Simplifying Medi-Cal Enrollment: Options for the Income Test Report Prepared by The Lewin Group June 2003 The Medi-Cal Policy Institute, established in 1997 by the California HealthCare Foundation, is an independent source of information on the Medi-Cal and Healthy Families programs. The Institute seeks to facilitate and enhance the development of effective policy solutions guided by the interests of the programs’ consumers. The Institute conducts and commissions research, distributes information about the programs and the people they serve, highlights the programs’ successes, and identifies the challenges ahead. It collaborates with a broad spectrum of policymakers, researchers, providers, consumer representatives, and other stakeholders who are working to create higher-quality, more efficient Medi-Cal and Healthy Families programs. Simplifying Medi-Cal Enrollment: Options for the Income Test June 2003 Prepared for the Medi-Cal Policy Institute by Lisa Chimento, Moira Forbes, Joel Menges, and Anna Theisen The Lewin Group and Nalini Pande Medi-Cal Policy Institute Acknowledgments Funding for this project was provided by the California HealthCare Foundation’s Medi-Cal Policy Institute. The Lewin Group would like to extend a special thanks to the many people who participated in interviews and responded to our multiple requests for information. We thank the many county staff who provided us with their insights and suggestions for improving the Medi-Cal program, including Kathy Harwell of Stanislaus County, Joyce Cooper and Rhonda Boykin of Alameda County, Jenn Fossum of Shasta County, and Joan Zinser of San Diego County. We would particularly like to thank Colleen Moskal of Los Angeles County, John Vera of San Joaquin County, and Sandra Baldwin of Contra Costa County, along with their respective county staff members, for hosting site visits during April 2002 and answering our many follow-up questions. We thank Barbara Kelsey and Lorrie Taylor of the Interim Statewide Automated Welfare System (ISAWS) Consortium Administrative Support Team for their assistance in obtaining data on Medi- Cal applications. We also thank the following Department of Health Services staff for their time and assistance: Stan Rosenstein, Maura Donovan, Richard Brantingham, Bill Walsh, Pilar Williams, Marlene Ratner, Sharyl Shanen-Raya, and Tom Welch. Invaluable assistance over the course of the project was provided by Cathy Senderling of the County Welfare Directors Association, Pat Daley of the Centers for Medicare and Medicaid Services, Janette Lopez of the Healthy Families Program, Deena Lahn of the Children’s Defense Fund, Kristen Testa of the Children’s Partnership, and Richard Brown of the UCLA Center for Health Policy Research. Finally, we would like to thank Kristen Testa, Health Program Manager, The Children’s Partnership; Jerry Kominski, Professor, Department of Health Services, UCLA School of Public Health; and Maura Donovan, Chief of Fiscal Analysis, California Department of Health Services, for providing ongoing guidance and peer review of the research, methods, and findings. The authors, however, remain solely responsible for the content and findings. Copyright © 2003 Medi-Cal Policy Institute ISBN 1-932064-46-X Medi-Cal Policy Institute 476 Ninth Street Oakland, CA 94607 tel: (510) 286-8976 fax: (510) 238-1382 www.medi-cal.org A project of the Additional copies of this and other publications can be obtained by calling the Medi-Cal Policy Institute at (510) 286-8976 or by visiting the Web site (www.medi-cal.org). Contents Executive Summary 1 I. Introduction 9 California’s Path to Simplification 10 Next Steps Toward Simplification 11 II. Overview of the Income Test 13 A. Eligibility Groups and Income Standards 14 B. Income Methodology: Counting Income 16 C. Income Documentation and Verification 19 D. Program Integrity 25 III. Income Test Simplification Options 27 A. Self-Certification of Income 27 B. Self-Certification of Income Deductions 31 C. Shift Income Calculation from Net to Gross Methodology 34 D. Estimate of Potential Impacts of Self-Certification of Income 37 IV. Conclusion 43 List of Tables Table ES-1 Best Estimates of Potential Enrollment, Medical Cost, and Administrative Cost Impacts of Allowing Self-Certification of Income for 1931(b) Only Families Table 1 Federal Poverty Levels (FPLs), 2003 Table 2 Annual Income Limits for Selected Medi-Cal Eligibility Groups Table 3 Documentation of Income and Disregards Table 4 Medi-Cal Application Deductions, Selected Counties, July 2002 Table 5 Take-Up Rates Used for Self-Certification of Income Table 6 Enrollment and Medical Cost Impacts of Self-Certification of Income Table 7 Projected Administrative Impacts of Self-Certification of Income Table 8 Best Estimates of Potential Enrollment, Medical Cost, and Administrative Cost Impacts of Allowing Self-Certification of Income for 1931(b) Only Families Executive Summary According to a recent survey of California residents, some 820,000 people may be eligible for Medi-Cal (California’s Medicaid program) but are currently uninsured.1 Two recent surveys of California families eligible for but not enrolled in public health programs found that the com- plexity of the eligibility determination process remains a primary barrier to enrollment. Cali- fornia’s experience is not unique. Many states grapple with the same challenge: designing eligibility processes that facilitate enrollment while maintaining program integrity. For many states, simplification of the enrollment process has helped those who are eligible to enroll in health insurance programs. Simplification has also reduced administrative burdens without in- creasing the number of erroneous determinations. After several years of budget surpluses, California, like most states, is now facing a substantial budget gap, and there is tremendous pressure on state and county governments to reduce spending. Any further efforts to simplify the program must account for this new fiscal reality. In particular, efforts to simplify the program that also reduce state and county administrative costs are likely to be the ones of greatest interest. To assist California policymakers, the Medi-Cal Policy Institute commissioned The Lewin Group to assess the impacts of several strategies to simplify the Medi-Cal eligibility and enroll- ment process. Specifically, The Lewin Group reviewed simplification options relating to the income and assets (or resources) components of Medi-Cal enrollment. This report discusses the following three strategies for simplifying the income portion of the eligibility determi- nation process: 1. Brown, R., N. Ponce, T. Rice, S. A. Lavarreda. “The State of Health Insurance in California: Findings from the 2001 California Health Interview Survey.” June 2002, pp. 43-46. The researchers estimated that 355,000 uninsured children may be eligible for Medi-Cal, and 413,000 parents and 52,000 other uninsured adults who are not custodial parents may be eligible for Medi-Cal. Simplifying Medi-Cal Enrollment: Options for the Income Test 1 1. Allowing applicants to self-certify their income (instead of providing docu- mentation); 2. Allowing applicants to self-certify their income deductions; and 3. Changing the methodology used to count income from a net income method- ology to a gross income methodology. In addition, this study also provides cost estimates of the enrollment and administrative impact of self-certification of income, the option expected to provide the greatest potential benefit to applicants and eligibility workers. This report is the companion piece to a study of simplifica- tion options relating to the elimination and simplification of the assets test titled Simplifying Medi-Cal Enrollment: Options for the Assets Test. A summary report, Simplifying Medi-Cal En- rollment: Opportunities and Challenges in Tight Fiscal Times, highlights key findings from the two main reports. A description of the methodology used to estimate the enrollment and cost impacts of the various modeling options is provided in the companion report, Simplifying Medi-Cal Enrollment: Technical Report on the Assets and Income Tests. The Medi-Cal Income Test Medicaid does not cover all low-income people. Eligibility depends on several factors, one of which is income. Income is determined by applying an income test that has two components: the income methodology and the income standard. Eligibility workers use an income method- ology to determine which types of income to count and whether the applicant is entitled to deduct any expenses. Workers then compare the countable income amount to the income stan- dard (maximum allowable income) for California’s 165 eligibility groups, to determine whether the applicant’s countable income qualifies him or her for Medi-Cal. Applying the complicated rules for income is one element of the overall Medi-Cal enrollment process, which has many complexities that pose challenges for both applicants and county eligibility workers. Potential Impacts of Changes to the Medi-Cal Income Test This study assessed the specific impacts of each of the three income simplification options listed above on program enrollment, administration, and program integrity. In addition, this study also provides cost estimates of the enrollment and administrative impact of self- certification of income, the option expected to provide the greatest potential benefit to appli- cants and eligibility workers. This type of modeling effort is not an exact science. Medi-Cal eligibility data do not capture the degree to which applicants are dropping out of the process due to the “hassle factor” of documenting their assets and/or income. Data do not exist re- garding the degree to which simplifying the process will result in more people being willing to come forward to apply. Because so many factors continuously influence Medicaid enrollment levels, states that have implemented simplification measures are unable to determine the en- rollment impacts of their own initiatives. For all these reasons, modeling the enrollment 2 Medi-Cal Policy Institute impact of simplification options such as self-certification of income requires reliance on as- sumptions and various imperfect data sources. The approach has involved obtaining the data that are most applicable, identifying and adjusting for the shortcomings of these data sources, relying on experience and expertise in the public health insurance arena to develop reasonable assumptions, and using alternate modeling approaches to validate these assumptions. These analyses were conducted in late 2002 using the program policies in place in California and other states at that time. Because the bulk of Medi-Cal applicants and beneficiaries are families and children, this report focuses on the application and enrollment process for a “typical” family Medi-Cal application for the 1931(b) Only eligibility category.2 The 1931(b) Only group covers families who do not receive Temporary Assistance to Needy Families (TANF) benefits. TANF is the state-federal welfare program that replaced Aid to Families with Dependent Children (AFDC) in 1996. This program is known as CalWORKs (California Work Opportunity and Responsibility to Kids) in California. These 1931(b) Only families include those who would have been eligible for AFDC-linked Medi-Cal if AFDC were still in effect; families that decide not to enroll in CalWORKs even though they may be eligible for assistance; and families with incomes below the federal poverty level but higher than the CalWORKs limits. Findings 1. Self-Certification of Income California requires applicants to provide documentation of earned income (e.g., pay stub, state or federal tax return). Self-employed applicants can provide tax returns or recent profit-and- loss statements, or they can document business receipts and expenses. In some cases, appli- cants may not have the documentation required by the state. In some of these cases, applicants may self-certify their income, as a last resort, by signing a statement attesting to the value of their current income. Current California Medi-Cal regulations require counties to make an attempt to verify information before allowing self-certification. California can change its policy to allow self-certification of income at the time of application and at the time of eligibility redetermination. By allowing self-certification of income, appli- cants would not need to provide any documentation of their income and would certify, under penalty of perjury, that the self-reported income information is correct. The eligibility worker would then determine whether the applicant’s income was above or below the income limit for the relevant eligibility group and family size. ▪ Enrollment impacts. The experience of some states suggests that simplifying the income test through self-certification can increase enrollment by making 2. Because these rules are described in section 1931(b) of the Social Security Act, this eligibility category is gener- ally referred to as “1931(b)” for families that receive cash benefits and Medi-Cal, and “1931(b) Only” for fam- ilies that receive only Medi-Cal. Simplifying Medi-Cal Enrollment: Options for the Income Test 3 it easier for eligible people to successfully complete the process. It may also encourage some people who may be eligible but have not applied due to per- ceived difficulties in the eligibility process to come forward. Finally, reducing the documentation requirements by encouraging beneficiaries to self-certify their income would also help people and families who are currently eligible for Medi-Cal to successfully complete the eligibility redetermination process and retain their coverage. Modeling of the potential enrollment impact of allowing applicants to self- certify their income at the time of application was conducted using the same approach that was used to model the impact of self-certification of assets. Based on the modeling, an estimated 1.5 percent of the uninsured, 1931(b) Only eligible (but unenrolled) people would apply for Medi-Cal and be found eligible if self-certification of income were permitted. This would result in an additional enrollment of 12,640 people in the 1931(b) Only group, at an annual medical cost (state and federal) of $15.5 million. ▪ Administrative effects. Self-certification of income would reduce the collec- tion burden on applicants and, to a lesser extent, eligibility workers. Specifi- cally, applicants would no longer need to provide pay stubs, tax returns, or profit-and-loss statements to document their recent income. Eligibility work- ers would not need to follow up with applicants to collect income documenta- tion. However, eligibility workers would be required, as they are under the current system, to verify applicants’ income through the Income and Eligibil- ity Verification System (IEVS), a centralized state database of income informa- tion. Workers would also be required to request documentation if the reported information were questionable or insufficient to make an accurate calculation of monthly income. The time savings per 1931(b) Only case created by self-certification of income is estimated to be, on average, 2.5 percent of the eligibility worker’s time to perform the “intake” process. This assumption yields an annual savings of $4.2 million (state and federal). As with all administrative dollar impacts, such sav- ings are dependent upon Department of Health Services (DHS) acting to reduce payments to counties by this amount or to apply these savings to addi- tional work requirements imposed on counties. Self-certification of income would also create some modest offsetting increases in administrative costs, in- cluding the cost of additional intakes ($420,000/year), increased case mainte- nance efforts resulting from additional months of coverage ($540,000/year), and additional program monitoring activities ($250,000/year). In total, allow- ing self-certification of income would result in an annual estimated adminis- trative savings of $3.0 million (state and federal). ▪ Program integrity implications. Currently, the state relies on applicant- supplied documentation and third-party sources to verify the accuracy of in- 4 Medi-Cal Policy Institute come information. If the state allows applicants to self-certify income data at the time of application, it may need to develop some additional strategies to identify errors associated with self-certification, ensure that applicant-reported information is accurate and current, and demonstrate that increased use of self-certification does not result in an increase in erroneous eligibility determi- nations. Some strategies include increased use of third-party sources at the point of application, and retrospective audits. The costs of additional program monitoring activities are included in the estimates presented above. 2. Self-Certification of Income Deductions California uses a “net countable income” methodology that allows applicants to deduct certain expenses from their income, so that the income that counts toward the Medi-Cal income stan- dard (maximum allowable income) is lowered. Examples of Medi-Cal income deductions include: child or dependent care, work expenses, court-ordered child support, alimony, educa- tional expenses, and health insurance premiums for other family members. The kind of docu- mentation required for income deductions varies based on the type of deduction and the source. For example, for child or dependent care, the applicant must provide a receipt or can- celled check showing the amount of the payments. An analysis of data from 35 California counties showed that fewer than 10 percent of applicants reported information on income de- ductions. California also allows applicants to self-certify income deductions as a last resort. California could modify this policy to allow applicants to self-certify the value of certain income deductions at the time of application. This would have many of the same types of im- pacts as allowing self-certification of income, albeit to a lesser extent. ▪ Enrollment impacts. Allowing self-certification of deductions could increase enrollment by making it easier for eligible people to successfully complete the process, and by helping current recipients to successfully complete the redeter- mination process. However, allowing self-certification of deductions is not likely to be seen by potential applicants as significantly reducing the burden as- sociated with the enrollment process. Thus, the impact on enrollment would be smaller than the impact created by self-certification of income, since only a subset of applicants have deductions. ▪ Administrative effects. Because the rules for determining net countable in- come vary among eligibility groups, applicants are often asked to provide information on all potential deductions even if they are ultimately not used in the net income calculation. Allowing applicants to self-certify the value of income deductions up-front would reduce the burden on applicants, while still providing eligibility workers with sufficient information to determine the appropriate Medi-Cal eligibility group. In most cases, eligibility workers would not need to follow up with applicants to collect deductions documenta- tion, although they would need to request documentation if they believed that Simplifying Medi-Cal Enrollment: Options for the Income Test 5 the self-certified information could be incorrect. Despite the beneficial time savings to the applicants, it is important to note that the administrative time saved for the eligibility worker under self-certification of income deductions would likely be a very small proportion of the overall time spent on the intake and redetermination processes. ▪ Program integrity implications. Allowing self-certification of income deduc- tions has many similar implications as allowing self-certification of income. One of the greatest similarities is that the rules regarding allowable deductions are highly specific and complex, and applicants could misapply these rules without realizing it. Thus, the state must design the application form carefully so that applicants can self-report information in a manner that enables an eli- gibility worker to make the proper calculations. An important difference is that, unlike income, there are few third-party sources of information on de- ductions that workers could use to verify self-certified information. 3. Gross Income Methodology As noted above, California currently uses a net income methodology that allows applicants to deduct certain expenses from their gross income. This net countable income figure is then compared to the relevant Medi-Cal income standard for the appropriate eligibility category and family size. California could change from the net income methodology to a gross income methodology that would compare the applicant’s gross income to the income standard for each potential eligibility group. This would eliminate the need for applicants to provide information on in- come deductions and for eligibility workers to develop complex income budgets to determine net countable income. However, this change would be a significant departure from current Medi-Cal eligibility determination processes. Unlike the other two options studied, adopting a gross income standard could also alter who is eligible for Medi-Cal, depending upon the income standard used. ▪ Enrollment impacts. A gross income methodology could help ensure that in- dividuals who are eligible for Medi-Cal would be more likely to successfully complete the enrollment process. Since applicants would not have to provide information on income deductions, the process might be completed more quickly, and it would be easier for applicants to understand the eligibility rules. If the income standard were raised significantly, the state would ensure that people who would have qualified with deductions still qualify, while it would make a large number of additional people newly eligible. If the income stan- dard were maintained or slightly increased while changing to a gross income methodology, some families (with gross incomes above the income standard) 6 Medi-Cal Policy Institute that are currently eligible due to their deductions would lose eligibility for Medi-Cal. Some exceptions (given federal welfare reform requirements) are described in more detail in this report. ▪ Administrative effects. Changing to a gross income methodology could help applicants more easily understand whether their income qualified them for Medi-Cal, and reduce the need to document income deductions. A gross in- come methodology could also provide some administrative savings, as eligibil- ity workers would not have to collect and verify deduction information and calculate net countable income. However, workers might still have to conduct a separate eligibility screen by using an alternative net income methodology (under a different set of rules if applicants were not found eligible under the gross income test) to ensure compliance with federal welfare reform require- ments. The degree to which this would occur depends upon the income stan- dard itself. ▪ Program integrity implications. Use of a gross income methodology could improve the accuracy of eligibility determinations. Many eligibility errors occur during the calculation of net income. As these calculations would not have to be conducted with a gross income methodology, these errors would be eliminated. Table ES-1: Best Estimates of Potential Enrollment, Medical Cost, and Administrative Impacts of Allowing Self-Certification of Income for 1931(b) Only Families* Annual Costs/(Savings)† Estimated Additional Enrollment Currently eligible but not enrolled 12,640 Newly eligible 0 Total Estimated Enrollment Increase 12,640 Annual Medical Costs Associated with New Enrollment State and federal share $15,516,437 ‡ State-only share $7,758,219 Annual Net Administrative Savings State and federal share ($2,968,202) ‡ State-only share ($1,484,101) Annual Net Costs/(Savings) State and federal share $12,548,235 ‡ State-only share $6,274,118 *The estimates reflected in this table are “best estimates.” The table does not include “upper bound” estimates that were developed to reflect the highest number of people who might come forward to obtain Medi-Cal coverage if self-certification of income were implemented, as well as the difficulty in obtaining definitive data on simplification impacts. Please refer to the companion Simplifying Medi-Cal Enrollment: Technical Report on the Assets and Income Tests for further discussion of the best estimate and upper bound projections. †Numbers may not total due to rounding. ‡In Federal Fiscal Year (FFY) 2003, California’s state share of both medical and administrative costs is approximately 50 percent. Simplifying Medi-Cal Enrollment: Options for the Income Test 7 Each of the three options discussed will improve the enrollment process for prospective en- rollees and for county eligibility workers. Allowing Medi-Cal applicants to self-certify the value of their income could result in increased enrollment (of those currently eligible but not enrolled) and reduce administrative costs. As California struggles with record state-budget shortfalls, simplification strategies that reduce the costs of program administration while improving Medi-Cal enrollment are important to explore. Further, at a time when counties are facing their own budget shortfalls and eligibility workers are experiencing rising caseloads per worker, the administrative advantages of eligibility simplifications may be particularly impor- tant to consider. 8 Medi-Cal Policy Institute I. Introduction According to a recent survey of California residents, some 820,000 people may be eligible for Medi-Cal (California’s Medicaid program) but are currently uninsured.3 Two recent surveys of California families eligible but not enrolled in public health programs found that the com- plexity of the eligibility determination process remains a primary barrier to enrollment.4 Cali- fornia’s experience is not unique. Many states grapple with the same challenge: designing eligibility processes that facilitate enrollment while maintaining program integrity. More applicants are denied eligibility because they fail to provide documentation or drop out of the enrollment process than are denied because their income or assets are too high. Many eligible people do not apply until they have an immediate health care need (or have already incurred an uncovered health care expense), suggesting that the difficulties associated with the enroll- ment process can deter people from using Medi-Cal as coverage that promotes routine and preventive care.5 Simplification of the enrollment process has helped those who are eligible to enroll in health insurance programs in many states. Simplification has also reduced administrative costs with- out increasing the number of erroneous determinations. Further, the federal government has been supportive of states’ efforts to simplify their Medicaid eligibility processes. The Centers for Medicare and Medicaid Services (CMS) and Office of the Inspector General (OIG) have 3. Brown et al., “The State of Health Insurance in California,” pages 43-46. The researchers estimated that 355,000 uninsured children may be eligible for Medi-Cal, and 413,000 parents and 52,000 other uninsured adults who are not custodial parents may be eligible for Medi-Cal. 4. “Using Market Research to Improve Enrollment of Families Eligible for Medi-Cal and Healthy Families,” de- veloped by Eric Marder Associates, Inc. for the Medi-Cal Policy Institute, March 2002; Brown et al., “The State of Health Insurance in California,” pp. 51, 52. 5. An important positive feature of the Medi-Cal eligibility process is that it awards coverage retrospectively for up to 90 days. Thus, people who do apply and succeed in obtaining coverage are able to get their past services paid for by Medi-Cal. Simplifying Medi-Cal Enrollment: Options for the Income Test 9 noted that it is “just as unacceptable to deny eligibility . . . as a result of complicated and burdensome application and retention procedures as it is to enroll ineligible beneficiaries. Pro- gram integrity and efficient eligibility determinations go hand in hand.”6 California’s Path to Simplification California has made several changes to the eligibility process to remove barriers to enrollment among qualified individuals, including: ▪ Use of mail-in applications for Medi-Cal. In October 1998, California cre- ated a joint four-page mail-in application for children and pregnant women applying for the Medi-Cal and Healthy Families programs. In July 2001, Cali- fornia created a similar four-page Medi-Cal mail-in form for families and med- ically needy/medically indigent adults applying for Medicaid coverage. ▪ Elimination of face-to-face interviews. In 1999, California eliminated the re- quirement that Medi-Cal beneficiaries meet face-to-face with eligibility work- ers during the annual redetermination process. ▪ “Ex parte” verification requirements. To comply with CMS’s April 7, 2000, letter to State Medicaid Directors and California Senate Bill 87, California re- duced certain documentation requirements for Medi-Cal applicants to avoid “unnecessary and repetitive requests” for information from families to verify information already on file (e.g., through Food Stamp or TANF records, wage and payment information) or not subject to change (e.g., applicant’s birth date). ▪ Elimination of assets test for children. In 2000, California eliminated the as- sets test for the Medi-Cal eligibility groups that cover children in the percent of poverty categories. This includes children under 1 year whose family in- come is at or below 185 percent of the federal poverty level (FPL), children aged 1 to 6 in families with incomes at or below 133 percent FPL, and chil- dren aged 6 to 19 in families with incomes at or below 100 percent FPL. ▪ Elimination of Quarterly Status Reporting. In 2001, California eliminated the requirement for submission of Quarterly Status Reports and instead re- quired beneficiaries to submit redetermination information annually or when they experienced changes in income and resources. ▪ Reduction of income documentation requirements to align Medi-Cal with Healthy Families. Through a policy mandate in March 2001, California mod- ified the Medi-Cal income documentation requirements to accept as proof of 6. CMS Letter to State Medicaid Directors, “Medicaid Simplification Strategies—QC,” January 19, 2001. 10 Medi-Cal Policy Institute income one pay stub or the applicant’s most recent income tax return. This change aligned Medi-Cal income documentation requirements with Healthy Families. ▪ Use of Health-e-App. In February 2001, California began using Health-e-App to enroll children and pregnant women into the Medi-Cal and Healthy Fami- lies programs through the Internet. Health-e-App includes error-checking and validation features that eliminate potential errors in calculating income and deductions. Health-e-App documentation requirements are similar to those required in the joint Medi-Cal/Healthy Families application, but the applica- tion and documentation can be submitted electronically. California continues to consider modifications to the Medi-Cal outreach and eligibility process. The Governor’s proposed budget for SFY 2003-2004 supports certain types of simpli- fications, such as continuous eligibility for children, accelerated enrollment for children, and “Express Lane Eligibility.” The Express Lane Eligibility approach allows families to apply for Medi-Cal/Healthy Families at the same time they are applying for Food Stamps or the National School Lunch program. Express Lane Eligibility not only expedites enrollment into public health insurance programs but also reduces the burden on families associated with sep- arate applications for programs that require some of the same information and supporting documents. Faced with a multibillion-dollar budget deficit, the Governor’s proposed budget also imposes enrollment barriers, including the reinstatement of Quarterly Status Reporting. The Governor’s proposed budget eliminates funding to train certified application assistants (CAAs) to use Health-e-App, and eliminates payments to CAAs for helping eligible applicants complete their applications for Medi-Cal or Healthy Families. Next Steps Toward Simplification There are additional measures California could adopt to further simplify the eligibility de- termination process and help ensure that all people who are eligible for Medi-Cal and seek coverage are able to successfully complete the enrollment process. To assist California policy- makers to better understand the options available, the Medi-Cal Policy Institute commis- sioned The Lewin Group to assess the impacts of certain eligibility simplification strategies. This report discusses strategies for simplifying the income portion of the eligibility determination process, including regulatory requirements, operational considerations, and experiences of other states that have implemented various simplification options during the past several years. The next two chapters of this report provide more details on the income aspects of the Medi- Cal eligibility process, and assess the policy, enrollment, and administrative implications of three simplification options: Simplifying Medi-Cal Enrollment: Options for the Income Test 11 1. Allowing self-certification of income; 2. Allowing self-certification of income deductions; and 3. Changing the methodology used to count income. This study also provides cost estimates of the enrollment and administrative impact of self- certification of income, the option expected to provide the greatest potential benefit to appli- cants and eligibility workers. Because the bulk of Medi-Cal applicants and beneficiaries are families and children, this series of reports on simplification is focused on the application and enrollment process for those groups. Therefore, this report outlines the income standards and documentation requirements for a “typical” child or family Medi-Cal application (e.g., 1931[b] Only group). It is important to note that there are many other Medi-Cal programs for which the income standards and documentation requirements do not conform to those outlined in these sections. This report is the companion piece to the Institute’s report on options relating to the elimina- tion and simplification of the assets test, titled Simplifying Medi-Cal Enrollment: Options for the Assets Test. These analyses were conducted in late 2002 using the program policies in place in California and other states at that time. As Medicaid programs across the country struggle with the budget implications of record state-revenue shortfalls, simplification strategies that reduce the costs of program administration while maintaining current eligibility standards are likely to be the ones of greatest interest. The summary report on simplification in Medi-Cal, Simplifying Medi-Cal Enrollment: Opportunities and Challenges in Tight Fiscal Times, highlights some of these approaches. A description of the methodology used to estimate the enrollment and cost impacts of the various modeling options is provided in the companion piece, Simpli- fying Medi-Cal Enrollment: Technical Report on the Assets and Income Tests. 12 Medi-Cal Policy Institute II. Overview of the Income Test The Medicaid program, known as Medi-Cal in California, is a joint state-federal program. The federal Department of Health and Human Services, through the Centers for Medicare and Medicaid Services (CMS), creates program regulations and policies that generally outline the minimum requirements for state participation in Medicaid. These requirements include eligibility groups, benefits covered, and administrative standards. States have extensive flexibil- ity in going beyond these minimums. The four sections of this chapter present the key aspects of the income portion of the Medicaid eligibility determination process: ▪ Defining eligibility groups and income standards; ▪ Determining the income methodology; ▪ Verifying income documentation; and ▪ Ensuring program integrity. Each of these sections describes the federal requirements that apply to all states, and outlines areas in which the federal government provides states with some flexibility. These sections then discuss how California is implementing these rules, particularly in areas where the state has taken advantage of this federal flexibility. As noted in the introduction, this report addresses the enrollment process used by most fam- ilies and children. Therefore, the following sections outline the income standards and docu- mentation requirements for a “typical” child or family Medi-Cal application (e.g., 1931[b] Only group, percent programs). It is important to note that there are many other Medi-Cal pro- grams for which the income standards and documentation requirements do not conform to those outlined in these sections. Simplifying Medi-Cal Enrollment: Options for the Income Test 13 A. Eligibility Groups and Income Standards The federal government requires Medicaid to cover certain eligibility groups. The federal gov- ernment also provides states with considerable flexibility in covering optional groups. The Medi-Cal program has taken advantage of this flexibility and currently has about 165 different eligibility groups, including groups that are required by the federal government, groups de- fined by the federal government that may be covered at the state’s option, and state-only groups with eligibility criteria set by the state. For the latter, the state does not receive federal funding. Different Eligibility Groups Often Have Different Income Standards Medicaid does not cover all low-income people. Eligibility depends on several factors, one of which is income. Non-custodial adults, for example, regardless of income, cannot qualify for Medicaid unless they are aged, disabled, or pregnant. For many families and children, how- ever, low income is the key determinant of eligibility. People in different Medicaid eligibility groups may have different income standards. Most of California’s 165 eligibility categories have different eligibility standards that include different income standards and documentation requirements.7 Some key factors that affect eligibility for families and children—the main subjects of this analysis—are described in detail below. Federal Poverty Level Guidelines Are the Basis for Many Income Standards Many Medicaid income standards are based on the federal poverty level (FPL), which is up- dated annually to account for inflation (see Table 1). For example, federal rules require state Medicaid “percent programs” to cover children under age 6 and pregnant women whose fam- ily income is at or below 133 percent of the federal poverty level, as well as children between ages 6 and 19 in families with incomes at or below 100 percent of the federal poverty level. Table 1. Federal Poverty Levels (FPLs), 2003* Monthly/Annual Family Size Income Limits† 1 2 3 4 100 Percent FPL $748 / 8,980 $1,010 / 12,120 $1,272 / 15,260 $1,533 / 18,400 133 Percent FPL $998 / 11,973 $1,347 / 16,160 $1,696 / 20,346 $2,044 / 24,533 185 Percent FPL $1,384 / 16,613 $1,869 / 22,422 $2,353 / 28,231 $2,837 / 34,040 *Federal Register, Vol. 68, No. 26, February 7, 2003, pp. 6456-6458. †Monthly/annual income levels are on a pre-tax basis. 7. Although the focus of this report is on the income aspects of the Medicaid eligibility determination process, el- igibility depends on many factors. For many people, eligibility for Medicaid depends in part on eligibility for other programs (which may have their own income standards), such as Supplementary Security Income (SSI), Medicare, or foster care. Other factors include age, assets, medical bills, citizenship, and family status. 14 Medi-Cal Policy Institute States can choose to cover infants up to 1 year and pregnant women whose family income is up to 185 percent of the federal poverty level; states can also effectively raise the income stan- dard to 200 percent for this group through the use of income disregards, as discussed below. Federal Rules Allow Flexibility Through the Use of Income Disregards The federal government specifies minimum federal poverty level income standards for many groups, but allows states to cover people with higher incomes up to certain limits. States define these limits by using income “disregards” for the entire eligibility group. Disregards are special rules that ignore certain amounts, proportions, or types of income in order to effectively in- crease the income standard (or FPL limit) for the group. For example, although the federal government allows states to cover infants up to 1 year and pregnant women whose family income is up to 185 percent of the federal poverty level, states can employ income “disregards” for all individuals in that eligibility group, effectively raising the income standard to 200 per- cent of the FPL. Other types of disregards are used that apply only to individuals in certain circumstances, rather than across the entire eligibility group. These disregards are discussed in more detail in the section on income methodology. California’s Income Standards California takes advantage of federal flexibility in designing its income standards. Table 2 out- lines the annual income limits for several family-related Medi-Cal eligibility groups as of early 2003. For some eligibility categories, California’s income limits are higher than the federally mandated minimum requirements: ▪ Percent Programs. For children between the ages of 1 and 19, California uses the federal minimum income standard as the Medi-Cal standard. For pregnant women and children under 1 year, California disregards income between 185 and 200 percent of FPL to make the effective income limit 200 percent of FPL. Table 2. Annual Income Limits for Selected Medi-Cal Eligibility Groups California Standard Federal Minimum Requirement Population (as a percentage of FPL)* (as a percentage of FPL) 1931(b) Only 100% 61%† Pregnant Women and/or Children Under 1 Year 200% 133% ‡ Children Aged 1 to 6 133% 133% ‡ Children Aged 6 to 19 100% 100% *California’s standards are shown as the “effective income limit,” taking into account uniform disregards applied to the entire eligibility group. †The federal minimum requirement is related to California’s 1996 AFDC need standard, expressed here as a percentage of the 2002 federal poverty level. ‡The effective income limit for Healthy Families is 250% FPL, taking into account the uniform disregard of income between 200% and 250% FPL. Simplifying Medi-Cal Enrollment: Options for the Income Test 15 ▪ 1931(b) Program. Similarly, to determine eligibility for 1931(b), California disregards income between the 1996 AFDC standard and 100 percent of FPL.8 This income disregard effectively makes the 1931(b) income limit 100 percent of FPL.9 B. Income Methodology: Counting Income The federal government also gives states flexibility in determining their income method- ology—or the way that states count income—for many eligibility groups. Because states may use different disregards, it can be misleading to compare income standards without also com- paring different income methodologies. There are two methodologies that states can use: net countable income or gross income. California, along with all but three state Medicaid pro- grams, uses the net income methodology. Only Massachusetts, South Dakota, and the District of Columbia use the gross income approach. Net Countable Income Methodology Under the net countable income approach, states determine the kinds and amounts of income that count toward the income limit for the 1931(b) group; poverty-level pregnant women and children; the aged, blind, and disabled; and the medically needy. States can also decide how to factor expense information, such as child care costs, into the determination of a family’s need so that low-income families can maintain their health coverage while working. The only limit placed on states by the federal government comes from welfare reform legislation that requires states to use either the same or “less restrictive” methods than those in place in 1996. A higher income standard is considered less restrictive, as is eliminating a rule that previously excluded certain applicants (e.g., eliminating the assets test) or changing a rule to allow more people to qualify (e.g., increasing the assets test from $3,000 to $5,000). 8. Federal “maintenance of effort” rules require states to use Medicaid eligibility standards at least as generous as the AFDC eligibility standards in effect in 1996. This is because, prior to welfare reform, Medicaid eligibility for some low-income families was linked to eligibility for the federal AFDC program. The AFDC program had “need standards” (income standards) that were different from the federal poverty level. The 1996 AFDC need standard for a family of three in California was $734, which is below the current FPL of $1,272 for a family of three. 9. This approach has been adopted by many states. In essence, states disregard the difference between the AFDC need standard in place in 1996 and a less restrictive income standard chosen by the state (e.g., 100 percent of the current federal poverty level). States have chosen this option so that the income standard for the 1931(b) group is based on the federal poverty level, which is updated every year to account for inflation, instead of the AFDC need standard, which is frozen at the 1996 levels. Using the federal poverty level standards as the basis for the 1931(b) income standards has the added effect of aligning 1931(b) income standards closer to those of other Medicaid eligibility groups, such as the percent programs for children, and other programs such as SCHIP (Healthy Families), which all use the federal poverty level income standards. Arizona, California, Con- necticut, Delaware, the District of Columbia, Hawaii, Maine, Massachusetts, Minnesota, Missouri, New Jer- sey, New York, Ohio, Oregon, Rhode Island, Vermont, Washington, and Wisconsin all use a 1931(b) income standard that is higher than the AFDC need standard. 16 Medi-Cal Policy Institute The methodology for calculating net countable income involves the process of combining earned income, unearned income, exemptions, and deductions. As noted above, states can apply income “disregards” (deductions and exemptions) to reduce gross income before it is compared to the income standard of the appropriate Medicaid eligibility category. County eligibility workers face a daunting level of complexity in sorting through which appli- cants qualify for which of California’s 165 eligibility groups. Different eligibility groups often have unique rules for calculating net countable income. As noted above, in California, income between 185 and 200 percent of the federal poverty level is disregarded for children under 1 year and pregnant women; and income between the 1996 AFDC level and 100 percent of the federal poverty level is disregarded for the 1931(b) group. Eligibility workers may need to conduct separate calculations for individual members of a family, or apply the rules for multiple eli- gibility categories to a single application, to find a group for which each member in the family is eligible. Adding to the complexity under the net countable income methodology, the amount of gross income a person may have and still qualify for Medi-Cal may vary depending on the group for which the person is ultimately found eligible. In fact, a person may still be eligible for Medi- Cal even if his/her gross income is above the income standard for all Medi-Cal eligibility groups, once income exemptions and deductions are applied. The process of applying these income methodologies—in general and specifically in the Medi-Cal program—is described in greater detail below. Gross Income Methodology As an alternative to the net countable income methodology, states can use a gross income methodology to determine eligibility. Under this methodology, an applicant’s gross income (other than a few federally required exemptions, such as assistance payments) is compared to the income standard. This approach is much simpler than the net countable income method- ology in that applicants and eligibility workers do not need to consider various expenses, such as child care, in the eligibility determination process. It is important to note that for a given income standard (e.g., 185 percent of FPL), applying a gross income methodology rather than a net income methodology would result in fewer people eligible for Medicaid. Conversely, if a state maintained its income standard (e.g., 185 percent of FPL) but changed from a gross to a net income methodology, it would in effect expand eligibility because deductions help people with higher gross incomes (e.g., 200 percent of FPL) to qualify for coverage. Determining Net Countable Income To determine an applicant’s total income, eligibility workers must consider an applicant’s earned and unearned income. To calculate net countable income, eligibility workers must identify information on exemptions and deductions and subtract these from gross income. Below are more details on the components of earned income, unearned income, exemptions, Simplifying Medi-Cal Enrollment: Options for the Income Test 17 and deductions. The next section provides more information on the documentation applicants must generally provide to show their income, deductions, and exemptions. Earned and Unearned Income ▪ Earned income. Earned income generally includes income generated through work. Common examples of earned income include: wages, commissions, tips, and profit from self-employment. Self-employed applicants can provide tax returns or recent profit-and-loss statements, or they can document business re- ceipts and expenses. ▪ Unearned income. Unearned income generally includes income that was not generated through employment directly, such as annuities, child support, Social Security, pensions, gifts, Veterans Administration payments, private dis- ability payments, unemployment compensation, interest, royalties, and prizes. Income Disregards Under the net countable income methodology, not all income is counted for purposes of de- termining eligibility. In determining countable income, the Medi-Cal program does not count certain kinds of income and expenses (exemptions and deductions), which are collectively known as disregards. ▪ Exemptions. Income that is excluded from the countable income calculation is called an exemption. States are required to completely exempt certain types of income, such as assistance payments (e.g., TANF/SSI).10 Eligibility staff report that commonly taken Medi-Cal exemptions include: social services, assistance based on need, foster care payments, exempt loans/grants/scholarships/fellow- ships, federal payments to Native Americans, and earnings of children under age 14. ▪ Deductions. To account for incurred expenses that support a family member’s or individual’s ability to work, income deductions are allowed in determining net countable income. These deductions are subtracted from an applicant’s gross income (earned plus unearned income) to reach the net or countable income. Federal Medicaid rules allow states to deduct certain types of expenses from total income. States may deduct a portion of earned income to account for the fact that working people incur some costs to work, such as Social Security taxes 10. SSI (Supplemental Security Income) is a federal program that provides cash benefits for certain aged, blind, and disabled people. 18 Medi-Cal Policy Institute and transportation expenses. Working parents can deduct some or all (depend- ing on the state) of their child care costs. Families in which a parent pays child support or alimony to children or a former spouse living in a different house- hold can have these amounts deducted from their income. Self-employed people can deduct business expenses. States may allow many other deductions, such as the cost of health care premiums if the family is able to pay for some members to be covered by private insurance. Examples of income deductions in Medi-Cal include: child or dependent care, work expenses, court ordered child support, alimony, educational expenses, and health insurance premiums for other family members. Deductions vary significantly based on whether a person is applying for Medi-Cal for the first time or whether a person already enrolled in Medi-Cal is reporting a change in income between renewals or applying for redetermination. For example, Cali- fornia, like most states, allows applicants applying for Medi-Cal for the first time to deduct $90 for each working person to account for work-related ex- penses. (The $90 figure is based on the AFDC earned income disregard and does not vary with the amount of the applicant’s gross income.) However, if a Medi-Cal beneficiary reports a change or applies for renewed coverage, $240 plus 50 percent of the remaining earnings can be deducted. Income Deductions for the Healthy Families Program Align with Medi-Cal California’s separate child health insurance program, Healthy Families, covers children in families with higher incomes than those who qualify for Medicaid coverage. Healthy Families currently disregards income between 200 and 250 percent of FPL (as indicated in Table 2) and allows applicants to apply any Medi-Cal income deductions to this threshold. While Healthy Families has different income standards than the Medi-Cal 1931(b) and the children’s per- centage programs, applicants can fill out a single application that allows the eligibility worker to determine the appropriate program for the child. C. Income Documentation and Verification The federal “delinking” of cash benefits and other public programs allowed states to modify the process by which applicants document and eligibility workers verify application data for Medicaid.11 Current federal law requires states to: ▪ Obtain documentation of a qualified alien’s immigration status (only applies to non-citizens); 11. CMS Letter to State Medicaid Directors, “Outreach and Enrollment,” January 23, 1998; CMS Letter to State Medicaid Directors, “Application and Enrollment Simplification and Clarification of Eligibility Re- quirements,” September 10, 1998. Simplifying Medi-Cal Enrollment: Options for the Income Test 19 ▪ Obtain each applicant’s signature, under penalty of perjury, that the informa- tion reported on the application is correct; and ▪ Verify applicant income through an automated income and eligibility verifica- tion system (IEVS).12 Beyond that, states can determine how to verify an applicant’s income, resources, and other in- formation in any manner that adequately promotes the objective of ensuring that only those who meet the state’s specified Medicaid eligibility criteria are determined to be eligible. For ex- ample, a state can: ▪ Accept a statement by the applicant or recipient, signed under penalty of per- jury, that any or all of the following data self-reported by the applicant are cor- rect: income, citizenship status, assets/resources, date of birth, residency, social security number, and child care expenses (self-certification); ▪ Check third-party sources of information, such as Food Stamp and TANF records, wage and payment information, information from SSA through the SDX or BENDEX systems, or state child care or child support files; and/or ▪ Require applicants to provide documentation of any or all Medicaid eligibility information (e.g., pay stub, state or federal tax return). California Requirements California requires applicants to provide documentation of earned income (e.g., pay stub, state or federal tax return), checks third-party sources of information, and allows applicants to self- certify this income information as a last resort. The Medi-Cal program’s documentation requirements vary both by type of income or disregard, as well as by the type of program for which the applicant is being evaluated (e.g., Medically Needy, 1931[b] Only). In some cases, applicants may not have the documentation required by the state. In those cases, appli- cants may self-certify the value of their income or disregards as a last resort. California Medi- Cal regulations require counties to make an attempt to verify information before allowing self-certification.13 12. At the time of application, states check income and eligibility data through IEVS for every applicant. IEVS includes wage information contained in the state’s data files (e.g., state income tax records), information about net earnings and retirement income from the Social Security Administration, information about en- rollment in SSI and other programs, unearned income information from the IRS, unemployment compensa- tion from the state unemployment agency, and other reported income information from other public programs such as TANF and Food Stamps. 13. California Code of Regulations, Title 22, Section 50172. 20 Medi-Cal Policy Institute Earned and Unearned Income Documentation California, like most states, requires applicants to report all sources of income. This informa- tion is then used by eligibility workers when going through the complex process of determin- ing eligibility under any one of California’s 165 eligibility groups. To allow the eligibility worker to determine countable income, the Medi-Cal application asks for a description of earned and unearned income. Specifically, the application requests the name of the individual who receives income, the source of income, amount of income, and frequency of income. Applicants are required to provide documentation of earned and unearned income when ap- plying for Medi-Cal coverage under both 1931(b) and the percentage programs.14 Table 3 de- scribes some of the acceptable forms of documentation for several types of earned and unearned income. Earned and Unearned Income Verification In addition to receiving supporting documentation from applicants, eligibility workers must verify income.15 In most cases, eligibility workers use third-party resources, such as IEVS, to verify reported income information. Some examples of the data housed in California IEVS include: ▪ Social security benefits from the Social Security Administration; ▪ Quarterly wage data from the California Employment and Development Department; ▪ Income and property from the Internal Revenue Services (IRS) and the Cali- fornia Franchise Tax Board; and ▪ Wages, TANF, Food Stamps, and Medicaid eligibility from California, Ari- zona, Nevada, and Oregon. The data contained in IEVS vary in age from one month to more than a year old. In some cases, these data may be out of date with an applicant’s current financial situation. For ex- ample, income data provided by the IRS can be up to a year old, as they are based on the prior year’s filings. A recent loss in employment, for example, may not be reflected in the prior year’s 14. The Medi-Cal and joint Medi-Cal/Healthy Families applications have different instructions regarding certain types of income information. In the Medi-Cal application, applicants are asked to provide all income infor- mation. The joint application advises the applicant not to list income from SSI/SSP payments, foster care payments, college work study, CalWORKs payments, loans, and wages for a child under the age of 14. How- ever, for some categories of income, such as in-kind income, neither application provides specific instructions on the required documentation. 15. The federal government requires states to verify all sources of income using documentation or third-party sources that are included in their federally approved income standards and methodologies for counting in- come. States must request approval to use alternate sources of income information. Simplifying Medi-Cal Enrollment: Options for the Income Test 21 wages. While the counties are not required to check third-party sources to verify all types of in- come, CMS encourages random post-eligibility verifications to ensure program integrity.16 Income Exemptions and Deductions Documentation The kind of documentation required for income exemptions and deductions varies based on the type of disregard and, often, the source of the income or expense. Income exemptions tend to require less documentation on the part of applicants. Deductions tend to have more strin- gent documentation requirements. As noted earlier, county workers may allow self-certification as a last resort if the case file documents the eligibility worker’s unsuccessful attempts to verify the information. Even though exempt income is excluded from the net income calculation, applicants are asked to provide all income information to ensure that they do not leave out any countable income source. Because the rules for determining countable income are complex, the eligibility worker makes the final determination of countable versus exempt income. Medi-Cal applicants are specifically asked to provide the name of the person who pays and the amount paid for each of the following expenses: ▪ Court-ordered child support; ▪ Court-ordered alimony; ▪ Other health insurance premiums; and ▪ Medicare premiums. For child or dependent care, the applicant must provide the name and age of the child or de- pendent, along with the name of the person who makes the payments and the amount of the payments. Table 3 provides examples of various exemptions and deductions and the kind of documentation that is acceptable for each. 16. The Centers for Medicare and Medicaid Services. 2001. Continuing the Progress: Enrolling and Retaining Low- Income Families and Children in Health Care Coverage. 22 Medi-Cal Policy Institute Table 3. Documentation of Income and Disregards Earned and Unearned Income Item Type Acceptable Documentation Income, non-self-employed Earned • Most recent pay stub OR • Signed statement from employer indicating the gross monthly income and the dates received OR • Copy of prior year’s federal income tax return Income, self-employed* Earned • Prior year’s federal income tax return and Schedule C/F OR • Profit and loss statements for prior 3 months Disability or retirement Unearned • Copy of an award letter OR • Bank statement showing direct deposit of income Child support Unearned • Copies of checks received OR • Statement from the Family Support Division In-kind income Unearned • Signed statement from provider of services or housing Income Exemptions and Deductions Item Type Acceptable Documentation Exempt loans, grants, Exemption • Copies of award letters/loan papers scholarships and fellowships Child care or dependent care Deduction • Receipts for services rendered (up to $175 per month per child, OR $200 for children under age 2) • Cancelled checks Court-ordered child or spousal Deduction • Statement from the Family Support Division support Educational expenses Deduction • Receipts or payment statements OR • Cancelled checks Other health insurance Deduction • Receipts or payment statements premiums OR • Cancelled checks Medicare premiums Deduction • Payment statements OR • Cancelled checks Self-employment expenses Deduction • Records/receipts kept for tax purposes *Applicants for the 1931(b) Only eligibility group have the option of documenting receipts or taking a 40 percent deduction from the gross amount as a proxy for expenses. In either case, the net income (profit) from self-employment is reported as the applicant’s gross income for purposes of Medi- Cal eligibility determinations. Simplifying Medi-Cal Enrollment: Options for the Income Test 23 Deductions Reported by Families Applying for Medi-Cal Data on one full month of Medi-Cal cases active in 35 California counties were reviewed to determine the degree to which deductions data are reported by applicants and captured by el- igibility workers.17 The data show that modest proportions of Medi-Cal applicants are provid- ing deduction information in these counties, as shown in Table 4. Among the 1931(b) Only population, income deductions are occurring in only about 6 percent of the cases examined. Medical expense deductions were the most frequently occurring deduction, being included on approximately 3 percent of cases.18 Child care and self-employment expenses were each in- cluded on about 1.5 percent of the applications. All other types of income deductions oc- curred very rarely. Table 4 also indicates the average expense applicants reported in each deduction area, when a given type of deduction was claimed. Most kinds of deductible expenses tended to average $200 to $400 per month, although self-employment expenses averaged nearly $1,000 per month. Table 4. Medi-Cal Application Deductions, Selected Counties, July 2002* Number of 1931(b) Only Percent of 1931(b) Only Cases Reporting Cases Reporting Average Reported Deduction Type Deduction Deduction (n=57,446) Monthly Expense† Child Care Expense 840 1.46% $239 Self-Employment Expense 858 1.49% $970 Medical Expense 1,650 2.87% $370 Rental Expense 72 0.13% $318 Room and Board Expense 5 0.01% $250 Other Expense 11 0.02% $571 *Data were provided by the Interim Statewide Automated Welfare System (ISAWS). ISAWS is an automated Medi-Cal eligibility system used to process Medi-Cal eligibility applications in 35 of California’s most rural counties. †According to the data, these amounts represent the expense amount claimed by the applicant, and do not necessarily represent the amounts approved or documented by the eligibility worker or the amounts allowed for deduction from countable income. 17. The Lewin Group staff met with staff of the Interim Statewide Automated Welfare System (ISAWS), con- ducted a series of phone calls, and obtained a data file containing Medi-Cal caseload information, including income deductions, on all current cases in ISAWS (active, pended, or denied) during July 2002. Similar data were not available from the Los Angeles LEADER system. The ISAWS data were reviewed to ensure they tracked well with data available from other sources. While not specific to deductions, the ISAWS data were cross-checked with other counties on key indicators. For example, reason codes for applications denied were similar in their distribution to those of San Diego County. 18. Medical expenses cannot be deducted from gross income for purposes of determining net countable income for the 1931(b) group, but are used to determine eligibility for Medically Needy and Medically Indigent groups. Since applicants may not know which group they are potentially eligible for when they submit their applications, they may provide documentation that could help workers determine eligibility for all possible groups. 24 Medi-Cal Policy Institute Streamlining Verification Rules when Renewing Eligibility For purposes of redetermining eligibility after initial eligibility has been established, states must conduct an “ex parte” review under federal requirements. An ex parte review requires states to make all reasonable efforts to obtain relevant information from Medicaid files and other sources (e.g., Food Stamp and TANF records).19 Thus, states must rely on information that is available and considered to be accurate. For instance, information that the state or federal gov- ernment currently relies on to provide benefits under other programs, such as TANF, Food Stamps, or SSI, must be considered accurate. Another ex parte requirement is that states can not require individuals to provide information that is not relevant to their ongoing eligibility or that has already been provided with respect to an eligibility factor that is not subject to change, such as date of birth or United States citizenship. Many states have taken steps to ease the renewal process for those already receiving Medicaid and SCHIP coverage, thereby allowing more eligible parents and children to retain their cov- erage. California is among the 48 Medicaid and 34 SCHIP programs that do not require face- to-face interviews at the time of renewal. Other states have also simplified their renewal forms by requesting only information that may change and affect eligibility. The Florida, Georgia, and Utah SCHIP programs and the South Carolina Medicaid program have adopted “passive renewal” procedures, which require the family to return the renewal form only if circumstances have changed. If the family does not return the form, the state assumes that the information reported at the time of application is still correct and uses this information to determine eligi- bility for the next period. D. Program Integrity A common question among policymakers is whether simplifying the eligibility process would make it easier for applicants to unintentionally or intentionally misrepresent the value of their income and assets and obtain Medicaid coverage in error. While Medicaid beneficiary fraud is very minor 20 compared to provider fraud, federal rules require states to monitor program in- tegrity at the time of application and on an ongoing, retrospective basis (e.g., through IEVS). The eligibility determination process has multiple safeguards designed to identify and mitigate the potential for errors and fraud. These components occur at several places along the way, from the point of application through to retrospective audits, to provide a range of activities that together compose a system for ensuring program integrity. ▪ Data verification at application. To the extent possible, states check applicant- 19. CMS Letter to State Medicaid Directors, “Efforts to Improve Eligible Families’ Ability to Enroll in Medic- aid,” April 7, 2000. 20. Interviews with Medi-Cal program integrity staff indicated that in California 2.5 percent of audited cases have beneficiary errors, with one-fifth of these cases (0.5 percent of the total) seeming to represent fraudulent information. Simplifying Medi-Cal Enrollment: Options for the Income Test 25 reported information against other third-party sources of data, such as state employment and income tax databases. ▪ “Prudent person” standard. All states—even those that allow applicants to self-certify the accuracy of the information they report—require eligibility workers to request documentation of certain information if a “prudent person” would find the application information suspicious. ▪ Medicaid Eligibility Quality Control systems. The federal government requires all states to have Medicaid Eligibility Quality Control (MEQC) systems to monitor the accuracy of Medicaid eligibility determinations and redetermina- tions on a retrospective basis, and to maintain error rates below the 3 percent tolerance level allowed by federal law.21 CMS regulations specify mechanisms through which states must monitor the accuracy of eligibility determinations, but states can (and many do) apply for waivers to conduct MEQC pilots to test alternative mechanisms for monitoring accuracy.22 In a September 12, 2000, letter to state quality control directors, CMS provided guidelines for states to conduct MEQC pilots specifically focused on measuring the impact of eligibility simplification decisions on fraud and error rates. Kentucky undertook an MEQC pilot project to determine the validity of self-certification of income in its Medicaid expansion program, Kentucky Children’s Health Insurance Program (KCHIP). Investigators conducted 1,082 re- views, which included interviews with Medicaid recipients and their employers, as well as in- dependent eligibility verification. Of the 1,082 cases reviewed, 56 were found to have income above the income limits. The degree to which these errors were attributed to the use of self- certification by applicants was not reported. In the past few years, there has been renewed focus on eligibility errors from both CMS and the federal Office of Management and Budget (OMB), which has instructed states to measure the accuracy of eligibility determinations in all programs that receive federal funding, includ- ing Medicaid. In the future, states may be required to demonstrate more explicitly that eligi- bility simplification efforts have not increased the number of determination errors.23 21. Federal Code of Regulations, Title 42, Section 431.800 ff. 22. California’s MEQC pilot program focuses on alternative methods for sampling. It is an extension of a pilot project known as the Geographic Sampling Plan (GSP), which selected a geographically representative sam- ple of eligibility determination cases to be reviewed for accuracy. For large counties, the MEQC measures the county’s performance in correctly determining eligibility and also provides areas for “focused review.” In smaller counties, focused case reviews are performed on a smaller sample of cases by using the data in IEVS and the Medi-Cal Eligibility Data System (MEDS). 23. The Improper Payments Information Act of 2002, signed by President Bush on November 26, 2002, requires each federal agency to estimate the annual amount of improper payments and include that estimate in its annual budget submission. Payments include those made on behalf of “ineligible recipients.” In addition, Office of Management and Budget Circular A-11, Exhibit 57B, requires the Department of Health and Human Services to measure and report on the accuracy of state agency eligibility determinations and claims payments for Head Start, Medicare, Medicaid, TANF, Foster Care-Title IV-E, SCHIP, and the Child Care and Development Fund. 26 Medi-Cal Policy Institute III. Income Test Simplification Options California has several options for simplifying the income requirements and procedures associ- ated with the eligibility determination process. Three of these options are presented below, along with a discussion of the key considerations policymakers must take into account, such as the effects of these options on enrollment, administration, and program integrity. After the options are set forth, the last section provides cost estimates of the enrollment and administra- tive impact of self-certification of income, the option expected to provide the greatest poten- tial benefit to applicants and eligibility workers. A. Self-Certification of Income The Medi-Cal program has started to simplify the income reporting process by requiring ap- plicants to provide one pay stub to document income from employment. (Previously, Medi- Cal applicants had to provide pay stubs for two months’ worth of income.) Self-employed applicants can provide a copy of the previous year’s tax return or profit-and-loss statements for the previous three months. Self-certification of these income documentation requirements is currently allowed as a last resort. The state could further simplify this process by allowing applicants to self-certify their income at the time of application. Under this option, applicants would not need to provide any docu- mentation of their income (or, in the case of self-employed individuals, their business income and expenses) and would instead certify, under penalty of perjury, that the reported income information is correct. This approach would maintain the current income limits but reduce the collection burden on applicants and, to a lesser extent, eligibility workers. Specific impacts on enrollment, administration, and program integrity are discussed below. Simplifying Medi-Cal Enrollment: Options for the Income Test 27 Enrollment Impacts Self-certification of income would increase the number of applicants who successfully com- plete the eligibility determination process and improve retention. ▪ Reduce “failure to provide” denials. There is a concern that many people who may meet the income and asset limit requirements for Medi-Cal eligibility do not complete the enrollment process because of the burden and complexity of the documentation required; in fact, “failure to provide information” is one of the most frequently cited reasons for denial of Medi-Cal applications in some counties. Allowing self-certification of income would reduce the amount of in- formation that many beneficiaries would have to locate and provide, helping to ensure that individuals who are eligible and begin the enrollment process would be more likely to successfully complete the process.24 ▪ Improve retention. Reducing the documentation requirements by encourag- ing beneficiaries to self-certify their income would also help people and fami- lies who are currently eligible for Medi-Cal to retain their eligibility. Currently, Medi-Cal beneficiaries must recertify their eligibility on an annual basis and provide up-to-date information on family income and resources if there have been changes. A certain number of people lose eligibility each year for failure to provide this documentation. Modifying the documentation requirements for Medi-Cal redetermination could help more people stay on Medi-Cal, which would reduce administrative costs associated with people repeatedly gaining and losing eligibility. Administrative Effects For applicants, allowing self-certification of income would relieve them of the burden associ- ated with gathering up income documentation. For applicants who are employed, they would no longer need to provide one pay stub. For applicants who do not receive pay stubs from their employers, applicants would not have to obtain letters from employers stating their current income. For applicants who are self-employed, they would either need to attest to their prior year’s federal tax filing for business income or report their business profit for the previous three months of business activity. However, for applicants who do not have this information readily available, they would still need to provide the eligibility worker with the necessary information on business revenues and expenses so that the worker can develop the profit and loss statement. 24. Self-employed individuals would still have to go through the process of calculating net business income, which could be time-consuming if not done regularly for other reporting purposes. In addition, some appli- cants might choose to provide documentation of income even if it were not required, for fear of inaccurately reporting information under penalty of perjury. 28 Medi-Cal Policy Institute For eligibility workers, allowing self-certification of income would ease but not remove the burden associated with the income test. The major administrative impact is that eligibility workers would not need to follow up with applicants to collect income documentation in most cases. In addition, self-certification of income would improve retention (as discussed above), which would reduce administrative costs associated with people repeatedly gaining and losing eligibility. Allowing self-certification would not completely eliminate the need for workers to obtain in- come documentation from applicants. If self-certification is allowed, eligibility workers would still be required to request documentation if they believe that the self-certified information could be incorrect or fraudulent. According to California DHS, beneficiary fraud is not seen as a meaningful problem in the Medi-Cal program, and there are many third-party sources of data available through IEVS and other systems to verify applicants’ self-reported income.25 However, these third-party sources are limited by lags in reporting, so recent changes in in- come (e.g., loss of job) are often not validated by the external source. In cases like this, work- ers would be required to go back to the applicant for documentation to support the self-certified income if it were questionable. It is important to note that the administrative time saved for the eligibility worker under self- certification of income will likely be a very small proportion of the overall time spent on the intake and redetermination processes. Much of the eligibility worker’s time is devoted to veri- fying income information using third-party sources and performing income calculations— activities that would not be affected by allowing applicants to self-certify their income. The means by which applicants document or certify their income makes little difference to the eligibility worker for the purposes of determining countable income and identifying the most advantageous aid category for each family member. Program Integrity Implications Self-certification should not significantly impact overall program integrity because eligibility workers would still be required to verify self-reported income through IEVS and other third- party databases, and would be required to request documentation if the reported income was questionable. The state can also increase some monitoring activities to ensure that self-reported information is accurate and complete. For example, some states that allow self-certification have increased the frequency of data matching with state income records, while others audit a greater number of applications and monitor redetermination applications more closely for changes in reported income. The complexity of Medi-Cal eligibility rules may make it difficult for applicants to understand and comply with the rules when self-certifying the value of their income. Therefore, the 25. Interviews with Medi-Cal program integrity staff indicated that in California 2.5 percent of audited cases have beneficiary errors, with one-fifth of these cases (0.5 percent of the total) seeming to represent fraudulent information. Simplifying Medi-Cal Enrollment: Options for the Income Test 29 self-certification approach might require greater attention on the part of the state to ensure the applicants are not erroneously reporting income information. For example, an applicant may report that he/she is paid every other Friday, and self-certify his/her monthly income to be twice his/her biweekly pay. In fact, there is a formula specified in Medi-Cal regulations that eligibility workers must use to calculate monthly income (based on a 30-day month) using biweekly (14 days) pay. It is possible that someone could have income below the income stan- dard if 28 days of pay are counted, and be above the income standard (and therefore ineligible) if 30 days are counted. Thus, the state must design the application form carefully so that ap- plicants can self-report information in a manner that enables the worker to make the proper calculations even if the applicant misunderstands the rules. Other States’ Experiences with Self-Certification of Income Are Encouraging Self-certification of income is currently allowed in 13 states when applying for children’s Med- icaid or SCHIP.26 In 7 of these 13 states, parents can self-certify income when applying for coverage for themselves. ▪ Ohio is pilot-testing income self-certification in the Cleveland area. Families and children applying for Medicaid and SCHIP are allowed to self-certify their income for a 12-month continuous eligibility period. The self-certification is allowable for both initial applications and renewals during the pilot phase. The evaluation plans to measure the accuracy of self-reported income with third- party sources, in addition to other performance measures. The pilot project is designed to demonstrate the use of self-certification as a means of expanding enrollment without compromising program integrity.27 ▪ Wyoming Medicaid eliminated two aspects of the documentation process— the face-to-face interview (which California eliminated as well) and the re- quirement to document income—to better align its Medicaid and SCHIP programs to increase enrollment. As in California, Wyoming established its SCHIP program, KidCare, separately from its Medicaid program and used different eligibility procedures for each program. KidCare contains several de- sign features that eased the enrollment process, including the elimination of the face-to-face interview and allowing the self-certification of income. The state’s March 2001 enrollment data showed that take-up rates in its Medicaid program were significantly less than in their KidCare program. In fact, 86 per- cent of children eligible for KidCare were enrolled versus 44 percent of chil- 26. Ross, D. C., and L. Cox. June 2002. Enrolling Children and Families in Health Coverage: The Promise of Doing More. Kaiser Commission on Medicaid and the Uninsured. Arkansas, Connecticut, Florida, Georgia, Idaho, Maryland, Michigan, Mississippi, Oklahoma, Vermont, Washington, Wisconsin, and Wyoming allow self- certification of income when applying for children’s coverage in Medicaid. 27. Visit http://www.coveringkids.com/news/Section_67.asp. 30 Medi-Cal Policy Institute dren eligible for Medicaid. Officials ascribed the difference to the more burdensome enrollment procedures in the Medicaid program. As a result, Wyoming instituted its simplified KidCare application procedures in its Med- icaid program, streamlining the procedures for both programs. Through elimi- nation of the face-to-face interview and documentation requirements, and through implementation of outreach activities, the KidCare take-up rate moved from 86 percent to 97 percent, while the Medicaid take-up rate moved from 44 percent to 84 percent.28 Because Wyoming has such a small population, these large percentage increases in take-up rates translated to 315 more chil- dren in KidCare and 2,814 more children in Medicaid.29 States Are Testing New Approaches to Verify Income at Redetermination In Louisiana, for children whose Medicaid coverage must be redetermined, caseworkers per- form a search of other state databases to see if the child is receiving other state-administered benefits. If so, the application information from these other programs is used to determine whether Medicaid eligibility should be renewed. Families not qualifying for an automatic re- newal are sent a Medicaid renewal form, which Louisiana recently revised to be simpler and more user-friendly. If parents do not submit income verification documents with their renewal form, the state also tries to verify their income through the Department of Labor before ter- minating coverage. Maryland has coordinated its Medicaid, TANF, and Food Stamp databases. Medicaid redeter- mination is mandatory every six months in Maryland. However, for families that submit a change in circumstances to the TANF or Food Stamp programs, an automatic Medicaid rede- termination is performed by an electronic system that coordinates the data among the three programs. If data from the TANF or Food Stamp program confirm continued eligibility, par- ticipants receive an automatic renewal of Medicaid benefits for an additional six months. This coordinated approach eliminates the process of updating income information in several pro- grams at different times. B. Self-Certification of Income Deductions California could allow Medi-Cal applicants to self-certify the value of certain income deduc- tions at the time of application. Currently, applicants are allowed to self-certify certain income deductions as a last resort. Although many income disregards do not require documentation (e.g., the $90 deduction from earned income), some do (e.g., the child care deduction). See Table 3. 28. Ross et al., Enrolling Children and Families in Health Coverage: The Promise of Doing More, p. 28. 29. Visit http://coveringkids.state.wy.us/enrollment.htm. Simplifying Medi-Cal Enrollment: Options for the Income Test 31 The eligibility worker would use the self-certified deduction information to determine whether the applicant’s net countable income is above or below the income limit for the rele- vant eligibility group and family size. As with self-certification of income, this approach would maintain the current income limits but reduce the collection burden on applicants and, to a lesser extent, eligibility workers. An important difference between self-certification of income and self-certification of income deductions is that only a subset of applicants has deductions, although all applicants must demonstrate their income. Specific impacts on enrollment, ad- ministration, and program integrity are discussed below. Enrollment Impacts As described in the section on determining net countable income, deductions are used to help lower a family’s gross income to a level below the income standard for the eligibility group for the family to qualify for Medicaid.30 Allowing self-certification of income deductions would make it easier for applicants to report deductions and help those who may qualify for no-cost Medi-Cal to be found eligible. Self-certification of deductions would increase enrollment and improve retention for the same reasons discussed above regarding self-certification of income. However, this increase in enrollment would be smaller since it would only affect a sub- population of applicants. Administrative Effects For applicants, the benefits of self-certification of deductions may not apply in many cases. Medi-Cal eligibility data from the ISAWS counties show that few applicants provide infor- mation on income deductions. However, for some applicants (particularly those with earned income) these deductions can make the difference between being found eligible or not. Fur- ther, because the rules for determining net countable income vary among eligibility groups, applicants are asked to provide information on all potential deductions even if they are ulti- mately not used in the net income calculation.31 Allowing self-certification of deductions would not eliminate for some applicants the problem of having to report information that ultimately may not be used to determine eligibility. However, self-certification would reduce 30. The use of a net income methodology allows people with higher incomes to obtain Medi-Cal coverage if fam- ily circumstances show special needs that translate into income deductions, such as child care expenses, edu- cational expenses, support paid to children living in another household, etc. Like many states, California uses income deductions to expand coverage to individuals with the highest out-of-pocket costs associated with full-time employment (e.g., child care costs, work-related transportation costs). If applicants do not docu- ment income deductions, they may not qualify for no-cost Medi-Cal or may only qualify for programs that require premiums or cost-sharing (e.g., Healthy Families, Medically Needy program). 31. While income deductions are not always needed for applicants to meet the income standards, the Medi-Cal application asks all applicants to report and document deductions they qualify for, causing some applicants to track down and provide verifications of information that may ultimately not be used. In addition, eligibility workers are required to use all reported information to calculate net countable income, regardless of what gross income is reported. Therefore, if deductions are reported on an application, the information may be used in the calculation of net income whether or not the applicant’s gross income already meets the income standard. 32 Medi-Cal Policy Institute the documentation burden on all applicants with deductions, while still providing eligibility workers with sufficient information to determine the appropriate Medi-Cal eligibility group. For eligibility workers, allowing self-certification of deductions would ease but not remove the burden associated with counting income. The major administrative impact of allowing self- certification of deductions is that eligibility workers would not need to follow up with appli- cants to collect deductions documentation. In addition, self-certification of deductions could improve retention (similar to self-certification of income as discussed above), which would re- duce administrative costs associated with people repeatedly gaining and losing eligibility. Allowing self-certification would not completely eliminate the need for workers to obtain documentation from applicants. If self-certification of deductions were allowed, eligibility workers would be required to request documentation if they believed that the self-verified in- formation could be incorrect or fraudulent. According to California DHS, beneficiary fraud is not a significant problem in the Medi-Cal program.32 However, unlike in the income docu- mentation arena, deduction information is not generally available from third-party sources such as IEVS. It is important to note that the administrative time saved for the eligibility worker under self- certification of deductions will likely be an extremely small proportion of the overall time spent on the intake and redetermination processes, because so few applicants report deductions. Program Integrity Implications Allowing self-certification of income deductions has many similar implications for program integrity as allowing self-certification of income. One of the greatest similarities is that the rules regarding allowable deductions are also highly specific and complex, and applicants can easily violate these rules without realizing it when self-certifying. For example, court-ordered child support paid to children living in other households is a legit- imate deduction from gross income. However, child-support amounts that exceed court- ordered amounts are not deductible from gross income for purposes of determining Medi-Cal eligibility. The distinction might not be clear to some applicants without explanation by trained eligibility workers; this clarification might not be made if the applicant self-certified the deduction on a mail-in application. Thus, the state must design the application form care- fully so that applicants can self-report information in a manner that enables the worker to make the proper calculations. Because information on many types of deductions (e.g., child care) is not collected in central- ized databases the way income information is, it is more difficult for eligibility workers to rely on third-party sources to verify the accuracy of self-certified deduction information. If a 32. Interviews with Medi-Cal program integrity staff indicated that in California 2.5 percent of audited cases have beneficiary errors, with one-fifth of these cases (0.5 percent of the total) seeming to represent fraudulent information. Simplifying Medi-Cal Enrollment: Options for the Income Test 33 worker were to catch a potential error or questionable deduction, the applicant would have to provide documentation so the worker could check to make sure the deduction was accurately accounted for, lessening the time-saving advantages of allowing self-certification. C. Shift Income Calculation from Net to Gross Methodology California could change from a net income methodology to a gross income methodology to simplify the eligibility determination process for all applicants and enable workers to proc- ess most applications more quickly. With a gross income methodology, applicants would re- port their income and eligibility workers would compare the applicant’s gross income to the income standard for each potential eligibility group. Families would not have to report and document expenses, and eligibility workers would not have to develop income budgets to calculate net countable income. This change would be a significant departure from current Medi-Cal eligibility determination processes. It could also alter who is eligible for Medi-Cal, depending upon the income stan- dard used, because some currently eligible families have gross incomes above the current in- come standard but also have certain deductions, such as child care expenses, that lower their net countable income to an amount below the income standard. The state would have two options for implementing this change, as described below. Change Methodology for Counting Income and Increase the Income Standard California could adopt a gross income methodology and raise the income standard above the current 1931(b) Only standard of 100 percent of the federal poverty level. Enrollment Impacts If the state raised the income standard, it would be easier for families with deductions to apply for Medi-Cal because they would no longer have to report and document their deductions. It would also make additional people newly eligible. Based upon figures derived from SIPP sur- vey modeling, each $1,000 increase in the annual Medi-Cal income standard would increase the size of the population eligible for Medi-Cal by more than 100,000 people. Option 1. For example, the state could set the new income standard at a high enough level to ensure that higher-income people who would have previously qualified with deductions under the net countable income methodology would still qualify if the deductions were no longer counted. Such a trade-off could well entail creating tens of thousands of newly eligible people in return for limited administrative relief for workers due to elimination of deduction-related work for a small number of current program applicants. (As shown in Table 4, fewer than 6 percent of 1931[b] applicants currently report deductions.) 34 Medi-Cal Policy Institute Option 2. The state could also set the new income standard at an intermediate level between the current income standard and the higher standard (discussed above) that would be needed to ensure that all higher-income people who would have previously qualified with deductions under the net countable income methodology would still qualify. This would ensure that most people who would have obtained eligibility with deductions would still be eligible. Under this approach, some people would be made newly eligible for Medi-Cal, and some, who had pre- viously qualified due to a large number of deductions, would now be denied. This amounts to a change in who is eligible for Medi-Cal. While only a portion of those newly made eligible would likely enroll, there would still be a large net enrollment impact associated with either of these approaches. Administrative Effects For applicants, changing to a gross income methodology would simplify the eligibility deter- mination process because they would not have to report and document expenses in most cases, depending upon the income standard used. In the case of the higher income standard, very few applicants (if any) would go through the second-level determination process by using the alternate net methodology, which would require them to report and document deductions. Under the intermediate income standard, more applicants would be subject to the alternate net methodology. This alternative net methodology is a requirement of federal welfare reform maintenance of effort regulations, as discussed below. For eligibility workers, changing to a gross income methodology would save them the time re- quired to develop income budgets and calculate net countable income. This administrative impact would be maximized under the higher gross income standard described above. If the income standard were raised to an intermediate level, the state would achieve only a par- tial reduction in administrative costs because some deduction-related work would still be required. To comply with federal welfare reform maintenance of effort regulations, eligibility workers would have to apply an alternate net income methodology based on the TANF pro- gram (CalWORKs) to people who were not found eligible under gross income. This would require collecting information on income deductions from certain applicants and developing income budgets. Workers would also have to apply the CalWORKs income standard, which is approximately 61 percent of the 2002 federal poverty level—much lower than the 100 percent FPL income standard currently used for the 1931(b) group. Program Integrity Implications Use of a gross income methodology could improve the accuracy of eligibility determinations. Many eligibility errors occur during the calculation of net income. As these calculations would usually not have to be conducted with a gross income methodology, these errors would be eliminated. The only instance where calculation errors could occur would be in those few cases where the alternate net income evaluation would be required. Simplifying Medi-Cal Enrollment: Options for the Income Test 35 Change Methodology for Counting Income, but Maintain Income Standard California could adopt a gross income methodology and use the current Medi-Cal income standards (e.g., 100 percent of the federal poverty level for the 1931[b] group). Enrollment Impacts Some families with gross incomes above 100 percent of the FPL who are currently eligible for 1931(b) due to their deductions would lose eligibility for Medi-Cal. However, some people with gross incomes above 100 percent FPL would retain eligibility due to the alternate net income methodology (described above) required by the federal welfare reform maintenance of effort regulations. It is important to note that these applicants would need to have significant deductions to reduce their net countable income to below 61 percent of the 2002 FPL. There- fore, this option also amounts to a change in who is eligible for Medi-Cal by reducing the number of eligible applicants. Administrative Effects For applicants, changing to a gross income methodology would simplify the eligibility deter- mination process because families would not have to report and document expenses in some cases. However, if the current income standard were maintained, a number of applicants would be subject to the second-level determination process using the alternate net methodol- ogy, which would require them to report and document deductions under the federal welfare reform requirements. For eligibility workers, changing to a gross income methodology would save them the time required to develop income budgets and calculate net countable income. As noted above, the state must apply an alternate set of rules to people who are not found eligible under gross in- come. The requirement to apply an alternate set of rules required by the federal welfare reform maintenance of effort regulations for some people lessens the time-savings associated with moving to a gross income methodology. Program Integrity Implications Use of a gross income methodology could improve the accuracy of eligibility determinations to the extent that workers would no longer be required to calculate net income. Many eli- gibility errors occur during the calculation of net income. As these calculations would usu- ally not have to be conducted with a gross income methodology, these errors would be elim- inated. The only instance where calculation errors could occur would be in those cases where the alternate net income evaluation would be required under the federal welfare reform requirements. 36 Medi-Cal Policy Institute Few States Use the Gross Income Methodology Massachusetts, South Dakota, and the District of Columbia have chosen to use a gross income methodology.33 States have found that changing to a gross income methodology in conjunc- tion with raising the income standard is an effective way to expand coverage. Simplification of the eligibility determination process is a beneficial byproduct but not typically the primary motivation for the change. For example, the District of Columbia established a gross income methodology to determine eligibility for families with children under age 19 in order to ex- pand the Medicaid-eligible population in the District. To determine eligibility, income be- tween the District’s AFDC standard on July 16, 1996, and 200 percent of the FPL is disregarded. The District still allows deductions for child care expenses and other federally mandated disregards. Because the change expanded Medicaid to cover children who previ- ously would not have been eligible, the District receives enhanced SCHIP matching funds.34 D. Estimate of Potential Impacts of Self-Certification of Income Because self-certification of income would affect the most applicants and produce the greatest administrative savings while maintaining current eligibility levels, this option was selected for further study and modeling. Other options discussed would have less of a simplification im- pact. Specifically, fewer applicants would take advantage of self-certification of deductions than self-certification of income. Further, changing from a net to gross methodology involves a series of changes that would either affect the income standard or require eligibility workers to continue to implement an alternate net income methodology required by federal welfare re- form maintenance of effort regulations, which would diminish administrative time savings. Self-Certification of Income May Help People Who Are Eligible to Become Enrolled The potential enrollment impact of allowing applicants to self-certify their income at the time of application has been modeled using the same approach that was used to model the impact of self-certification of assets, and then using those estimates as a benchmark. The methodology used to derive these estimates is described in detail in the companion report, Simplifying Medi- Cal Enrollment: Technical Report on the Assets and Income Tests. Additional information regard- ing the potential effects of self-certification of income was gathered through interviews with other states and California DHS and county staff. As with assets, permitting 1931(b) Only applicants to self-certify income creates two potential sources of increased enrollment: those eligible but not enrolled, and those who certify they are eligible but are, in fact, not eligible. The second source of enrollment (new enrollment from ineligible people who fraudulently claim that their income is below Medi-Cal eligibility 33. State Policy Documentation Project, “Countable Income Test and Earnings Disregard Policies Used to De- termine Medicaid Eligibility of Families with Children,” February 16, 2000. 34. The Centers for Medicare and Medicaid Services. October 2001. Enrolling and Retaining Low-Income Fami- lies and Children in Health Care Coverage. Simplifying Medi-Cal Enrollment: Options for the Income Test 37 thresholds) was not believed to be meaningful. It is unlikely that self-certification would en- courage fraud, since many applicants are already allowed to self-certify their income as a last resort; the Income Eligibility Verification System (IEVS) will be used to check reported income even under self-certification; and people inclined to fraudulently obtain Medi-Cal already have means of doing so. However, DHS will likely invest in additional monitoring ac- tivities to assess the degree to which those who were self-certifying income might be misstating their family incomes. This additional monitoring may be required to demonstrate the accu- racy of eligibility determinations to the federal government.35 The greater source of potential additional enrollment would be the large population of eligible but not enrolled individuals who have not come forward to apply, or who apply but do not complete the enrollment process. Given that the key purpose of self-certification of income (and/or assets, for that matter) would be to lessen the barriers for this subgroup to come forward, it is anticipated that self-certification of income would spur people to both apply and complete the enrollment process when they do apply. On a percentage basis, however, a large- scale influx is not expected to occur. Enrollment Impacts Can Be Estimated Through Modeling In our assets test modeling, the best estimate assumed that only 0.75 percent of the 1931(b) Only eligible but currently uninsured population would enroll if self-certification of assets were allowed. In adjusting the assets self-certification figures to estimate the enrollment impact of self- certification of income, two factors were considered. First, far more people have income than have assets, so self-certification would ease the enrollment process for nearly all 1931(b) Only applicants. Among California’s uninsured 1931(b) Only eligible population (as identified in the SIPP modeling—see the companion piece Simplifying Medi-Cal Enrollment: Technical Re- port on the Assets and Income Tests), 92 percent of the families reported an annual income above $1,000, meaning almost all applicants must report and document income. However, only 23 percent reported monetary assets (savings accounts, checking accounts, retirement funds, stocks and bonds) of greater than $100. Thus, most applicants have no assets to document. Self-certification of income would lessen the application burden for four times as many people as would self-certification of assets. Secondly, California has already begun the process of simplifying the income documentation requirements so that for most applicants with employment income, income verification cur- 35. The Improper Payments Information Act of 2002, signed by President Bush on November 26, 2002, requires each federal agency to estimate the annual amount of improper payments and include that estimate in its annual budget submission. Payments include those made on behalf of “ineligible recipients.” In addition, Office of Management and Budget Circular A-11, Exhibit 57B, requires the Department of Health and Human Services to measure and report on the accuracy of state agency eligibility determinations and claims payments for Head Start, Medicare, Medicaid, TANF, Foster Care-Title IV-E, SCHIP, and the Child Care and Development Fund. 38 Medi-Cal Policy Institute rently requires one pay stub. Conversely, assets documentation can be much more difficult for applicants to obtain. Among those cases where people have income and assets to document, the applicants’ effort involved in documenting their income was conservatively estimated to be one-half that of documenting their assets. Given the level of effort for applicants, coupled with the larger number of affected individuals, self-certification of income was estimated to have twice the impact on enrollment when compared with assets. Table 5 presents each enrollment component, as well as the resulting estimates for self- certification of income. The best estimate is that 1.5 percent of uninsured, 1931(b) Only eligible (but unenrolled) people would apply for Medi-Cal and be found eligible if self-certification of income were permitted. All other modeling assumptions and steps were identical to those used in quantifying the enrollment and medical cost impacts of self-certification of assets (e.g., the composition of new enrollees between child/adult and managed care/fee-for-service, average costs per added enrollee), which are explained in the companion report, Simplifying Medi-Cal Enrollment: Technical Report on the Assets and Income Tests. Table 5. Take-Up Rates Used for Self-Certification of Income Best Estimate Enrollment take-up rate assumed for self-certification of assets* 0.75% Factor for size of population with meaningful income versus size 4.0 of population with monetary assets Factor for assumed level of effort involved for applicants in documenting 0.50 income versus assets Take-up rate for self-certification of income 1.50% *Take-up rates represent the percentage of uninsured 1931(b) Only eligibles who would obtain Medi-Cal coverage if self-certification were permitted. Thus, since income self-certification take-up rates are double those used for assets self- certification, the enrollment and medical cost impacts are also exactly doubled. Table 6 pre- sents these impacts. Table 6. Enrollment and Medical Cost Impacts of Self-Certification of Income* Best Estimate† Estimated Additional Enrollment Currently eligible but not enrolled 12,640 Newly eligible 0 Total Estimated Enrollment Increase 12,640 Annual Medical Costs Associated with New Enrollment State and federal share $15,516,437 ‡ State-only share $7,758,219 *Administrative savings are presented in Table 7. †Numbers may not total due to rounding. ‡In FFY 2003, California’s state share of both medical and administrative costs is approximately 50 percent. Simplifying Medi-Cal Enrollment: Options for the Income Test 39 Note that an alternative modeling approach was taken to either validate or refute the results of the above approach. This approach involved developing an enrollment estimate based on the data provided by the ISAWS system, which is used to process eligibility in 35 California coun- ties encompassing approximately 15 percent of the state’s 1931(b) Only enrollees. Statewide extrapolations from ISAWS data—as well as from data provided by San Diego County— indicate that approximately 1,060,000 people who have applied for Medi-Cal are denied coverage. While the reasons for these denials are often not well specified in existing data, 1.2 percent of denials—12,720 people—are for unverified earnings. It is assumed that many, if not all, of these 12,720 people would be covered if self-certification of income were permitted. Additionally, 31.8 percent of the ISAWS denials are for “refusal to comply” with require- ments.36 It is assumed that most of the ISAWS applicants, who are in fact eligible but dropped out of the process, are in this subgroup. Working with these data, and also estimating the degree to which the existence of self- certification of income might draw new applicants forward who would not otherwise apply for coverage, a second estimate was made that yielded a best estimate enrollment impact of ap- proximately 11,500 people, and an upper bound impact of approximately 21,000 people—an increase of less than 1 percent of total Medi-Cal enrollment. These figures are well matched with the enrollment estimates shown in Table 6. Thus, the second methodology served to vali- date the projections. Self-Certification of Income Would Save Time Self-certification of income would create eligibility worker time savings since the county eligi- bility worker would no longer need to collect pay stubs and/or documentation of self- employed income (see Table 3). This would be a very small time savings in the scheme of the county worker’s overall effort in processing an application. Under self-certification, eligibility workers would still need to conduct most of the income-related work that currently takes place: ▪ Entering income data into the eligibility system; ▪ Verifying income through IEVS and other third-party sources; ▪ Applying appropriate income deductions to calculate net countable income; and ▪ Creating/assessing budget sheets regarding which eligibility group the appli- cant may be able to access. It is estimated that the time savings per 1931(b) intake created by self-certification of income would be, on average, 2.5 percent. This assumption, applied to the same methodology used to 36. Other common reasons for denial in the ISAWS data include “withdrawal,” “cancellation,” and “other— reason not listed.” The ISAWS system does not have a reason code titled “failure to provide.” 40 Medi-Cal Policy Institute derive assets test administrative impacts, yields an annual savings of $4.2 million. As with all administrative dollar impacts, such savings are dependent upon DHS acting to reduce pay- ments to counties by this amount. Self-certification of income would also create some modest offsetting increases in administra- tive costs.37 It is estimated that approximately 3,000 new intakes would occur each year, at an annual cost of $420,000. The companion piece Simplifying Medi-Cal Enrollment: Technical Re- port on the Assets and Income Tests, provides details of the methodology for deriving adminis- trative cost savings. In addition, the policy change is projected to create 24,000 additional case-months of coverage, creating added case maintenance costs of $540,000. It is anticipated that DHS would monitor the self-certification program to assess whether an increase in fraud- ulent or inaccurate income reporting were occurring. Based on interviews with DHS staff, the annual cost of this monitoring effort is projected to be $250,000. In summary, the adminis- trative impacts would yield an annual savings of $3 million (state and federal shares), as shown in Table 7. Table 7. Projected Administrative Impacts of Self-Certification of Income* Administrative Area Annual Costs/(Savings)† Savings of reduced eligibility worker time per intake ($4,176,000) Increased costs of new intakes $421,342 Increased cost of case maintenance $536,456 Increased program monitoring $250,000 Total Annual Costs/(Savings)–State and Federal Shares ($2,968,202) Total Annual Costs/(Savings)–State-Only Share‡ ($1,484,101) *All figures reflect the best estimates. †Numbers may not total due to rounding. ‡In FFY 2003, California’s state share of both medical and administrative costs is approximately 50 percent. Summary of Cost and Enrollment Impacts As noted above, allowing self-certification of income at the time of application may help peo- ple who are eligible to become enrolled. Self-certification of income would create administra- tive time savings but would also create some modest offsetting increases in administrative costs. The net effects of these impacts are summarized in Table 8. 37. However, modifying the documentation requirements for Medi-Cal redetermination could help more people stay on Medi-Cal; this would reduce administrative costs associated with people repeatedly gaining and los- ing eligibility. Simplifying Medi-Cal Enrollment: Options for the Income Test 41 Table 8. Best Estimates of Potential Enrollment, Medical Cost, and Administrative Impacts of Allowing Self-Certification of Income for 1931(b) Only Families* Annual Costs/(Savings)† Estimated Additional Enrollment Currently eligible but not enrolled 12,640 Newly eligible 0 Total Estimated Enrollment Increase 12,640 Annual Medical Costs Associated with New Enrollment State and federal share $15,516,437 ‡ State-only share $7,758,219 Annual Net Administrative Savings State and federal share ($2,968,202) State-only share‡ ($1,484,101) Annual Net Costs/(Savings) State and federal share $12,548,235 ‡ State-only share $6,274,118 *All figures reflect the best estimates. †Numbers may not total due to rounding. ‡In FFY 2003, California’s state share of both medical and administrative costs is approximately 50 percent. 42 Medi-Cal Policy Institute IV. Conclusion The Medi-Cal enrollment process is inherently complex and poses challenges for both appli- cants and county eligibility workers. However, California has considerable flexibility in deter- mining how to apply the income test to the Medi-Cal eligibility determination process, and has opportunities to simplify the process in many ways. This report discussed three potential options for simplifying the Medi-Cal income test: 1. Allowing self-certification of income; 2. Allowing self-certification of income deductions; and 3. Changing the methodology used to count income. These changes to the income test would make it easier for eligible people to enroll in Medi-Cal and, once enrolled, retain their eligibility. These simplification measures would also create time savings for applicants and eligibility workers and reduce the amount of paperwork needed to process a Medi-Cal application. The findings presented in this report suggest that self-certification of income would have the greatest potential benefit to applicants and eligibil- ity workers. As California struggles with record state-budget shortfalls, simplification strategies that reduce the costs of program administration while improving Medi-Cal enrollment are im- portant to explore. Further, at a time when counties are facing their own budget shortfalls and eligibility workers are experiencing rising caseloads per worker, the administrative advantages of eligibility simplifications may be particularly important to consider. Simplifying Medi-Cal Enrollment: Options for the Income Test 43 476 Ninth Street Oakland, CA 94607 tel: 510/286-8976 fax: 510/238-1382 www.medi-cal.org A project of the CALIFORNIA HEALTHCARE FOUNDATION