Medicaid was established in 1965 to provide basic medical services to certain low-income populations. It is a means-tested entitlement program that financed the delivery of primary and acute medical services, as well as long-term services and supports, to an estimated 56.7 million people in FY2012, at a total cost of $431 billion with the federal government paying $249 billion (about 58%) of that total. Each state designs and administers its own version of Medicaid under broad federal rules. State variability is the rule rather than the exception in terms of eligibility levels, covered services, and how those services are delivered and reimbursed. Benefit packages have always varied across states and across eligibility groups. Beginning in 2005, the Deficit Reduction Act ( P.L. 109-171 ) added benchmark benefit packages (now called Alternative Benefit Plans or ABPs) as a state option. As of January 1, 2014, the Affordable Care Act (ACA; P.L. 111-148 , as amended) required states to provide ABP coverage to the newly established optional eligibility group that includes all citizens with income at or below 133% of the federal poverty level (FPL). Not everyone enrolled in Medicaid has access to the same set of services. Different eligibility classifications determine available benefits, as described below. This report begins with a summary of major Medicaid eligibility pathways. Then traditional Medicaid benefits and alternative benefit plans (previously called benchmark benefit plans) are described. The final section provides an analysis of state experiences with ABPs as of mid-April 2014. Additional CRS resources on Medicaid are provided at the end of this report. Historically, eligibility for Medicaid was subject to "categorical restrictions" that generally limited coverage to the elderly, persons with disabilities, members of families with dependent children, certain other pregnant women and children, among others. As of January 1, 2014, federal law allows states to expand Medicaid eligibility for citizens with income up to 133% of the federal poverty level who do not fit into these traditional categories. The Congressional Budget Office (CBO) estimated that the coverage expansion provisions in the ACA would increase enrollment in both the Medicaid and the State Children's Health Insurance Programs by about 7 million in CY2014, rising to 13 million by CY2024. To qualify for Medicaid, applicants must have income (and sometimes assets) that meet financial requirements. These financial criteria are usually tied to specific percentages of the federal poverty level (FPL), and are sometimes based on certain cash assistance programs (e.g., Supplemental Security Income or SSI). Below is a description of services available for Medicaid beneficiaries by eligibility classification. First, "categorical needy" individuals represent the vast majority of people enrolled in Medicaid, most of whom receive traditional Medicaid benefits (described in more detail in the " Traditional Medicaid Benefits " subsection). The Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended) required that a newly established categorically needy group consisting of poor nonelderly, non-pregnant adults with income below 133% FPL receive Medicaid benefits through Alternative Benefit Plans (ABPs). However, on June 28, 2012, the United States Supreme Court issued a decision in National Federation of Independent Business v. Sebelius making this ACA Medicaid expansion optional. For the medically needy subgroup, states may offer a more restrictive benefit package than is available to most categorically needy individuals. Such individuals include people who meet the main categorical restrictions described above but may have higher income. States electing the medically needy option must provide coverage to certain pregnant women (i.e., prenatal and delivery services) and children under age 18. Finally, states also use waiver authority to design benefit packages. Under Section 1115 waivers, states tailor benefits to state-specified subpopulations that can include both currently authorized groups and/or new groups not specified in federal statute. Each such waiver delineates the unique terms and conditions that are negotiated between a given state and the federal Centers for Medicare & Medicaid Services (CMS). , Table 1 provides examples of Medicaid benefits available by selected eligibility classifications. Mandatory benefits are services that a state must cover in its state Medicaid plan. Likewise, there are also a number of optional benefits that states may choose to cover. As illustrated, different Medicaid subpopulations may have access to benefit packages that can be quite varied, and can be categorized into two broad groups: (1) traditional benefits, and (2) Alternative Benefit Plans (ABPs). Additional details are described further below. Under federal law, states must cover certain benefits, while other services may be offered at state option. Examples of benefits that are mandatory for most Medicaid groups (i.e., categorically needy populations excluding the ACA Medicaid expansion subgroup) include inpatient hospital services, physician services, laboratory and x-ray services, early and periodic screening, diagnostic and treatment services (EPSDT) for individuals under 21, nursing facility services for individuals aged 21 and over, and home health care for those entitled to nursing facility care. Examples of optional benefits for such Medicaid groups include prescribed drugs, physician-directed clinic services, services of other licensed practitioners (e.g., chiropractors, podiatrists, psychologists), nursing facility services for individuals under age 21, physical therapy, and prosthetic devices. Table 2 provides additional information on selected mandatory benefits for most categorically needy subpopulations under the traditional Medicaid program. Table 3 provides additional information for selected optional benefits covered by most states under the traditional Medicaid program near the end of 2010 and beginning of 2011. The breadth of coverage for a given benefit can and does vary from state to state, even for mandatory benefits. For example, states may place different limits on the amount of inpatient hospital services a beneficiary can receive in a year (e.g., up to 15 days of inpatient days per year in one state versus unlimited inpatient days in another state). In general, in defining a covered benefit, federal guidelines require that (1) services be sufficient in amount, duration, and scope to reasonably achieve their purpose; (2) the amount, duration, and scope of services must be the same statewide; (3) within a state, services available to various categorically needy groups must be equal in amount, duration, and scope; and (4) with some exceptions, beneficiaries must have freedom of choice of providers among health care practitioners or managed care entities participating in Medicaid. States can modify these rules via existing waiver authority provided in Section 1115 of the Social Security Act. As an alternative to providing all the mandatory and selected optional benefits under traditional Medicaid, the Deficit Reduction Act of 2005 (DRA; P.L. 109-171 ) gave states the option to enroll state-specified groups in what were referred to as benchmark or benchmark-equivalent coverage, but are currently called ABPs. The ACA made significant changes to both ABP design and requirements. Examples of those changes are provided below. Individuals eligible for Medicaid through the ACA Medicaid expansion are required to have ABP coverage. States can also require "full benefit eligibles" (or specific subgroups of these individuals) to enroll in Medicaid ABPs. A full benefit eligible is someone who is eligible for all the mandatory and optional services that a state covers under its traditional Medicaid program. States have the option to provide ABP coverage to other sub-populations, and these plans can also exist in sub-state areas. Medically needy and certain spend-down populations (e.g., individuals whose Medicaid eligibility is based on a reduction of countable income for costs incurred for medical or remedial care) are excluded from the definition of a full benefit eligible. Medically needy populations can continue to receive coverage through the medically needy program, or if they are eligible for the ACA Medicaid expansion subgroup, they can receive services through an ABP. Such individuals can choose which coverage option they believe would be most beneficial to them. Additional sub-groups are also exempt from mandatory enrollment in ABPs (e.g., those with special health care needs such as disabling mental disorders or serious and complex medical conditions). Table 4 provides a description of each of these other exempted populations. These exempted groups may get traditional Medicaid benefits or may be offered voluntary enrollment in ABPs. In such cases, states must describe the differences between traditional Medicaid and ABPs to these beneficiaries in order to facilitate an informed choice. In general, ABPs may cover fewer benefits than traditional Medicaid, but there are some requirements, such as coverage of EPSDT and transportation to and from medical providers (as per a 2010 regulation), that might make them more generous than private health care insurance. Starting in 2014, both ABP and ABP-equivalent packages must cover at least the 10 essential health benefits that also apply to plans in the private individual and small group health insurance markets. These essential health benefits (EHBs) are (1) ambulatory patient services, (2) emergency services, (3) hospitalization, (4) maternity and newborn care, (5) mental health and substance use disorder services (including behavioral health treatment), (6) prescribed drugs, (7) rehabilitative and habilitative services and devices, (8) lab services, (9) preventive and wellness services and chronic disease management, and (10) pediatric services, including oral and vision care. For calendar years 2014 and 2015, HHS requires states to define details for each EHB; however, this process may change in the future. Certain services are not considered to be EHBs, including (1) routine non-pediatric dental services, (2) routine non-pediatric eye exams, (3) long-term/custodial nursing home care, or (4) non-medically necessary orthodontia. All ABP plans must also cover family planning services and supplies. Such plans must also comply with the requirements of the Mental Health Parity and Addiction Equity Act (MHPAEA) mental health services. In addition, for children under age 21, ABP and ABP-equivalent coverage must include EPSDT. Also, Medicaid beneficiaries enrolled in such coverage must have access to services provided by rural health clinics and federally qualified health centers. In designing a Medicaid ABP, several steps are required. First, states select a coverage option among the following choices: (1) the Blue Cross/Blue Shield standard provider plan under the Federal Employees Health Benefits Program (FEHBP), (2) a plan offered to and generally available to state employees, (3) the largest commercial health maintenance organization (HMO) in the state, and (4) Secretary-approved coverage appropriate to meet the needs of the targeted population. ABP-equivalent coverage must have the same actuarial value as one of the four ABPs. Second, states then determine if the selected option is also one of the health insurance exchange base-benchmark plan options that the Secretary of HHS has indicated can be used to define all 10 essential health benefits (listed above). The EHB base benchmark choices include (1) any of the three largest small group market health plans by enrollment, (2) any of the three largest state employee health benefit plans by enrollment, (3) any of the three largest federal employee health benefit plans by aggregate enrollment, and (4) the largest, insured commercial non-Medicaid health maintenance organization (HMO) operating in the state. As long as all of the EHB categories are covered, the requirements for the provision of coverage would be met. If not, states must select one of the EHB base-benchmark plan options and supplement it with any missing EHB benefits from other EHB base-benchmark plans, or the Medicaid state plan as necessary. Benefit substitution rules also apply to EHBs in ABPs and ABP-equivalent plans. States may substitute benefits when (1) a service is actuarially equivalent to the benefit being replaced, (2) the replacement benefit is selected only within the same EHB category, and (3) the service is not a prescription drug benefit. In addition, benefit substitutions can be made when a state submits evidence of actuarial-equivalence that (1) has been certified by a member of the American Academy of Actuaries, (2) is based on an analysis performed in accordance with generally accepted actuarial principals and methodologies, (3) is based on a standardized plan population, and (4) is determined regardless of beneficiary cost-sharing. Other rules apply to Medicaid ABP coverage for prescription drugs, rehabilitative services and devices and habilitative services and devices, and preventive care. A health plan will not be considered to provide EHBs unless it covers at least the greater of (a) one drug in every U.S. Pharmacopeia (USP) category or class, or (b) the same number of prescription drugs in each category and class as the EHB base benchmark plan. A health plan must also submit its drug list to the health insurance exchange, the state, or the Office of Personnel Management (OPM), as applicable. And a health plan providing EHBs must have procedures in place that allow an enrollee to have access to clinically appropriate drugs not covered by the health plan. As noted above, rehabilitative and habilitative services and devices are among the 10 EHB categories, and thus are mandatory benefits under ABPs. There is not a standard definition for these services in federal statute. The July 15, 2013, final rule indicates that the Centers for Medicare and Medicaid Services (CMS) is not prescribing a specific definition for these services, and states may choose to adopt service definitions that are similar to those provided by the National Association of Insurance Commissioners (NAIC). Rehabilitative services and devices include long-term services and supports designed to assist a person to prevent deterioration and regain or maintain a skill or function acquired and then lost or impaired due to illness, injury, or disabling condition. In addition, NAIC notes that habilitative services and devices are designed to attain or maintain a skill or function never learned or acquired due to a disabling condition. CMS has also indicated that it will consider the need for further guidance, based on experience in implementing these services and devices. Under traditional Medicaid state plan coverage, states may cover preventive services, such as vaccinations or regular physical examinations, diagnostic services, rehabilitative services, and the services of other practitioners recognized by the state, although they may be included with mandatory services such as early and periodic screening, diagnosis and treatment (EPSDT) or home health care. Medicaid ABPs must cover preventive care at least at the minimum level required for EHBs. This means that they must cover preventive services that are rated A or B by the U.S. Preventive Services Task Force, adult immunizations recommended by the Advisory Committee on Immunization Practices, and women's services recommended by the Health Resources and Services Administration. Cost-sharing for these preventive services is prohibited under Medicaid ABPs. The ACA also created health insurance exchanges in which individuals ineligible for Medicaid due to income can purchase coverage that meets their needs. Some benefit requirements overlap between Medicaid ABPs and health insurance exchange plans. Thus, when individuals' income changes (increases or decreases over time), they can move back and forth between ABPs and health insurance exchange coverage as needed. In addition, common requirements between health insurance exchange coverage and ABPs (e.g., essential health benefits, supplementation and substitution of benefits) can also be used by states to align traditional Medicaid benefits with ABP coverage. As noted above, states have had the authority to implement benchmark benefit packages in their Medicaid programs since the Deficit Reduction Act of 2005. The requirements applicable to the current ABPs are different from the requirements that applied to former benchmark plans. These latter plans must adhere to the new ABP requirements if states wish to continue using them. It is unclear how state experiences with Medicaid benchmark plans to date will influence the design of such benefit packages in 2014. States with no such experience may look to those states that have implemented benchmark packages for lessons learned in order to make choices tailored to their given circumstances and resources. Also, states that implement the ACA Medicaid eligibility expansion could decide to provide ABP coverage to other eligibility groups. And states that do not take up this eligibility expansion might decide to utilize ABP coverage for other subpopulations. Table 5 provides information about selected characteristics of ABPs for 15 states. This table is not exhaustive nor is it comprehensive for each state listed, but rather is intended to illustrate cross-state similarities and variation in covered ABP benefits. All of the plans shown are being implemented statewide. For a few states, covered ABP benefits are the same as those offered under traditional Medicaid. Dental care for adults (or selected subgroups of adults) is covered in six states (Kentucky #2, Minnesota, Nevada, Ohio, Oregon, and Vermont). Non-emergency medical transportation is offered in four states (Arizona, Maryland, Nevada, and Oregon). And four states (Maryland, Minnesota, Nevada, and Ohio) include coverage of nursing facility care in their ABPs. The federal mental health parity requirements, as established in the Public Health Service Act (Section 2726), generally mandate that, under a given insurance plan, coverage of mental health and addiction services (if offered) should be on par with coverage of medical and surgical services in terms of the treatment limitations (e.g., amount, duration, and scope of benefits), financial requirements (e.g., beneficiary co-payments), in- and out-of-network covered benefits, and annual and lifetime dollar limits. Managed care plans under both traditional Medicaid and ABPs must comply with all federal mental health parity requirements. ABPs that are not managed care plans are only required to comply with federal requirements for parity in treatment limitations and financial requirements. These plans are deemed to comply with federal mental health parity requirements if they offer EPSDT to individuals under age 21, for which they are statutorily required to cover. CRS Report R43357, Medicaid: An Overview CRS Report R41210, Medicaid and the State Children's Health Insurance Program (CHIP) Provisions in ACA: Summary and Timeline CRS Report R42978, Comparing Medicaid and Exchanges: Benefits and Costs for Individuals and Families CRS Report R43328, Medicaid Coverage of Long-Term Services and Supports

Summary: The Medicaid program, which served an estimated 56.7 million people in FY2012, finances the delivery of a wide variety of preventive, primary, and acute care services as well as long-term services and supports for certain low-income populations. Benefits are available to beneficiaries through two avenues: traditional coverage and alternative benefit plans (ABPs, formerly known as benchmark plans, first established in P.L. 109-171, the Deficit Reduction Act of 2005). The traditional Medicaid program covers a wide variety of mandatory services (e.g., inpatient hospital services, lab/x-ray services, physician care, nursing facility care for persons aged 21 and over), and other services at state option (e.g., prescribed drugs, physician-directed clinic services, physical therapy, prosthetic devices) to the majority of Medicaid beneficiaries across the United States. Within broad federal guidelines, states define the amount, duration, and scope of these benefits. Thus, even mandatory services are not identical from state to state. With the enactment of the Patient Protection and Affordable Care Act in 2010 (ACA; P.L. 111-148, as amended), benefit requirements have expanded under ABPs. At a minimum, these plans must cover essential health benefits (i.e., ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services [including behavioral health treatment], prescribed drugs, rehabilitative and habilitative services and devices, lab services, preventive and wellness services and chronic disease management, and pediatric services, including oral and vision care). In addition, at state option, a new group of citizens with income up to 133% of the federal poverty level is eligible for Medicaid as of January 1, 2014. These individuals are required to receive ABPs rather than traditional Medicaid benefits (with some exceptions for subgroups with special medical needs). This report outlines the major rules that govern and define both traditional Medicaid and ABPs. It also compares the similarities and differences between these two benefit package designs.