DEPARTMENT OF HEALTH AND HUMAN SERVICES 

Centers for Medicare & Medicaid Services 

Medicaid Program; Eligibility Changes under the Affordable Care Act of2010 

(CMS-2349-P) 

Preliminary Regulatory Impact Analysis 

Centers for Medicare and Medicaid Services 

August 2011 
CMS-2349-P AMB/GMB/EB 8/9111 2 

SUMMARY: 

This document announces the impact statement for the proposed rule entitled "Medicaid 

Program; Eligibility Changes under the Affordable Care Act of 201 0," which is published in the 

Federal Register. 

IMP ACT ANALYSIS 

I. Executive Orders 13563 and 12866 

We have examined the impact of this rule as required by Executive Order 12866 on 

Regulatory Planning and Review (September 30, 1993) and Executive Order 13563 on 

Improving Regulation and Regulatory Review (February 2, 2011). Executive Orders 12866 and 

13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if 

regulation is necessary, to select regulatory approaches that maximize net benefits (including 

potential economic, environmental, public health and safety effects, distributive impacts, and 

equity). A regulatory impact analysis (RIA) must be prepared for rules with economically 

significant effects ($1 00 million or more in any 1 year). The Office of Management and Budget 

has determined that this rulemaking is "economically significant" within the meaning of section 

3(f)(l) of Executive Order 12866, because it is likely to have an annual effect of$100 million in 

any one year. Accordingly, we have prepared a Regulatory Impact Analysis that presents the 

costs and benefits of this rulemaking. The Department invites comments on this assessment and 

its conclusions. 

This proposed rule updates the regulations to include the new Medicaid coverage groups 

created by the Affordable Care Act, simplifies eligibility policy for Medicaid and the Children's 

Health Insurance Program (CHIP), streamlines the eligibility and enrollment processes, and 

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CMS-2349-P AMB/GMB/EB 8/9111 3 

coordinates eligibility procedures with those that we have proposed for the Affordable Insurance 

Exchanges or "Exchanges". In addition, this proposed rule sets out the increased Federal 

Medical Assistance Percentage (FMAP) rates and the related conditions and requirements that 

will be available for State medical assistance expenditures relating to "newly eligible" 

individuals and certain medical assistance expenditures in "expansion States" beginning 

January 1, 2014. This analysis will serve as the base for estimating Medicaid impacts ofthese 

interrelated provisions. 

II. Need for Regulatory Action 

A central aim of the Affordable Care Act is to expand access to health insurance 

coverage through Exchanges, Medicaid, CHIP, and other sources of private insurance. The 

number of uninsured Americans is rising due to lack of affordable insurance, barriers to 

insurance for people with pre-existing conditions, and high prices due to limited competition, 

small risk pools, and market failures. Millions of people without health insurance use health care 

services for which they do not pay, shifting the uncompensated cost of their care to health care 

providers. Providers pass much of this cost to insurance companies, resulting in higher 

premiums that make insurance unaffordable to even more people. In many instances, State and 

local governments absorb a significant share ofthese costs. The Affordable Care Act includes a 

number of policies to address these problems, including changes to Medicaid eligibility and 

enrollment. 

Starting in 2014, individuals and small businesses will be able to purchase health 

insurance through State-based competitive marketplaces called Exchanges. Exchanges will offer 

Americans competition, choice, and clout. Insurance companies will compete for business on a 

level playing field, driving down costs. Consumers will have a choice of health plans to fit their 

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CMS-2349-P AMB/GMB/EB 8/9/11 4 

needs. Exchanges will give individuals and small businesses the same purchasing clout as big 

businesses. The Departments of Health & Human Services, Labor, and the Treasury (the 

Departments) are working in close coordination to release guidance related to Exchanges in 

several phases. The first in this series was a Request for Comment relating to Exchanges, 

published in the August 3, 2010 Federal Register (75 FR 45584). Second, Initial Guidance to 

States on Exchanges was issued on November 18, 2010. Third, a proposed rule for the 

application, review, and reporting process for waivers for State innovation was published in the 

March 14, 2011 Federal Register (76 FR 13553). Fourth, two proposed regulations were 

published in the July 15, 2011 Federal Register to implement components of the Exchange and 

health insurance premium stabilization policies in the Affordable Care Act (76 FR 41866). Fifth, 

a proposed regulation establishing the Consumer Operated and Oriented Plan (CO-OP) Program 

was published in the July 20, 2011 Federal Register (76 FR 43237). 

The provisions that are included in this proposed rule implement certain requirements of 

sections 1413, 1414,2001,2002,2101, and 2201 ofthe Affordable Care Act. In combination 

with other provisions of the law, these proposals aim to accomplish the major goals of the lawexpanding coverage, improving care, and lowering costs. The first is to improve access to care 

by filling in coverage gaps for low-income populations. Medicaid and CHIP have long been 

central to meeting the health care needs of low-income children, pregnant women, seniors, and 

people with disabilities. However, Medicaid has historically been limited to certain "categories" 

of individuals, such as families with dependent children, aged, blind and disabled individuals, 

and for many of these groups, coverage has been available only to those with incomes 

significantly below the poverty line. The median income threshold for parents' eligibility for 

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Medicaid is 64 percent of the Federal poverty level, 1 and before the Affordable Care Act, no 

category existed for non-elderly, non-disabled adults without children. This has led to a large 

fraction of the uninsured - 40 percent in 2009- having income below the poverty threshold. 2 

A second challenge addressed in the proposed rule is the complexity of and barriers to 

Medicaid and CHIP eligibility and enrollment. Research has demonstrated that confusion over 

Medicaid's current eligibility requirements has deterred some eligible people from enrolling in 

coverage.

3 Research has also indicated that eligibility requirements, such as asset tests, can serve 

as a barrier to otherwise eligible people enrolling in Medicaid coverage. 

4 There is also evidence 

that a major factor contributing to lapses in coverage is the difficulty low-income families have 

with negotiating through the administrative complexities involved in maintaining coverage at 

renewal. 5 Gaps in coverage in tum make it more difficult to assure quality of care, a usual place 

of care, and efficiency in the delivery of care. Studies have shown that individuals with health 

coverage gaps are more likely to experience harmful health consequences and higher rates of 

hospitalizations for illnesses that can be effectively managed through ongoing primary care, such 

as asthma, diabetes, and cardiovascular disease. 6 

1 M. Heberlein, et al., "Holding Steady, Looking Ahead: Annual findings of a 50-State Survey of Eligibility Rules, 

Enrollment and Renewal Procedures, and Cost Sharing Practices in Medicaid and CHIP, 20 I 0-20 II" Kaiser 

Commission on Medicaid and the Uninsured, 20 II. 2 Henry J. Kaiser Family Foundation, "The Uninsured: A Primer: Key facts about Americans without health 

insurance," 20 I 0. 3 J. Stuber, eta!., "Beyond Stigma: What Barriers Actually Affect the Decisions of Low-Income Families to Enroll 

in Medicaid?" Washington, D.C.: The George Washington University Center for Health Services Research and 

Policy, 2000. 4 V. Smith, et al, "Eliminating the Medicaid Asset Test for Families: A Review of State Experiences". Kaiser 

Commission on Medicaid and the Uninsured (200 I). 5 L. Ku and D. Cohen Ross, Staying Covered: The Importance of Retaining Health Insurance for Low-Income 

Families (New York: The Commonwealth Fund, Dec. 2002); Lipson K, Fishman E, Boozang P, et al. Rethinking 

Recertification: Keeping Eligible Individuals Enrolled in New York's Public Health Insurance Programs. (New 

York: The Commonwealth Fund, August 2003). 6 L. Ku, et al., "Improving Medicaid's Continuity of Coverage and Quality of Care." Association for Community 

Affiliated Plans (ACAP) (2009). 

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CMS-2349-P AMB/GMB/EB 8/9/11 6 

Finally, in addition to the effect on coverage and care, Medicaid's complexity can result 

in substantial administrative costs. A 2005 study of churning in California's Medicaid program, 

Medi-Cal, found that over a 3-year period, 600,000 children who were disenrolled, reapplied in a 

very short timeframe, 4 months for most. The cost of reenrollment in Medi-Cal and then into 

their managed care plan was $120 million over the 3 years.

7 The Affordable Care Act and the 

proposed rule to implement it aim to simplify and streamline eligibility determinations and 

redeterminations, increasing coverage and reducing administrative costs. 

III. Summary of Provisions Proposed in this Rule 

This proposed rule implements sections of the Affordable Care Act related to Medicaid 

and CHIP eligibility and enrollment, and FMAP rates and requirements. The proposed rule also 

provides for coordination of Medicaid and CHIP eligibility procedures with the procedures that 

will apply to eligibility determinations for the premium tax credits and other insurance 

affordability programs. This proposed rule, together with the proposed rule establishing the 

eligibility parameters for advance payments of premium tax credits and cost sharing reductions 

and enrollment in a qualified health plan through the Exchanges, as well as the proposed rule 

developed by the Department of the Treasury regarding the health insurance premium assistance 

tax credit, would establish a framework for States to implement the changes to the Medicaid 

program that will take place in 2014 as a result of the Affordable Care Act. 

This proposed rule has four key elements: 

(1) Expanding Medicaid eligibility to individuals with family incomes at or below 133 

percent of the Federal poverty level (FPL) and eliminating categorical exclusions for all States. 

7

G. Fairbrother, "How Much Does Churning in Medi-Cal Cost?" California Endowment, April 2005. 

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and must not be disseminated, distributed, or copied to persons not authorized to receive the information. Unauthorized 

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CMS-2349-P AMB/GMB/EB 8/9111 7 

Implementing the Affordable Care Act, this proposal contains a new eligibility group 

effective in all States participating in Medicaid, referred to as the "adult group." Effective 

January 1, 2014, this group will consist of individuals whose income is at or below 133 percent 

of the FPL, who are age 19 to 65, not pregnant and not otherwise covered under Medicaid or 

Medicare. We note that eligibility for the adult group also includes a 5 percent income disregard. 

(2) Simplified eligibility rules for most Medicaid and CHIP beneficiaries. 

As required by the Affordable Care Act, this rulemaking proposes the use of a simplified 

income standard for determining Medicaid eligibility known as the applicable modified adjusted 

gross income (MAGI) standard for most populations the Medicaid program will serve (including 

children and adults under age 65). Financial eligibility under the applicable MAGI standard is 

based on a set of financial methodologies to determine income which will be applied consistently 

across insurance affordability programs (for example, Medicaid, CHIP, and the premium tax 

credit). 

The proposed rule describes the process for applying the new simplified MAGI test. In 

addition, it proposes policies for ensuring that individuals who do not meet the simplified income 

test are evaluated for Medicaid eligibility on other bases (e.g., disability) and for potential 

eligibility for other insurance affordability programs (e.g., premium tax credits in the Exchange). 

We are also proposing to amend existing regulations to establish a Federal regulatory 

framework that promotes a simplified approach to eligibility. This includes a proposal to 

consolidate multiple Medicaid eligibility groups into four broad categories -- parents and other 

caretaker relatives, pregnant women, adults, and children. 

(3) Streamlined processes designed to create a seamless enrollment experience across 

Medicaid, CHIP and the Exchange. 

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CMS-2349-P AMB/GMB/EB 8/9/11 8 

As required by the Affordable Care Act, the rule proposes to codify procedures for 

enabling individuals to apply, enroll, and renew enrollment in Medicaid and CHIP through an 

Internet web site using a single, streamlined application and to provide for enrollment in 

Medicaid and CHIP of those individuals who are determined eligible by the Exchange, without 

any further determination. The proposed rule allows States considerable flexibility to determine 

how they will set up their programs and integrate systems at the State level. This may be 

accomplished through complete integration of all insurance affordability programs into one 

administrative entity or through the use of shared services and agreements to promptly and 

efficiently adjudicate placement for most individuals. 

We are also proposing to make Medicaid enrollment renewal policies consistent with 

other insurance affordability programs by establishing a standard 12-month period of eligibility 

absent information indicating a change in circumstances, consistent with policies most States 

have already adopted for children and parents. States would redetermine Medicaid eligibility 

using reliable information contained in the case account, or other more current information 

available to the Medicaid agency. Additional documentation would be permitted as necessary 

and more frequent redeterminations of eligibility would occur whenever a State had information 

suggesting a relevant change in circumstances, either from the individual or family, data sources, 

or other program information. 

(4) Codifies the new, higher FMAP rates that are effective in CY 2014 and proposes 

alternate methodologies to determine the correct FMAP for expenditures to promote 

administrative simplicity. 

The proposed rule codifies the new FMAP rates that will help States finance the coverage 

expansions through substantially increased Federal support. In addition, this proposed rule offers 

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CMS-2349-P AMB/GMB/EB 8/9/11 9 

alternate methods to determine the correct FMAP for expenditures due to the newly eligible 

individuals in Medicaid, beginning in CY 2014. This provision will provide States with 

flexibility and simplified methods for determining the appropriate expenditures for which the 

State would receive the increased portion of Federal matching funds under section 2001 of the 

Affordable Care Act. 

IV. Estimates of the Impact of the Proposed Rule 

This preliminary impact analysis uses the estimates of the CMS Office of the Actuary 

(OACT)8 and the estimates prepared by the Congressional Budget Office (CBO) and the staff of 

the Joint Committee on Taxation.9 It provides both estimates to illustrate the uncertainty 

inherent in projections of future Medicaid financial operations. These modeling efforts generally 

account for all of the interactions among the Medicaid, CHIP, and Exchange pieces of the 

Affordable Care Act. 

A. Anticipated Effects on Eligible and Potentially Eligible Medicaid Enrollees 

In FY 2011, an estimated 55 million Americans will be enrolled in Medicaid. 10 

Eligibility rules vary by State, but all States cover individuals who meet the Federal minimum 

eligibility standards. By extending Medicaid eligibility to adults with incomes at or below 133 

percent of the poverty level, moving to a new, simplified income standard based on MAGI, 

streamlining and coordinating eligibility processes and policies with the processes for advance 

payment of premium tax credits and cost-sharing reductions for Exchange coverage, the 

8 OACT's original estimates are documented in an April22, 2010 memorandum "Estimated Financial Effects ofthe 

Patient Protection and Affordable Care Act, as Amended," available at 

hnps://www.cms.gov/ ActuarialStudies/downloads/PPACA 20 I 0-04-22.pdf. These estimates have been updated to 

include later data from the Medical Expenditure Panel Survey (MEPS) and the Current Population Survey (CPS), 

together with updated participation assumptions and later information on policy decisions. Additional information 

on the updated estimates is available from OACT. 9 CBO. Analysis ofthe Major Health Care Legislation Enacted in March 2010. Statement of Douglas W. 

Elmendorf. March 30, 20 I I -- http://www.cbo.gov/ftpdocs/J 2 I xx/doc 12119/0?-30-IIealthCareLegislatiQ!!.J2.Q_f. 10 Op. cit. 8 

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CMS-2349-P AMB/GMB/EB 8/9111 10 

proposed rule would allow millions of uninsured low-income persons who did not have access to 

or could not afford health insurance to obtain coverage. The proposed provisions would also 

help ensure that eligible people remain enrolled in coverage, whether the appropriate coverage 

source is Medicaid, CHIP or the Exchange, even when their circumstances change. 

OACT estimates that by 2016, an additional24 million people will be enrolled in 

Medicaid (see Table 1). While this coverage increase includes mostly newly eligible individuals, 

it also includes some currently eligible but not enrolled individuals seeking coverage. 

TABLE 1: Estimated Effects of this Proposed Rule on Medicaid Enrollment, 

2012-2016 (in millions) 

2012 2013 2014 2015 2016 

Enrollmene 1 0 0 15 21 24 

Source: CMS Office of the Actuary. 

OACT notes that such estimates are inherently uncertain, since they depend on future 

economic, demographic, and other factors that cannot be precisely determined in advance. 

Moreover, the actual behavior of individuals and the actual operation of the new enrollment 

processes and Exchanges could differ from OACT's assumptions. The sensitivity of estimated 

future Medicaid enrollment to different assumptions and projection factors can be illustrated by a 

comparison ofOACT's estimates with those prepared by the Congressional Budget Office. CBO 

has estimated a net increase of 16 million newly and previously eligible people enrolling in 

Medicaid and CHIP in 2016 as a result of the new law as implemented through this regulation 

(Table 2).

12 

11 These estimates include approximately 2 to 3 million individuals with primary health insurance coverage through 

employer-sponsored plans who are enrolled in Medicaid for supplemental coverage. 12 CBO. Analysis of the Major Health Care Legislation Enacted in March 20 I 0. Statement of Douglas W. 

Elmendorf. March 30, 20 II -- http://www.cbo.gov/tlpdocs/ 121xx/doc 121 19/03-30-HealthCareLegislation .pdf. The 

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CMS-2349-P AMB/GMB/EB 8/9111 11 

TABLE 2: CBO Estimated Effects of this Proposed Rule on Medicaid & CHIP 

Enrollment, 2012-2016 (in millions) 

2012 2013 2014 2015 2016 

Enrollment 0 0 9 12 16 

Source: CongressiOnal Budget Office. 

OACT prepared its estimates using data on individuals and families, together with their 

income levels and insured status, from the Current Population Survey and the Medical 

Expenditure Panel Survey. In addition, they made assumptions as to the actions of individuals in 

response to the new coverage options under the Affordable Care Act and the operations of the 

new enrollment processes and the Exchanges. The estimated Medicaid coverage and financial 

effects are particularly sensitive to these latter assumptions. For example, while CBO used 

similar data and a similar methodology to OACT, their coverage and financial estimates are 

significantly lower than OACT's, in part as a result of the assumptions made in this area.

13 

Specifically, a portion of the difference between OACT and CBO's projections can be 

explained by different participation rate assumptions. Among those eligible for Medicaid under 

the expanded eligibility criteria established by the Affordable Care Act, and who would not 

otherwise have health insurance, OACT assumed that 95 percent would enroll. This assumption, 

which is significantly higher than current enrollment percentages, reflects OACT's consideration 

of the experience with health insurance reform in Massachusetts and its expectation that the 

streamlined enrollment process and enrollment assistance available to people through the 

Exchanges will be very effective in helping eligible individuals and families become enrolled. 

Although CBO also anticipates that the streamlined enrollment process and Exchange enrollment 

CBO estimates exclude individuals with primary coverage through employer-sponsored plans who enroll in 

Medicaid for supplemental coverage. 13 CBO. "CBO's Health Insurance Simulation Model: A Technical Description." (2007, October). 

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CMS-2349-P AMB/GMB/EB 8/9/11 12 

assistance will improve applicants' ability to become enrolled, CBO has included a significantly 

smaller impact from this factor than assumed by OACT. 14 

OACT and CBO both considered whether certain individuals, who have other insurance 

prior to the expansion of Medicaid eligibility, would either discontinue their enrollment in their 

previous plan and enroll in Medicaid or would decide to keep their existing plan and enroll in 

Medicaid as supplemental coverage - although it is important to note that this is rare today. 

Other factors also affect the projected increase in Medicaid enrollment. For example, both 

organizations considered how employers' decisions to offer insurance in the future will affect 

workers and their decision to enroll in Medicaid. Medicaid enrollment could also be affected by 

policy decisions by the States and any changes to eligibility beyond the expansion of eligibility 

to persons in households with income less than 133 percent of FPL. 

Overall, we do not expect that the conversion to MAGI rules will result in many currently 

eligible individuals losing coverage. However, there may be a relatively small number of 

currently eligible individuals that would no longer be eligible based on the MAGI methodology. 

For these individuals, there will be a cost of obtaining coverage through the Exchange, but this 

cost could be mitigated by premium tax credits and cost-sharing reductions. At the same time, 

the use ofthe MAGI definition of income will have the effect of increasing Medicaid eligibility 

for certain groups of individuals and families who would not have been previously eligible. For 

example, the number of individuals under age 65 who could qualify for Medicaid in 2014 as a 

14 CBO's specific take-up assumptions are not available. Researchers at the Urban Institute have approximated the 

participation rate assumed by CBO. The Kaiser Family Foundation has characterized this assumption as follows: 

"These results assume moderate levels of participation similar to current experience among those made newly 

eligible for coverage and little additional participation among those currently eligible. This scenario assumes 57 

percent participation among the newly eligible uninsured and lower participation across other coverage groups."_J. 

Holahan and I. Headen, "Medicaid coverage and spending in health reform: National and State-by-State results for 

adults at or below 133% FPL," Kaiser Commission on Medicaid and the Uninsured, May 20 I 0, available online at 

http://www.kff.org/healthreform/upload/Medicaid-Coverage-and-Spending-in-Health-Reform-National-and-StateBy-State-Results-for-Ad ults-at-or-Below- 133-FPL.pdf. 

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CMS-2349-P AMB/GMB/EB 8/9/11 13 

result ofthe Social Security benefits that will be countable as part of MAGI will be significant. 

OACT estimates that as many as 1.9 million people under age 65 could qualify for Medicaid in 

2014 as a result of the treatment of Social Security benefits under MAGI. For comparison, CBO 

estimates that this definition will result in an additional 500,000 to I million people being 

enrolled in Medicaid, depending on the year. As stated in the preamble of the proposed 

regulation, the Administration is exploring options to address the concern that this change 

Medicaid eligibility rules increases State and Federal Medicaid costs. 

The net increase in enrollment in the Medicaid program and reduction in the number of 

uninsured individuals will produce several benefits. For new enrollees, eligibility for Medicaid 

will improve access to medical care. Evidence suggests that improved access to medical care 

will result in improved health outcomes and greater financial security for these individuals and 

families. Evidence on how Medicaid coverage affects medical care utilization, health, and 

financial security comes from a recent evaluation of an expansion of Oregon's Medicaid 

program.

15 In 2008, Oregon conducted a lottery to expanded access to uninsured adults with 

incomes below 100 percent ofthe FPL. Approximately 10,000 low-income adults were newly 

enrolled in Medicaid as a result. The evaluation is particularly strong because it was able to 

compare outcomes for those who won the lottery with outcomes for those who did not win, and 

contains an estimate of the benefits of Medicaid coverage. The evaluation concluded that for 

low-income uninsured adults, Medicaid coverage has the following benefits: 

• Significantly higher utilization of preventive care (mammograms, cholesterol 

monitoring, etc.), 

15 Amy Finkelstein, et al, "The Oregon Health Insurance Experiment: Evidence from the First Year," National 

Bureau of Economic Research Working Paper No. 17190, July 20 II . 

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CMS-2349-P AMB/GMB/EB 8/9/11 14 

• A significant increase in the probability of having a regular office or clinic for 

primary care, and 

• Significantly better self-reported health. 

While there are limitations on the ability to extrapolate from these results to the likely 

impacts of the Affordable Care Act's expansion of Medicaid coverage- in particular, the Oregon 

expansions targeted a population that is slightly lower income, on average, than those likely to 

gain Medicaid coverage in 2014- these results provide solid evidence of quantifiable health and 

financial benefits associated with coverage expansions for a population of non-elderly adults. 

The results of the Oregon study are consistent with prior research, which has found that 

health insurance coverage improves health outcomes. The Institute of Medicine (2002) analyzed 

several population studies and found that people under the age 65 who were uninsured faced a 25 

percent higher risk of mortality than those with private coverage. This pattern was found when 

comparing deaths of uninsured and insured patients from heart attack, cancer, traumatic injury, 

and HIV infection. 16 The Institute of Medicine also concluded that having insurance leads to 

better clinical outcomes for diabetes, cardiovascular disease, end-stage renal disease, HIV 

infection and mental illness, and that uninsured adults were less likely to have regular checkups, 

recommended health screening services and a usual source of care to help manage their disease 

than a person with coverage. Other research has found that birth outcomes for women covered 

by Medicaid are not different than those achieved for privately insured patient, adjusting for risk 

variables. 17 

16 Institute of Medicine, Care without coverage: too little, too late (National Academies Press, 2002). 17 E. A. Anum, et al, "Medicaid and Preterm Birth and Low Birth Weight: The Last Two Decades'' Journal of Women 's 

Health Vol. 19 (November 2010). 

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In addition to being able to seek treatment for illnesses when they arise, Medicaid 

beneficiaries will be able to more easily obtain preventive care, which will help maintain and 

improve their health. Research demonstrates that when uninsured individuals obtain coverage 

(including Medicaid), the rate at which they obtain needed care increases substantially. 18 19 20 

Having health insurance also provides significant financial security. Comprehensive health 

insurance coverage provides a safety net against the potentially high cost of medical care, and the 

presence of health insurance can mitigate financial risk. The Oregon study found people who 

gained coverage were less likely to have unpaid medical bills referred to a collection agency. 

Again, this study is consistent with prior research showing the high level of financial insecurity 

associated with lack of insurance coverage. Some recent research indicates that illness and 

medical bills contribute to a large and increasing share of bankruptcies in the United States.21 

Another recent analysis found that more than 30 percent of the uninsured report having zero (or 

negative) financial assets and uninsured families at the 90th percentile of the asset distribution report 

having total fmancial assets below $13,000- an amount that can be quickly depleted with a single 

hospitalization.22 Other research indicates that uninsured individuals who experience illness 

suffer on average a loss of 30 to 50 percent of assets relative to households with insured 

individuals.

23 

Finally, the proposed revision to the process by which Medicaid beneficiaries renew their 

coverage should greatly reduce the likelihood that eligible individuals will lose coverage and be 

18 S.K. Long, et al., "How well does Medicaid work in improving access to care?" HSR: Health Services Research 

40: I (February 2005). 19 Henry J. Kaiser Family Foundation, "Children's Health- Why Health Insurance Matters." Washington, DC: KFF, 

2002. 2

° C. Keane, et al., "The impact of Children's Health Insurance Program by age," Pediatrics I 04:5 ( 1999). 2 1 D.U. Himmelstein, et al., "Medical bankruptcy in the United States, 2007: Results of a National Study," The 

American Journal of Medicine 122 no. 8, (2009). 22 ASPE. The Value of Health Insurance: Few of the Uninsured Have Adequate Resources to Pay Potential Hospital 

Bills. (2011 ). 23 Cook, K. et al., "Does major illness cause financial catastrophe?," Health Services Research 45, no. 2 (20 I 0). 

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CMS-2349-P AMB/GMB/EB 8/9/11 16 

uninsured for some period of time. Research has demonstrated the importance of continuous 

coverage in promoting access to care and in ensuring more efficient delivery of care. For 

example, children with unstable coverage are similar to children with no coverage at all in the 

benefits they receive from health care.

24 Uninterrupted coverage is associated with 

. . d 25 d . . "d bl h . 1" . 25 26 27 Improvements m care an a percent re uctwn m avm a e osp1ta tzatwns. 

B. Anticipated Effects on States 

While State participation in Medicaid is voluntary, currently all 50 States and the District 

of Columbia operate Medicaid programs. The Federal government matches State spending for 

covered services based on a matching rate known as the FMAP. The Affordable Care Act 

provides for, and this proposed rule would implement, a significant increase in the FMAP for 

medical assistance expenditures for individuals who are considered to be "newly eligible." 

The matching rates for previously eligible groups will be, for most States, set according 

to the regular Federal matching rate formula. However, States that had already covered low 

income adults before enactment of the Affordable Care Act up to a certain specified level, the socalled "expansion States," will have their costs matched at rates established by a formula in the 

statute which are initially higher than their regular Federal match rate but lower than the rate for 

newly eligible populations. Beginning in 2019, these rates will be the same as the rates for the 

newly eligible population. 

24 G. Fairbrother and J. Schuchter, "Stability and Churning in Medi-Cal and Healthy Families," The California 

Endowment, March 2008. 25 L. Ku, "New Research Shows SimplifYing Medicaid Can Reduce Children 's Hospitalizations," Center on Budget 

and Policy Priorities, June 2007. 26 L. Simpson and G. Fairbrother, "Health Policy Influences Quality of Care in Pediatrics," Pediatric Clinics of 

North America- August 2009 (Vol. 56, Issue 4, Pages 1009-1021 , DOl: 10.1016/j.pcl.2009.05.014). 27 G. Fairbrother, G. Madhavan, J. Watring , A. Goudie, K. Jones, L. Ranbom, et. al., "Policy Brief: Monitoring 

Enrollment and Retention of Children in Ohio Medicaid Programs"; Volume 2, Issue 3: The Child Policy Research 

Center at Cincinnati Children 's Hospital Medical Center/University ofCincinnati; 2010. 

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disclosure may result in prosecution to the full extent of the law. 
CMS-2349-P AMB/GMB/EB 8/9111 17 

OACT estimates that State expenditures on behalf ofthe additional individuals and 

families gaining Medicaid coverage as a result ofthe Affordable Care Act will total $2.7 billion 

in FY 2014, $4.0 billion in FY 2015, and $4.9 billion in FY 2016. The total increase in State 

coverage costs for FY 2012 through 2021 is estimated to be $80.3 billion. At the same time, the 

transitional FMAP for expansion States is estimated to transfer $35.5 billion from the Federal 

government to the States for 2012 through 2021. 28 Thus, the net impact on the States is 

estimated to be $44.8 billion in additional coverage-related costs from 2012 through 2021. As a 

result of the higher FMAPs applicable for the newly eligible enrollees and those in expansion 

States, OACT estimates that the Federal government will cover about 94 percent of total 

additional Medicaid expenditures in FY s 2012-2021, with States paying the balance of 6 percent. 

These estimates reflect the estimated net financial effects for States from all of the changes that 

would be implemented by this proposed regulation, including (i) the expanded eligibility criteria, 

(ii) conversion to the MAGI definition of income, (iii) costs for people who were previously 

eligible for Medicaid but who now become enrolled as a result of the streamlined enrollment 

process and application assistance through the Exchanges, and (iv) the FMAP adjustments for 

expansion States. We note that these estimates also take into account matters not addressed in 

this regulation, such as benefits changes. These estimates do not, however, consider offsetting 

savings that will result, to a varying degree depending on the State, from less uncompensated 

care, less need for State-financed health services and coverage programs, and greater efficiencies 

in the delivery of care. 

For comparison, CBO estimates that State spending on Medicaid and CHIP in the FY 

2012-2021 period would increase by about $60 billion as a result of the Medicaid coverage 

28 These estimates are dependent upon which States are ultimately determined to be expansion States under the 

Affordable Care Act. 

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CMS-2349-P AMB/GMB/EB 8/9111 18 

provisions, including the savings for expansion States from transitional FMAP increases. 29 The 

Urban Institute and Kaiser Family Foundation studies looked at coverage, costs, and offsetting 

savings. One study estimated that from 2014 to 2019 the Federal government will bear between 

92 and 95 percent of the overall costs of the new coverage provided as a result of the Affordable 

Care Act (including both the currently eligible but not enrolled individuals and the newly eligible 

individuals), with the States shouldering the remaining five to eight percent of the coverage 

costs. According to the analysis, relative to what would have been spent by States in the absence 

of the Affordable Care Act, State costs may increase by 1.4 to 2. 9 percent from 2014 to 2019. 

States are expected to benefit from the large influx of Federal dollars; and higher levels of 

coverage will allow States to reduce payments they make to support uncompensated care costs 

and other services that have historically been financed solely by the States.30 A subsequent 

Urban Institute analysis estimates that the costs to States will be more than fully offset by other 

effects of the legislation, for net savings to States of $92 to $129 billion from 2014 to 2019. 31 

The Urban Institute study is consistent with other analyses of potential offsetting savings 

and benefits to States. The transfer of Federal funding to State Medicaid programs for newly 

eligible individuals will substantially decrease the number of uninsured individuals across the 

States and will help provide a significantly stronger safety net, enabling low-income individuals 

to access affordable health coverage. As a result, the burden of uncompensated care could be 

substantially reduced. It has been estimated that the cost of uncompensated care will fall 

29 CBO. Analysis of the Major Health Care Legislation Enacted in March 20 I 0. Statement of Douglas W. 

Elmendorf. March 30, 20 II -- http://www.cbo.gov/ftpdocs/ 121 xx/doc l2119/03-30-HealthCareLegislationJ2df. 30 J. Holahan and I. Headen, "Medicaid coverage and spending in health reform: National and State-by-State results 

for adults at or below 133% FPL," Kaiser Commission on Medicaid and the Uninsured, May 20 I 0, available online 

at: http://www.ktT.org/healthreform/uploadiMedicaid-Coverage-and-Spending-in-Heal!h-Reform-National-andState-By-State-Results-for-Adults-at-or-Below-1 33-FPL.pdf. 31 M. Buettgens et al., "Consider savings as well as costs: State governments would spend at least $90 billion less 

with the ACA than without it from 2014 to 20 19," The Urban Institute (July 20 I I). Available online at: 

http://www.urban.org/uRioadedpdf/412361-consider-savings.pdf. 

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CMS-2349-P AMB/GMB/EB 8/9111 19 

significantly by 2019 as a result of the policies contained in the Affordable Care Act, including 

the Medicaid expansion. 32 

We expect that the proposed provisions would benefit States by reducing costs for 

uncompensated care. Evidence from Massachusetts suggests that the reduction in 

uncompensated care costs due to Affordable Care Act coverage expansions may generate 

substantial savings for States. Subsequent to the enactment of health reform in Massachusetts in 

2006,33 the Massachusetts government realized annual savings of about $250 million from lower 

payments to hospitals for uncompensated care for the uninsured and underinsured. 34 Payments 

and utilization of the uncompensated care pool/health safety net trust fund have decreased and 

the rate of non-urgent emergency department visits declined by 2.6 percent among patients with 

premium assistance for coverage and uninsured patients in 2008 compared to 2006.35 Note that 

Medicare and Medicaid Disproportionate Share Hospital (DSH) payments will be reduced under 

the Affordable Care Act by an estimated $19 billion from 2012-2016, according to OACT. Of 

the $19 billion reduction, the States' share would be about $1 billion. 

States could experience other financial benefits beyond the reduction of uncompensated 

care. The Urban Institute estimates that State and local governments are expected to save 

approximately $70 to $80 billion during the 2014 through 2019 period through Federal funding 

of their spending on either State-funded health coverage or uncompensated care. The Urban 

32 J. Holahan and S. Dom. "What Is the Impact of the Patient Protection and Affordable Care Act (PPACA) on the 

States?" The Urban Institute (June 20 I 0). 33 Chapter 58 of the Acts of2006 of the Massachusetts General Court. 34Massachusetts Division of Health Care Finance and Policy, "2009 Annual Report Health Safety Net." 35 Smulowitz, Peter B. et al., "Emergency Department Utilization After the Implementation of Massachusetts Health 

Reform," Annals of Emergency Medicine In Press, Corrected Proof. 

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CMS-2349-P AMB/GMB/EB 8/9/11 20 

Institute expects these savings to more than compensate for additional costs to States resulting 

from the Medicaid coverage expansion.36 

Simplifying Medicaid eligibility policies will also reduce administrative burdens for 

States and for individuals. Medicaid's current patchwork of eligibility rules is complex for 

States to administer, requiring significant State resources and staff attention. The coordination of 

Medicaid eligibility policy and processes with those of the new Exchanges; the movement to a 

simplified income standard for most populations; the removal of asset tests; implementing an 

online, data-driven rather than paper-reliant application, verification and renewal process; 

employing a single, streamlined application for coverage across Medicaid, CHIP, the Exchange 

and other insurance affordability programs; and streamlining Medicaid eligibility categories 

should all result in a Medicaid eligibility system that is far easier for States to administer than 

Medicaid's current, more complex system. These changes could generate administrative savings 

and increase efficiency. For example, Florida's online application system reportedly saves the 

State nearly $83 million each year. 37 The new system through which States will verify certain 

information with other Federal agencies, such as income data from the IRS, will also relieve 

State Medicaid agencies of some current responsibilities, creating further efficiencies for the 

States. 

While administrative simplification is expected to lower State administrative costs, we 

expect that States may incur short term increases in administrative costs (depending on their 

current systems and practices) as they implement these changes. The extent of these initial costs 

will depend on current State policy and practices. As noted in the proposed rule, many States 

36 John Holahan, and Stan Dorn. "What Is the Impact of the Patient Protection and Affordable Care Act (PPACA) 

on the States?" The Urban Institute (June 20 I 0). 37 UnitedHealth Center for Health Reform and Modernization, "Coverage for Consumers, Savings for States: 

Options for Modernizing Medicaid" (April 20 I 0). 

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CMS-2349-P AMB/GMB/EB 8/9111 21 

have already adopted the administrative simplifications addressed in the rule. Moreover, Federal 

support is available to help States finance these system modifications. Notably, in previous 

rulemaking, CMS increased Federal funding to States to better support State efforts to develop 

significantly upgraded eligibility and enrollment systems. To anticipate and support these 

efforts, CMS published the Federal Funding for Medicaid Eligibility Determination and 

Enrollment Activities final rule (75 FR 21950) in the April 19, 2011 Federal Register. That rule 

amended the definition of Mechanized Claims Processing and Information Retrieval Systems to 

include systems used for eligibility determination, enrollment, and eligibility reporting activities 

by Medicaid, and made this work eligible for enhanced funding with a Federal matching rate of 

90 percent for development through 2015 and 75 percent for ongoing maintenance and 

operations costs. Systems must meet certain standards and conditions in order to qualify for the 

enhanced match. 

C. Anticipated Effects on Providers 

We expect that the expansion and simplification of Medicaid eligibility could also benefit 

providers, including those that serve low-income and vulnerable populations. As more 

individuals obtain health insurance coverage, health centers, hospitals, clinics, physicians, and 

other providers are likely to experience a significant increase in their insured patient volume. 

We expect providers that serve a substantial share of the low-income population to realize the 

most substantial increase in insured patients. Providers, such as hospitals that serve a lowincome population, may financially benefit from having a higher insured patient population and 

providing less uncompensated care. In addition, we expect continuity of coverage to improve 

providers' ability to maintain their relationship with patients and to reduce provider 

administrative burdens such as time spent helping patients to access information on coverage 

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CMS-2349-P AMB/GMB/EB 8/9111 22 

options and to apply for Medicaid or CHIP. 

The improved financial security provided by health insurance also helps ensure that 

patients can pay their medical bills. The Oregon study found that coverage significantly reduces 

the level of unpaid medical bills sent to a collection agency. 38 Most of these bills are never paid, 

so this reduction in unpaid bills means that one of the important benefits of expanded health 

insurance coverage, such as the coverage that will be provided through the Exchanges, is a 

reduction in the level of uncompensated care provided. 

Because the majority of individuals gaining coverage under this provision are likely to 

have been previously uninsured, we do not anticipate that the provisions of this proposed rule 

will impose new costs on providers. Medicaid generally reimburses providers at a lower rate 

than employer-sponsored health insurance or other forms of private health insurance. For the 

minority of individuals who become eligible for Medicaid under this provision who are currently 

covered by employer-sponsored health insurance, there is thus a possibility that their providers 

may experience lower payment rates. Conversely, Medicaid reimburses community health 

centers at a higher rate than employer-sponsored insurance and many new Medicaid enrollees 

may seek treatment in this setting, which would increase payment to these providers. At the 

same time, the increased Federal financial support for Medicaid, the growth in Medicaid 

enrollment, and the potential that many plans will operate in both the Exchange and in Medicaid 

may result in States electing to increase Medicaid payment rates to providers.39 

38 A. Finkelstein, et al., "The Oregon Health Insurance Experiment: Evidence rrom the First Year," National Bureau 

of Economic Research Working Paper Series No. 17190(20 II). 39 D. Bachrach, et al., "Medicaid's role in the Health Benefits Exchange: A road map for States," A Maximizing 

Enrollment Report, National Academy for State Health Policy and Robert Wood Johnson Foundation (March 20 II). 

Available online at http://www.nashp.orgisites/default/fi les/maxenroii%20Bachrach%200330 ll .pdf. 

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CMS-2349-P AMB/GMB/EB 8/9111 23 

D. Anticipated Effects on Federal Budget 

The following Table 3 presents estimates of the effect of the Affordable Care Act on net 

Federal spending for Medicaid benefits. As a result of the Affordable Care Act, OACT estimates 

an increase in net Federal spending on Medicaid benefits for the period FY 2014 and later, with 

the increase estimated to be about $45.4 billion in 2014 and about $202 billion over the 3-year 

period from FY 2014 through 2016. Reflecting the different participation assumptions and other 

projection factors described in section IV.A above, CBO estimates an increase in Federal 

spending of $162 billion over the same 3-year time period, as shown in Table 4.40 

TABLE 3: Estimated Net Federal Budgetary Effects of Increased Medicaid Benefit 

Spending, FY 2012-2016 (in billions of dollars) 

2012 2013 2014 2015 2016 2012-2016 

Net Effect on 0 0 45.4 70.4 86.3 202.1 

Medicaid Benefit 

Spending due to 

Changes made by the 

Affordable Care Act 

Section 2001 

Source: Office of the Actuary. 

TABLE 4: CBO Estimated Net Federal Budgetary Effects of Increased Medicaid and 

CHIP Benefit Spending, FY 2012-2016 (in billions of dollars) 

2012 2013 2014 2015 2016 2012-

2016 

Net Effect on Medicaid 0 0 30 55 77 162 

Benefit Spending due to 

Changes made by the 

Affordable Care Act 

Section 2001 

Source: CongressiOnal Budget Office. 

V. Alternatives Considered 

4

° CBO. Analysis of the Major Health Care Legislation Enacted in March 20 I 0. Statement of Douglas W. 

Elmendorf. March 30, 20 II -- http://www.cbo.gov/ttpdocs/ 121 xx/doc 12 1 19/03-30-HealthCareLegislation.pdf. 

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CMS-2349-P AMB/GMB/EB 8/9111 24 

The majority ofthe proposals, including the Medicaid coverage expansion and the move 

to the simplified MAGI income standard, made in this proposed rule codify the Affordable Care 

Act. In developing this rule, we considered alternatives to some ofthe simplified eligibility 

policies proposed here, as well as to the streamlined, coordinated process and eligibility policies 

this rule established between Medicaid, the Exchange, and other insurance affordability 

programs. 

One alternative would be to decrease State flexibility with regard to eligibility 

determinations. A more uniform, national system could lower administrative costs and facilitate 

national outreach. But it could stifle State innovation and prevent local circumstances from 

being accommodated. Another alternative would be to increase State flexibility relative to the 

flexibility already offered in the proposed rule. This could further ease States' adoption of the 

statutorily required changes to Medicaid and give States more control over enrollment. But it 

would increase complexity and administrative costs, lower coverage, and create possible 

coverage gaps. 

With regard to the increased FMAP rates available for State medical assistance 

expenditures relating to "newly eligible" individuals, we also considered requiring all States to 

complete a second, full eligibility determination using the State's December 2009 eligibility 

standards on all Medicaid eligibles to determine the appropriate FMAP rate based upon whether 

or not each individual was newly eligible. We determined that such a requirement would be 

overly burdensome to States and to beneficiaries and likely lead to errors and unnecessary costs. 

We did not believe such a mandate would result in an economic and efficient outcome in 

administering the program. In addition, such a requirement would directly contradict the 

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CMS-2349-P AMB/GMB/EB 8/9111 25 

principles of the Affordable Care Act to streamline and simplify eligibility and enrollment into 

health care programs. 

VI. Limitations of the Analysis 

A number of challenges face estimators in projecting Medicaid benefits and costs under 

the Affordable Care Act and the proposed rule. Health care cost growth is difficult to project, 

especially for people who are currently not in the health care system- the population targeted for 

the Medicaid eligibility changes. Such individuals could have pent-up demand and thus have 

costs that may be initially higher than other Medicaid enrollees, while they might also have 

better health status than those who have found a way (for example, "spent down") to enroll in 

Medicaid. 

There is also considerable uncertainty about behavioral responses to the Medicaid 

changes. Individuals' participation rates are particularly uncertain. Medicaid participation rates 

for people already eligible tend to be relatively low (estimates range from 75 to 86 percent), 

despite the fact that there are no premiums and low to no cost sharing for comprehensive 

services. It is not clear how the changes will affect those already eligible, or the interest in 

participating for those newly eligible, as previously described. 

These estimates are inherently difficult and depend on many factors, including State 

behavior, employer behavior, and the pace of development of new modernized systems. As 

reflected in participation rates for individuals, the States' actions on simplification and outreach 

affect whether or not individuals sign up and stay enrolled in Medicaid. It may also affect the 

types of enrollees: a broad-based outreach campaign may attract individuals already eligible but 

not enrolled in Medicaid, whereas a campaign targeted at the newly eligible uninsured may yield 

different cost and coverage results. 

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VII. Accounting Statement 

As required by OMB Circular A-4 (available at 

http://www.whitehouse.gov/omb/circulars_a004_a-4/), in Table 5 we have prepared an 

accounting statement table showing the classification ofthe impacts associated with 

implementation of this proposed rule. Consistent with standard practice, we show all direct 

effects as transfer payments. 

TABLE 5: Accounting Statement: Classification of Estimated Net Costs, 

from FY 2012 to FY 2016 (in millions) 

Category TRANSFERS 

Annualized Year Dollar Units Discount Rate Period Covered 

Monetized 2012 7% 3% 

Transfers from 

Federal Primary FYs 2012-2016 Government to $35,564 $37,324 

States on Behalf of Estimate41 

Beneficiaries 

Annualized 

Monetized Primary Transfers from $2,131 $2,235 FYs 2012-2016 

States on Behalf of Estimate 

Beneficiaries 

Annualized 

Monetized 

Transfers from Primary $1,577 $1,657 FYs 2012-2016 Federal Estimate 

Government to 

States 

Source: Office of the Actuary 

41 The primary estimates are the annualized value of the net Federal budgetary effects reported in Table 3. 

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