Medicaid is a joint federal-state entitlement program that pays for medical assistanceprimarily for low-income persons who are aged, blind, disabled, members of families with dependentchildren, and certain other pregnant women and children. Within broad federal guidelines, each statedesigns and administers its own program. Total program outlays in FY1999 were $180.9 billion. Federal outlays were $102.5 billion and state outlays were approximately $78.4 billion. The federalgovernment shares in a state's Medicaid costs by means of a statutory formula designed to providea higher federal matching rate to states with lower per capita incomes. In FY1999, federal matchingrates ranged from 50% to 76% of a state's expenditures for Medicaid items and services. Overall,the federal government finances about 57% of all Medicaid costs. The 105th Congress made important changes to the Medicaid program through the BalancedBudget Act of 1997 (BBA 97; P.L. 105-33 ). (1) That legislation included provisions to achieve net Medicaidsavings of about $13 billion between FY1998 and FY2002, largely from reductions in supplementalpayments to hospitals that serve a disproportionate share of Medicaid and low-income patients. BBA 97 also significantly increased the flexibility that states have to manage their Medicaidprograms. In particular, it gave states the option of requiring most beneficiaries to enroll in managedcare plans without seeking a federal waiver, and replaced federal reimbursement requirementsimposed by the Boren amendments with a public notice process for setting payment rates forinstitutional services. The Act also required that the previously existing cost-based reimbursementsystem for Federally Qualified Health Centers (FQHCs) and Rural Health Clinics (RHCs) be phasedout over a 6-year period. Spending items in the Act included Medicaid coverage for additionalchildren, and increased assistance for low-income individuals to pay Medicare Part B premiums. The 106th Congress made additional changes to Medicaid in 1999. On November 29 of thatyear, the President signed the Consolidated Appropriations Act for FY2000 ( P.L. 106-113 ). Includedin that bill by reference was the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Actof 1999 (BBRA 99), a bill largely comprised of Medicare provisions, but which also included anumber of changes to Medicaid and the State Children's Health Insurance Program (SCHIP;described below). In addition to technical amendments to BBA 97, BBRA 99 included provisions allowing forincreased Medicaid disproportionate share payments to hospitals for certain states and the Districtof Columbia, and for extended access to a special $500 million fund to pay for Medicaid eligibilitydeterminations resulting from welfare reform for a longer period of time than allowed under previouslaw. BBRA 99 also modified the schedule for phasing out cost-based reimbursement for FQHCsand RHCs that had been included in the BBA 97. SCHIP, enacted in BBA 97, is targeted at uninsured children who live in families withincome below twice the federal poverty level and who would not otherwise be eligible for Medicaid. The program began in October 1997 with total federal funding of nearly $40 billion for the periodFY1998 through FY2007. States may use SCHIP funds to provide coverage through healthinsurance that meets specific standards for benefits and cost-sharing (known as separate stateprograms), or through expansions of eligibility under Medicaid, or through a combination of bothoptions. SCHIP entitles states with approved SCHIP plans to pre-determined, annual federalallotments based on a distribution formula set in law. Each state has flexibility to define the groupof targeted, low-income children who are eligible for its SCHIP. Eligibility criteria may include, forexample, geography, age, income and resources, residency, disability status, access to other healthinsurance, and duration of eligibility for SCHIP. All 50 states, the District of Columbia and fiveterritories had approved SCHIP plans. Among these, 22 are Medicaid expansions, 16 are new orexpanded separate state programs, and 17 will use both a Medicaid expansion and a separate stateprogram. Changes to SCHIP in BBRA 99 included provisions to improve state-level data collection;to evaluate the SCHIP (and Medicaid) programs with respect to outreach and enrollment practices;and to create a clearinghouse to coordinate and consolidate federal databases and reports onchildren's health. In addition, BBRA 99 included a number of changes to the formula used todistribute federal SCHIP funds among the states, increased the amounts available for U.S. territories,and minor technical changes. (2) BBA 97 established the Program of All-Inclusive Care for the Elderly (PACE) as apermanent provider under Medicare and as a special optional benefit under Medicaid. Individualseligible for PACE are those over age 55 who require a nursing facility level of care covered in a stateMedicaid program, and who meet other eligibility requirements imposed under the programagreement. PACE providers include public entities or private, not-for-profit organizations providinghealth and long-term services on a capitated basis to eligible beneficiaries. They must provide allitems and services covered under Medicare and Medicaid. There are no limits on amount, durationor scope of services and there are no cost-sharing requirements for PACE enrollees. The Maternal and Child Health (MCH) Services Block Grant Program (Title V of the SocialSecurity Act) has three components -- formula block grants to 56 states and territories for primarycare services to mothers and children, Special Projects of Regional and National Significance(SPRANS), and Community Integrated Service Systems (CISS) grants. The formula grant programuses appropriated funds for a wide variety of activities, including but not limited to, capacity andsystems building, public information and education, outreach and program linkage, technicalassistance, and direct health care services where no services are available. SPRANS activitiesinclude maternal and child health research, training, genetic services, hemophilia diagnostic andtreatment centers, and maternal and child health improvement projects. CISS grants seek to reduceinfant mortality and improve the health of mothers and children through development and expansionof integrated services at the community level. The block grant requires that states match $3 in fundsor resources for every $4 in federal funds received, and that a minimum of 30% of block grant fundsbe used to support programs for children with special health care needs. For FY1994 forward, TitleV authorizes to be appropriated $705 million annually. BBA 97 created two diabetes grant programs under the Public Health Service Act. One grantprogram supports research into the prevention and cure of type I diabetes, or insulin-dependentdiabetes. The second grant program supports prevention and treatment of diabetes in Indians. ForFY1998 through FY2002, each program receives $30 million annually through funds transferredfrom the SCHIP appropriation. BBA 97 also required evaluations of these grant programs with aninterim and final report due to Congress on January 1, 2000 and January 1, 2002, respectively. The Ricky Ray Hemophilia Relief Fund Act of 1998 ( P.L. 105-369 ) established a 5-year trustfund to make compassionate payments of $100,000 to certain individuals with blood clottingdisorders, such as hemophilia, who contracted HIV (human immunodeficiency virus) through theuse of anti-hemophiliac factor between July 1, 1982 and December 31, 1987. The Act authorizedappropriations to the trust fund totaling $750 million. The fund received an initial appropriation of$75 million in FY2000. H.R. 5661 provides a direct appropriation of $475 million forFY2001, in addition to $105 million appropriated in the FY2001 Miscellaneous Appropriations Act( H.R. 5666 ). The trust fund has, therefore, received a total of $655 million, which isestimated to be sufficient to pay all the eligible claims. In late September and early October of 2000, the committees with jurisdiction over theprograms described above -- the House Committee on Commerce and the Senate Committee onFinance -- introduced legislation that would affect these programs. On September 27, 2000, theHouse Commerce Committee ordered reported a bill, the Beneficiary Improvement and ProtectionAct of 2000 ( H.R. 5291 ). On October 5, 2000 William V. Roth Jr., the Senate FinanceCommittee Chairman, introduced the Medicare, Medicaid, and SCHIP Balanced Budget RefinementAct of 2000 ( S. 3165 ). On December 15, 2000, the Consolidated Appropriations Act 2001 ( H.R. 4577 )was passed by the House and Senate; it was signed into law on December 21 ( P.L. 106-554 ). Itincluded, by reference, the Medicare, Medicaid, and SCHIP Benefits Improvement and ProtectionAct of 2000 ( H.R. 5661 ), a compromise agreement between House and Senatecommittees and the leadership, which contained a number of important changes to Medicaid andthe State Children's Health Insurance Program (SCHIP). It also included major provisions amendingother health programs. With respect to Medicaid, a number of changes are made to disproportionate share hospital(DSH) funding. First, the agreement sets each state's FY2001 DSH allotment equal to its allotmentfor FY2000, increased by the percentage change in the consumer price index for FY2000, subjectto a ceiling of 12% of that state's total medical assistance payments. A parallel change is made forFY2002 allotments. The bill also applies the 175% hospital-specific DSH limit to certain publichospitals in all states (not just those in California as under current law) for a 2-year period. Additional funds are provided for certain state public hospitals not receiving DSH payments andhaving a low-income utilization rate in excess of 65%. The are two other major Medicaid provisions in the agreement. The bill replaces the currentcost-based reimbursement arrangements for Federally Qualified Health Centers and Rural HealthClinics with a new Medicaid prospective payment system. The agreement also modifies proposedHHS rules governing upper payment limits on inpatient and outpatient services provided by certaintypes of facilities, and requires that final regulations be issued by the end of 2000. The proposedrules and modifications made by the agreement close a loophole under which some states aremaximizing federal Medicaid payments arguably beyond the intent of federal statute. Finally, thebill extends by 1 year the availability of transitional medical assistance (TMA) for certain familiesno longer eligible for Medicaid on the basis of meeting former Aid to Families with DependentChildren (AFDC) rules and adds several entities to those qualified to make Medicaid presumptiveeligibility determinations for children. Under Medicaid presumptive eligibility rules, states areallowed to temporarily enroll children whose family income appears to be below Medicaid incomestandards, until a final formal determination of eligibility is made. With respect to SCHIP, the agreement extends the availability of unused FY1998 andFY1999 SCHIP allotments. (3) Following specific formulas, these unspent funds are redistributedto both those states that have and those that have not fully exhausted their original allotments withinrequired time frames. Current law redistributes unused funds only to those states that spend theirallotments. The bill also authorizes the payment of costs of SCHIP Medicaid expansions and costsof benefits provided during periods of presumptive eligibility from the SCHIP appropriation ratherthan the Medicaid appropriation and clarifies states' authority to conduct presumptive eligibilitydeterminations, as defined in Medicaid law, under separate (non-Medicaid) SCHIP programs. With respect to other programs, the agreement requires that outreach efforts be implementedto identify individuals who may be eligible for Medicaid payment of Medicare cost-sharing and thatthose individuals are notified of the availability of such assistance. The agreement increases theauthorization of annual appropriations for the MCH Services Block Grant from $705 million to $850million for FY2001 and thereafter. In addition, the bill extends for 1 year, to FY2003, the authorityfor grants to be made for both the Special Diabetes Programs for Type I Diabetes and the SpecialDiabetes Programs for Indians. It also increases total funding to $100 million each for FY2001through FY2003. For FY2001 and FY2002, a portion of these funds are transferred from the SCHIPappropriation. Finally, the agreement provides for a direct appropriation of $475 million forFY2001, in addition to funds appropriated in the FY2001 Labor-HHS-Education appropriations bill,for the Ricky Ray Hemophilia Relief Fund. The Congressional Budget Office (CBO) has released preliminary cost estimates for theBenefits Improvement and Protection Act of 2000. CBO estimates that the Medicaid , SCHIP andother program provisions would decrease federal outlays by $16.6 billion over the 5-year period2001 to 2005 and $69.2 billion over 10 years (2001-2010). Among all of these provisions, the mostsignificant in terms of its impact on the federal budget is the revision to Medicaid's upper paymentlimit (UPL). The UPL changes in the bill would result in savings of $21.5 billion over 5 years and$76.7 billion over 10 years. (4) The following side-by-side comparison provides a brief description of current law and thechanges to these programs under the Medicare, Medicaid and SCHIP Benefits Improvement andProtection Act of 2000. These provisions start at Title VII of the bill, the previous six titles beingdevoted to Medicare. See CRS Report RL30703(pdf) , Medicaid and SCHIP Provisions in H.R. 5291 and S. 3165 (the 2000 Medicare "Refinement Bills" ) for a side-by-side comparison of theprovisions in recent related bills. For detailed information on the Medicare provisions contained inthe Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000, see CRS Report RL30707(pdf) , Medicare Provisions in H.R. 5661: Medicare, Medicaidand SCHIP Benefits Improvement and Protection Act of 2000 (available upon request).

Summary: While largely comprised of Medicare provisions, the Medicare, Medicaid, and SCHIPBenefits Improvement and Protection Act of 2000 ( H.R. 5661 ), a compromiseagreement between House and Senate committees and the leadership, includes a number of importantchanges to Medicaid and the State Children's Health Insurance Program (SCHIP). It also includesmajor provisions amending other programs. The provisions of H.R. 5661 areincorporated, by reference into H.R. 4577 , the Consolidated Appropriations Act 2001. H.R. 4577 was passed by the House and Senate on December 15, 2000 and was signedinto law on December 21 ( P.L. 106-554 ). Among the major Medicaid modifications are several provisions affecting disproportionateshare hospital (DSH) payments provided to hospitals that treat a disproportionate share of uninsuredand Medicaid enrollees. The agreement increases the disproportionate share hospital allotments forstates. It also extends a special DSH payment rule for public hospitals in California to qualifyingfacilities in all states, and provides additional funds to certain public hospitals not receiving DSHpayments. In addition to these DSH provisions, the bill replaces cost-based reimbursement with aprospective payment system for Federally Qualified Health Centers (FQHCs) and Rural HealthCenters (RHCs). The agreement also modifies proposed rules governing upper payment limits oninpatient and outpatient services provided by certain types of facilities, and requires that the finalregulations be issued by the end of 2000. One major SCHIP provision extends the availability of unused funds from FY1998 andFY1999 and redistributes these unused funds among both those states that spend and those that donot spend their full original allotments for these years. Current law requires that these unused fundsbe distributed only to those states that spend their allotments. Among other major provisions, the agreement requires that outreach efforts be implementedto identify individuals who may be eligible for Medicaid payment of Medicare cost-sharing and tonotify these persons of the availability of such assistance. It increases the authorization of annualappropriations for the Maternal and Child Health Services Block Grant under Title V. In addition,the bill extends for 1 year, to FY2003, the authority for grants to be made for both the SpecialDiabetes Program for Type I Diabetes and the Special Diabetes Programs for Indians and increasestotal funding for FY2001 through FY2003. Finally, the agreement provides an additional FY2001direct appropriation for the Ricky Ray Hemophilia Relief Fund. For information on the Medicare provisions, see CRS Report RL30707(pdf) , Medicare Provisionsin H.R. 5661: Medicare, Medicaid and SCHIP Benefits Improvement and Protection Actof 2000 (available upon request).