges the date such amounts are due. Expenses for
services furnished on the same day may be deducted in any reasonable
order established by the State.
(3) Chronological order by bill submission date. Under this option,
the agency deducts expenses in chronological order by the date each
bill is submitted to the agency by the individual. If more than one
bill is submitted at one time, the agency must deduct the bills from
income in the order prescribed in either paragraph (h)(1) or (h)(2) of
this section.
(i) Eligibility based on incurred medical expenses.
(1) Whether a State elects partial or full month coverage, an
individual who is expected to contribute a portion of his or her income
toward the costs of institutional care or home and community-based
services under Sec. 436.832 is eligible on the first day of the
applicable budget (spenddown) period--
(i) If his or her spenddown liability is met after the first day of
the budget period; and
(ii) If beginning eligibility after the first day of the budget
period makes the individual's share of health care expenses under
Sec. 436.832 greater than the individual's contributable income
determined under this section.
(2) At the end of the prospective period specified in paragraph
(f)(2) or (f)(3) of this section and any subsequent prospective period
or, if earlier, when any significant change occurs, the agency must
reconcile the projected amounts with the actual amounts incurred, or
with changes in circumstances, to determine if the adjusted deduction
of incurred expenses reduces income to the income standard.
(3) Except as provided in paragraph (i)(1) of this section, if
agencies elect partial month coverage, an individual is eligible for
Medicaid on the day that the deduction of incurred health care expenses
(and of projected institutional expenses if the agency elects the
option under paragraph (g)(1) of this section) reduces income to the
income standard.
(4) Except as provided in paragraph (i)(1) of this section, if
agencies elect full month coverage, an individual is eligible on the
first day of the month in which spenddown liability is met.
(5) Expenses used to meet spenddown liability are not reimbursable
under Medicaid. Therefore, to the extent necessary to prevent the
transfer of an individual's spenddown liability to the Medicaid
program, States must reduce the amount of provider charges that would
otherwise be reimbursable under Medicaid.
(Catalog of Federal Domestic Assistance Program No. 93.778, Medical
Assistance Program)
Dated: July 12, 1993.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
Dated: October 4, 1993.
Donna E. Shalala,
Secretary.
[FR Doc. 94-547 Filed 1-11-94; 8:45 am]
BILLING CODE 4120-01-P