Medicaid Program; Requirements for Enrollment in or Payment for Certain Employer Group Health Plans

Federal RegisterJun 20, 1994

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 435 and 436

[MB-47-P]

RIN 0938-AF64

Medicaid Program; Requirements for Enrollment in or Payment for

Certain Employer Group Health Plans

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would amend our regulations to require

States to provide, as a condition of Medicaid eligibility, for

mandatory enrollment of certain Medicaid eligibles in employer-based

group health plans determined cost-effective by States under guidelines

approved by HCFA, and require States to pay all premiums, and all

deductibles, coinsurance, and other cost-sharing obligations under

these group health plans for items and services otherwise covered under

the approved Medicaid State plans. In addition, the proposed rule would

provide for Medicaid payment of premiums for certain individuals who

are entitled to elect COBRA continuation coverage (see Public Law 99-

272 and section 601 of the Employee Retirement Income Security Act

(ERISA)) under a group health plan provided by an employer with 75 or

more employees.

This rule would conform our regulations to sections 4402 and 4713

of the Omnibus Budget Reconciliation Act of 1990.

DATES: Written comments will be considered if we receive them at the

appropriate address, as provided below, and must be received no later

than 5 p.m. on August 19, 1994.

ADDRESSES: Mail written comments (original and three copies) to the

following address: Health Care Financing Administration, Department of

Health and Human Services, Attention: MB-47-P, P.O. Box 7518,

Baltimore, Maryland 21207-0518.

If you prefer, you may deliver your written comments (original and

three copies) to one of the following addresses:

Room 309-G, Hubert H. Humphrey Building, 200 Independence Ave., SW.,

Washington, DC 20201, or

Room 132, East High Rise Building, 6325 Security Boulevard, Baltimore,

Maryland 21207.

Due to staffing and resource limitations, we cannot accept comments

by facsimile (FAX) transmission.

In commenting, please refer to file code MB-47-P. Written comments

received timely will be available for public inspection as they are

received, beginning approximately 3 weeks after publication of this

document, in Room 309-G of the Department's offices at 200 Independence

Ave., SW., Washington, DC on Monday through Friday of each week from

8:30 a.m. to 5 p.m. (phone: 202-690-7890).

If you wish to submit written comments on the information

collection requirements contained in this proposed rule, you may submit

written comments to: Laura Oliven, HCFA Desk Officer, Office of

Information and Regulatory Affairs, Room 3001, New Executive Office

Building, Washington, DC 20503.

FOR FURTHER INFORMATION CONTACT: Mark Ross, (410) 966-5855.

SUPPLEMENTARY INFORMATION:

I. Background

Medicaid is the Federally assisted State program authorized under

title XIX of the Social Security Act (the Act) to provide medical care

to persons of limited means. Among these persons are those individuals

who receive financial assistance under title IV-A (Aid to Families of

Dependent Children (AFDC)), and title XVI (Supplemental Security Income

(SSI)) and mandatory State supplements (SSP) and in the territories

title XVI (Old-Age Assistance (OAA), Aid to the Blind (AB), Aid to the

Permanently and Totally Disabled (APTD), Aid to the Aged, Blind or

Disabled (AABD)). Each State determines the scope of its program,

within limitations and guidelines established by the law and the

implementing regulations at 42 CFR part 430 et seq. Each State submits

a State plan that, when approved by HCFA, provides the basis for

granting Federal funds to cover part of the expenditures incurred by

the State for medical assistance and the administration of the program.

Section 1902(a) of the Act specifies the eligibility requirements

that individuals must meet in order to receive Medicaid. Other sections

of the Act describe the eligibility groups in detail and specify

limitations on what may be paid for as ``medical assistance.''

II. Legislative Changes and Discussion of Regulatory Provisions

A. Medicaid Payments for Medicaid Eligibles Under Group Health Plans

1. Statutory Provisions

Under section 1905(a) of the Act, States may pay health insurance

premiums on behalf of eligible recipients. In such cases, the insurer

is liable to pay for benefits covered under its plan but Medicaid

continues to pay for services covered under the Medicaid plan (but not

covered under the insurer's plan). In addition, State payment of a

health insurance premium must not have the effect of limiting a

recipient's rights under Medicaid (for example, freedom of choice among

providers). Section 4402(a)(2) of the Omnibus Budget Reconciliation Act

of 1990 (OBRA '90), Public Law 101-508, enacted on November 5, 1990,

added section 1906 to title XIX of the Act to require States to

provide, as a condition of Medicaid eligibility, for mandatory

enrollment of certain Medicaid eligibles in employer-based group health

plans determined to be cost-effective under guidelines established by

the Secretary. This provision applies to the 50 States and the District

of Columbia and includes any State providing Medicaid to its recipients

under an experimental, pilot, or demonstration project under the waiver

authority of section 1115 of the Act. A group health plan is defined

under section 1906(e)(1) as having the same meaning given the term in

section 5000(b)(1) of the Internal Revenue Code of 1986, and included

in the provision of COBRA continuation coverage by a plan under title

XXII of the Public Health Service Act, section 4980B of the Internal

Revenue Code of 1986, or title VI of the Employee Retirement Income

Security Act of 1974 (ERISA).

In addition to adding section 1906 to the Act, section 4402 of OBRA

'90 made the following conforming amendments:

Added a new section 1902(a)(25)(G) to specify that State

plans must meet the new requirements of section 1906 for enrollment of

individuals under group health plans (Section 4402(a)(1)).

Added a new section 1902(e)(11)(A) to allow States to

continue Medicaid payments of premiums, deductibles, coinsurance, and

other cost-sharing obligations on behalf of a Medicaid recipient

required to enroll in a group health plan for a State-defined period of

up to 6 months after the effective date of the recipient's enrollment,

even if the enrollee ceases to be eligible for Medicaid during that

period, but only for services covered under the group health plan.

Added a new subparagraph (XI) in the matter following

section 1902(a)(10)(F) to allow Medicaid coverage for the cost of

premiums, deductibles, coinsurances, and other cost-sharing obligations

for individuals in cost-effective group health plans without requiring

the availability of comparable services of the same amount, duration

and scope to any other individuals (Section 4402(d)(1)).

Revised section 1903(u)(1)(D)(iv) to specify that in

determining the amount of erroneous excess payments for purposes of

Federal financial participation (FFP), HCFA will not include any error

with respect to Medicaid payments made in violation of section 1906 of

the Act (Section 4402(b)).

Revised section 1905(a) by adding language to indicate

that ``medical assistance'' may include expenditures for Medicare cost-

sharing and premiums under Part B for individuals who are eligible for

medical assistance and are AFDC, SSI, OAA, AB, APTD, or AABD recipients

or SSP beneficiaries and are eligible for medical assistance made

available to individuals described in section 1902(a)(10)(A); and,

except in the case of individuals 65 years of age or older and disabled

individuals entitled to Medicare who are not enrolled under Medicare

Part B, other insurance premiums for medical or any other type of

remedial care or cost.

Revised section 1903(a)(1) to delete the reference to

Medicaid expenditures for Medicare cost-sharing and premiums under Part

B. This language was added to section 1905 of the Act in the definition

of medical assistance.

Section 4402 of OBRA '90 has also undermined the legal basis of

Pottgeiser v. Sullivan, 906 F.2d 1319 (9th Cir. 1990). In Pottgeiser,

the United States Court of Appeals for the Ninth Circuit affirmed a

lower court's ruling that the definition of ``medical assistance''

under section 1905(a) of the Act did not include the payment of medical

insurance premiums. We note that the Ninth Circuit issued its

Pottgeiser decision on June 25, 1990. However, section 4402 of OBRA '90

subsequently amended section 1905(a) of the Act to include the payment

of medical insurance premiums expressly within the definition of

``medical assistance.'' Therefore, we regard section 4402 of OBRA '90

as superseding legislation, which effectively nullifies any legal

effect of Pottgeiser.

2. Identification of Cost-Effective Plans

Section 1906(a)(1) requires States to implement guidelines that are

established by the Secretary to identify cases in which enrollment of a

Medicaid eligible individual in a group health plan (in which the

individual is otherwise eligible to be enrolled) is cost-effective. In

section 1906(e)(2) of the Act, the term ``cost-effective'' means the

cost of paying the premiums and cost-sharing obligations under a group

health plan is likely to be less than the cost of providing services

covered under the State plan.

To determine cost-effectiveness, we would require States to use the

cost-effectiveness methodology included in their approved State plan.

States are required to use either the methodology described in

Sec. 3910.11 of the State Medicaid Manual (HCFA Pub. 45-3), or an

alternative methodology that could be supported by documentation

furnished by a State. The State's alternative methodology, at a

minimum, must include factors accounting for the employee's premiums,

coinsurance, deductibles, and other cost-sharing obligations under the

group health plan. It must compare these factors to the State's average

Medicaid expenditures for an equivalent set of services for an

individual with similar characteristics.

To comply with the section 1906 requirement that the Secretary

establish cost-effectiveness guidelines, we are restating the

information contained in the State Medicaid Manual as an example of an

acceptable methodology that a State must include in its State plan.

Our guidelines consist of the following steps:

Step 1--Policy Information. The agency obtains information on all

group health plans available to the Medicaid recipient. The Medicaid

recipient is responsible for providing the State with all the necessary

plan information and reporting changes with respect to plan benefits.

This information must include the effective date of the policy, any

exclusions to enrollment, the services covered under the policy, the

employee's share of premiums paid to the health plan and other costs

that may be necessary for enrollment in the plan.

Step 2--Average Medicaid Costs. Using the Medicaid Management

Information System (MMIS), the agency obtains the average total annual

Medicaid costs of persons having characteristics similar to the

applicant (age, sex, categorical group and geographic data).

Step 3--Medicaid Costs for Included Services. The agency determines

the amount of the total yearly Medicaid expenditures for services

covered by the specific group health policy. Compute the percentage of

expenditures for group health plan services to expenditures for

Medicaid services. Then adjust the average total annual Medicaid costs

specified in step 2 by this percentage. This is the ``Medicaid average

covered expense amount.''

Step 4--Group Health Plan Costs for Included Services. The agency

adjusts the Medicaid average covered expense amount (amount calculated

in step 3) for the higher prices employer plans typically pay. The

agency may use a single State-specific factor derived from experience

with third party liability (TPL) claims or use group health plan

specific information. Alternatively, the agency may use a national

average factor which HCFA supplies and updates periodically. The

Medicaid covered expense is multiplied by this factor to produce an

estimated covered expense as recognized by the employer health plan.

This is the ``health plan cost.''

Step 5--Adjustment for Coinsurance and Deductible Amounts. The

health plan cost (amount from step 4) is multiplied by an average

employer health insurance payment rate to obtain the ``employer

recognized covered expense'' amount. The agency derives the average

employer health insurance payment rate from State specific tables, if

available, or group health plan specific information. Alternatively,

for State agency use, HCFA supplies and periodically updates national

tables. This health insurance average payment rate number will vary in

relation to the amount of the average employer recognized covered

expense.

Step 6--Administrative Costs. The agency accounts for any

additional Medicaid administrative costs incurred in processing the

group health information by determining the average increase in cost

per recipient. These costs may include all up-front administrative

costs associated with the implementation of this provision. These costs

must be amortized over a 5-year period.

Step 7--Cost-Effectiveness Calculation. Compare the costs under the

group health plan to those costs under Medicaid. This comparison is as

follows:

Group Health Plan

Subtract the employer recognized covered expense (step 5)

from the health plan cost (step 4) (the figure obtained is the proxy

for deductibles, coinsurance and limitations within group health

plans);

Add the employee's share of premiums paid (step 1); and

Add the additional administrative costs (step 6) (the

figure obtained is the total State costs under the group health plan).

Medicaid Expenditures

Subtract the total State costs, obtained above, from the

Medicaid average covered expense amount (step 3).

Cost-effectiveness is achieved if costs calculated under

the group health plan are lower than costs calculated for the same

services under Medicaid. (See example on determining cost-

effectiveness.)

Note: When non-Medicaid eligible family members are enrolled in

group health plans in order to enroll the Medicaid eligible family

member, do not include the deductible, coinsurance, and other cost-

sharing obligations for non-Medicaid eligible family members in

calculations.

To illustrate implementation of the cost-effectiveness guidelines,

we include the following example:

Example of Cost-Effectiveness Guidelines

Step 1--Policy Information. Obtain information on all group health

plans available to the Medicaid recipient. This information must

include the effective date of the policy, exclusions to enrollment, the

covered services under the policy and the employee's share of premiums

paid to the health plan.

Individual:

Ms. Smith, age 25, AFDC, county X.

Daughter, age 6, AFDC, county X.

Group Health plan:

Effective date 1/1/91.

No exclusions.

Six Covered Services--Hospital Inpatient, Hospital Outpatient,

Physician Services, Clinic, Laboratory and X-ray, and Prescription

Drugs.

Premiums: $840.00 yearly.

Step 2--Average Medicaid Costs. Using the Medicaid Management

Information System (MMIS), obtain the average total costs per person

per year for Medicaid services to persons having characteristics

similar to the applicant (age, sex, Medicaid eligibility category and

geographic data).

MMIS Data:

25 year old female, AFDC, county X...................... = $1,550.00

6 year old female, AFDC, county X....................... = 1,250.00

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Total Medicaid Expenses............................. $2,800.00

Step 3--Medicaid Costs for Included Services. Determine the amount

of the total yearly Medicaid expenditures for the services covered by

the specific group health plan.

Ten services offered under the State plan:

Inpatient Hospital

Clinic--

SNF and Home Health

Physician Service

Physical Therapy

Outpatient Hospital

Laboratory and X-ray

EPSDT

Family Planning Services

Prescription Drugs

Six services offered under the group health plan:

Inpatient Hospital

Clinic--

Physician Services

Outpatient Hospital

Laboratory and X-ray

Prescription Drugs

Here, the services covered by the group health plan are the most

frequently used services under both the group health plan and under the

Medicaid State plan. For purposes of this example, these six services

happen to comprise 82 percent of the Medicaid costs in the example

State. On an average annual basis, the costs to Medicaid of providing

the six services offered under the group health plan are:

Ms. Smith's expenses at 82%................................ $1,271.00

Daughter's expenses at 82%................................. 1,025.00

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Medicaid average covered expense amount.................... $2,296.00

Step 4--Group Health Plan Costs for Included Services. Adjust the

Medicaid average covered expense amount (amount from step 3) for the

higher prices employer plans typically pay. Use either a single State

specific factor derived from experience with TPL, group health plan

specific information, or a national factor supplied by HCFA. For the

purpose of this example, 1.3 was used as a factor. The Medicaid covered

expense is multiplied by this factor to produce an estimated covered

expense as recognized by the employer plan.

Medicaid average covered expense amount.................... $2,296.00

National average factor.................................... x 1.3

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The health plan cost....................................... $2,984.00

Step 5--Adjustment for Coinsurance and Deductible Amounts. The

health plan cost (amount from step 4) is multiplied by an average

employer health insurance payment rate to obtain the employer

recognized covered expense amount. Derive the average employer health

insurance payment rate from State specific tables, national tables, or

group health plan specific information. Assume the number is 75 percent

for the purpose of this example. This average payment rate number will

vary in relation to the amount of average employer recognized covered

expense.

Costs to health plan for services.......................... $2,984.80

Average employer payment rate (75%)........................ x .75

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Employer recognized amount................................. $2,238.60

Step 6--Administrative Costs. Account for any additional Medicaid

administrative costs incurred in processing the group health

information by determining the average increase in cost per recipient.

These costs may include all up-front administrative costs associated

with the implementation of this provision. These costs must be

amortized over a 5-year period.

Increased cost to process information...................... $50.00

Number of recipients....................................... x .2

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Additional administrative costs............................ $100.00

Step 7--Cost-Effectiveness Calculation. Compare the costs under the

group health plan to those costs under Medicaid.

Group health plan cost (step 4)............................ $2,984.80

Employer recognized covered expense (step 5)............... -2,238.60

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Proxy for deductible, coinsurance and limitations within

types of services covered under the group health plan..... $746.20

Employee's premiums (step 1)............................... 840.00

Additional admin. costs (step 6)........................... +100.00

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Total State costs...................................... $1,686.20

Cost-effectiveness is achieved if the State's additional

expenditures under the group health plan are likely to be lower than

the State's expenditures for services under Medicaid.

Medicaid average covered expense amount (step 3)........... $2,296.00

Total State costs.......................................... -1,686.20

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Savings from group health plan......................... $609.80

3. Condition of Eligibility

Under section 1906(a)(2) of the Act, an otherwise Medicaid eligible

individual who is also eligible to enroll in an employer-based group

health plan, which the State determines under the Secretary's

guidelines to be cost-effective, must enroll in the group health plan

as a condition of his or her continued eligibility for Medicaid. We

interpret this requirement to mean that if a Medicaid recipient is

currently enrolled in a non-employer-based health plan and is also

eligible to enroll in a cost- effective employer-based group health

plan, the recipient must enroll in the cost-effective group health plan

to maintain his or her Medicaid eligibility. However, continued

enrollment in the non-employer-based plan is not mandatory. This

requirement must be met at the time of determination of initial

eligibility or, for current Medicaid recipients, at the time of an

eligibility redetermination with certain exceptions as provided by the

statute. If more than one cost-effective group health plan is

identified by the State, the individual has the option of enrolling in

the cost-effective plan of his or her choice.

Note: If an individual meets the plan enrollment requirements

and the request is denied by the plan, he or she will have met the

conditions of this provision.

Under section 1906(b)(1) of the Act, the Secretary (and,

consequently, States) must take into account that an individual may

only be eligible to enroll in group health plans at limited times (open

season) and only if other individuals (not necessarily eligible for nor

entitled to medical assistance under the State plan) are also enrolled

in the group health plan simultaneously.

If the availability for enrollment in the group health plan and

eligibility to Medicaid benefits do not coincide, the State should have

a procedure in place for recontacting individuals prior to the next

enrollment period. The Medicaid recipient will be entitled to receive

Medicaid services pending that recipient's application to enroll in the

group health plan during the next open season.

Although enrollment in a cost-effective group health plan is a

condition of Medicaid eligibility, an individual's disenrollment from a

group health plan is permissible under these circumstances: (1) The

State reevaluates the cost-effectiveness of the group health plan

during the State's redetermination of the individual's eligibility, (2)

the group health plan is no longer available, for example, due to the

individual leaving employment or changing jobs, or (3) the individual

was enrolled through a spouse who is no longer willing to enroll the

individual.

Section 1906(a)(2) requires every individual entitled to receive

Medicaid to apply for enrollment in a cost- effective group health plan

as a condition of initial or continued eligibility for Medicaid.

However, under section 1906(b)(2), enrollment in the group health plan

is not a condition of initial or continued Medicaid eligibility for a

child if a parent fails to enroll that child. We also note that where a

Medicaid eligible spouse (for example, a wife) cannot apply for

enrollment in her husband's group health plan if her husband fails to

enroll her, she will not lose eligibility for Medicaid by virtue of his

failure to enroll her. This is because the section 1906(a)(2)

requirements do not apply to a Medicaid eligible spouse who does not

have the independent ability to apply for enrollment in a cost-

effective group health plan.

4. Services Covered

Under section 1906(c)(2) of the Act, an individual's enrollment in

a group health plan does not change the individual's eligibility for

benefits under the State plan. However, under section 1902(a)(25),

Medicaid is a payer of last resort with respect to services covered

under the group health plan. In other words, the group health plan's

payment is considered primary to any Medicaid payments. The State must

pay for services covered under the State plan which are not otherwise

included in the group health plan under the terms and conditions

applicable to all other Medicaid recipients. States must establish

their own procedures to pay for Medicaid services that are not included

under the group health plan.

We recognize that some providers that participate in group health

plans may not be Medicaid-participating providers. Of course, States

should always encourage all providers to participate in Medicaid.

However, in the interest of State flexibility, we are offering several

options that States may elect to resolve problems that may arise from

non-Medicaid-participating providers furnishing services to Medicaid

recipients.

First, States that deem providers to be Medicaid-participating

providers merely through the submission of a bill for services to the

State Medicaid agency (as is currently permitted for qualified Medicare

beneficiaries) may similarly do so for providers in cost-effective

group health plans. In lieu of this voluntary provider arrangement,

States could require that all providers in a cost-effective group

health plan bill States directly for residual charges on services

provided to Medicaid recipients. In other words, States may deem all

providers in cost-effective group health plans to be Medicaid-

participating providers by billing the State directly for any care or

services provided under the group health plan, which are otherwise

covered under the State Medicaid plan, but which are not fully paid by

the group health plan.

Alternatively, States may ascertain what percentage of providers in

a group health plan participate in Medicaid, and incorporate that

percentage into the determination of whether a group health plan is

cost-effective. If the State determines that fewer than a certain

percentage (specified by the State) of all providers in a group health

plan are not Medicaid-participating providers, the group health plan

would not be cost-effective.

If either of these options is not feasible for a State, we will

allow a State to reimburse recipients directly in the event a recipient

is billed directly for any care or services provided under the group

health plan, which are otherwise covered under the State Medicaid plan,

but which are not fully paid by the group health plan. We will allow

States to pay recipients directly where a State demonstrates that

failure to do so would render section 1906 of the Act a nullity. A

situation in which the provisions of section 1906 could not be

effectuated but for direct payment to recipients presents extraordinary

circumstances sufficient to justify direct payment to recipients. Under

any of these scenarios, a State would have to pay for all cost-sharing

obligations, even if such costs are above the State's usual Medicaid

rate for services provided to Medicaid recipients.

In addition, the State agency must pay for an eligible enrollee's

premiums for a group health plan determined cost- effective, and for

all deductibles, coinsurance, and other cost-sharing obligations under

the group health plan for items and services otherwise covered under

the State plan, under section 1906(a)(3). Further, when a non-Medicaid

eligible family member must first be enrolled in a group health plan in

order for the Medicaid eligible member to receive coverage, section

1906(c)(1)(B) provides that where it is determined to be cost-effective

(taking into account payment of all such additional premiums), Medicaid

payment is available for the premiums (but no other forms of cost-

sharing) of the non-Medicaid eligible member.

5. Payment Procedures

As noted above, the State must treat payment for services covered

under the group health plan as a third party liability under section

1902(a)(25) of the Act. Where Medicaid must participate in cost-sharing

for deductibles and coinsurance, the State is required to reimburse all

cost-sharing at the employer-based group health plan payment rate. The

State is not required to pay for the nominal cost-sharing amounts

otherwise permitted under section 1916 of the Act which are the

recipient's responsibility.

Section 1902(e)(11) of the Act provides States with the option to

continue payments to the group health plan on behalf of a Medicaid

recipient after the recipient ceases to be eligible for Medicaid for a

maximum period of 6 months from the effective date of the recipient's

required enrollment in the group health plan under section 1906(a). A

State electing this option must include this provision in its State

plan, and should specify the length of the applicable period.

6. Federal Financial Participation

Section 1906(c)(1) specifies that, for purposes of section 1903(a)

of the Act, FFP is available as ``medical assistance'' for all

premiums, deductibles, coinsurance and other cost-sharing obligations

under the group health plan for services covered under the State plan.

However, if the State imposes nominal cost sharing under section 1916

of the Act, payment of such amounts are the recipient's responsibility

and are not paid for under section 1906. Therefore, FFP is not

available for the nominal cost-sharing amounts otherwise permitted

under section 1916 of the Act.

If a non-Medicaid eligible family member must be enrolled in the

group health plan in order to obtain coverage for the Medicaid

eligible, FFP is available for premiums only (but not for any other

cost-sharing expenses) for the non-Medicaid eligible family member(s)

as payment for medical assistance for the eligible individual.

If a Medicaid recipient's group health plan offers a wider array of

services than those services covered under the State plan, no FFP is

available for the deductibles, coinsurance and other cost-sharing

obligations for non-covered services. For States that elect to cover

individuals during the optional period allowed under section

1902(e)(11), FFP would be restricted to the individual's premiums and

appropriate deductibles and coinsurance for services provided to the

individual under the group health plan, and would not be available for

payment for any other items and services covered by the State plan.

If a Medicaid recipient is currently enrolled in a non-employer-

based health plan and is also eligible to enroll in a cost-effective

group health plan, the recipient must enroll in the cost-effective

group health plan to maintain his or her Medicaid eligibility. If

enrollment in both health plans remains cost-effective, FFP is

available for the premiums of the non-employer-based plans specified in

section 1905(a) of the Act. However, continued enrollment in the non-

employer-based plan is not mandatory.

Note: Many cost-effective prepaid type group health plans (for

example, health maintenance organizations (HMOs)), impose strict

requirements on care and services that are reimbursed under the

plan. These requirements may include use of certain providers

exclusively and/or prior authorization for the need for care or

services. If an enrollee receives services which are not in

compliance with plan requirements, and the group health plan

consequently refuses reimbursement for services usually covered by

the plan, under section 1902(a)(17)(B) of the Act, FFP would not be

permitted for any service that is generally available to the

recipient without cost.

7. Determination and Redetermination of Eligibility

Our rules concerning determination and redetermination of

eligibility for the 50 States and the District of Columbia are found in

42 CFR part 435, subpart J. These rules are not affected by this

proposed rule.

8. Changes in the Regulations

We propose to amend part 435 (Eligibility in States, the District

of Columbia, the Northern Mariana Islands, and America Samoa) as

follows:

(a) Eligibility Requirements

We would revise Sec. 435.3, Basis, to add new bases for

part 435 resulting from amendments to title XIX of the Act by section

4402 of OBRA '90. Section 1902(e)(11) concerns the 6-month maximum

optional enrollment period in a cost-effective group health plan.

Section 1903(u)(1) concerns treatment of erroneous payments made in

violation of section 1906 of the Act. Section 1905(a) concerns

expenditures for Medicare cost-sharing and premiums under Part B.

Section 1906 concerns the requirement that Medicaid eligibles enroll in

group health plans determined to be cost-effective under guidelines

established by the Secretary.

Section 435.10, State plan requirements, would be revised

to specify that State plans must require that, as a condition of

eligibility, individuals must enroll in group health plans where the

State agency determines it is cost-effective to pay for that

individual's premiums, deductibles and other cost-sharing obligations,

using guidelines established by the Secretary. The plan also must

comply with the requirements in a new Sec. 435.186, Medicaid payment

for recipients enrolled in cost-effective group health plans. In that

new section, we would require that the State pay for all premiums, and

deductibles, coinsurance and other cost-sharing obligations (other than

nominal copayments permitted under section 1916 of the Act) for

Medicaid recipients for items and services covered under the State

plan. We would require the State to pay premiums only for a non-

Medicaid recipient when that person must enroll in a group health plan

in order for the Medicaid eligible individual to be enrolled, and only

when the State determines it to be cost-effective to do so. We would

require the State to treat the group health plan as a third party

resource in accordance with third party liability requirements

specified in Sec. 433.138, except that FFP would be available in

expenditures for services provided to recipients who were eligible in

the month in which services were provided as provided under

Sec. 435.1002.

A new Sec. 435.611, Limitation of payment for special

groups of individuals, would be added to specify the exceptions and

conditions of eligibility (of individuals otherwise eligible for

Medicaid), for enrollment and payment of premiums, deductibles,

coinsurance, and other cost-sharing obligations for items and service

in a group health plan.

(b) Federal Financial Participation

Section 435.1002 would be revised to provide for FFP in

expenditures for payment of premiums, deductibles, coinsurance, and

other cost-sharing obligations on behalf of a recipient enrolled in a

cost-effective group health plan, on behalf of individuals who are no

longer eligible but deemed eligible under the 6-month enrollment option

and for premiums for individuals who must be enrolled.

B. COBRA Continuation Coverage

1. Statutory Provisions

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA

'85), Public Law 99-272, requires an employer with 20 or more employees

that offers a group health plan to offer employees the opportunity to

elect continuation coverage under that plan after certain qualifying

events (explained more fully below), that ordinarily result in loss of

such coverage. This provision is popularly known as COBRA continuation

coverage.

Section 4713 of OBRA '90 amended title XIX of the Social Security

Act by adding a new section 1902(a)(10)(F) and a new section 1902(u) to

specify an additional group of individuals who may be eligible for a

limited Medicaid benefit payment of COBRA premiums for insurance

coverage. These provisions allow a State Medicaid agency the option to

pay the group health insurance premiums for certain individuals who are

entitled to elect COBRA continuation coverage. However, this provision,

unlike the 20-employee requirement in COBRA '85, only applies to group

health plans provided by employers with 75 or more employees.

The term ``qualifying event'' with respect to any covered employee,

is defined by section 601 of ERISA, as amended by section 4980B of the

Internal Revenue Code of 1986, to mean any of the following events

which, but for the continuation coverage, results in a loss of coverage

of a qualified beneficiary: death of the covered employee; termination

for reasons other than an employee's misconduct, or reduction of hours,

of the covered employee's employment; divorce or legal separation of

the covered employee from the employee's spouse; entitlement of the

employee under Medicare (title XVIII of the Act); cessation of a

dependent child to meet the applicable ``dependent child'' requirements

of the group health plan; or with respect to retirees, a filing by an

employer for protection under Title 11 of the United States Bankruptcy

Code of 1978, as amended, 11 U.S.C. Sec. 101 et seq.

Section 1902(a)(10)(F), as added by section 4713 of OBRA '90,

provides States with the option of making medical assistance available

for COBRA premiums, as defined in section 1902(u)(2), for qualified

COBRA continuation beneficiaries (CCBs), as defined in section

1902(u)(1) of the Act. Section 1902(u)(1) defines a CCB as an

individual who meets the following requirements:

He or she is entitled to elect COBRA continuation

coverage;

He or she has income that does not exceed 100 percent of

the official Federal poverty line applicable to a family of the size

involved;

He or she has resources which do not exceed twice the

maximum amount of resources that an individual may have to be eligible

for benefits under the Supplemental Security Income (SSI) program, as

determined under section 1613 of the Social Security Act; and

The State has determined that the likely savings in

Medicaid expenditures resulting from enrollment in COBRA continuation

coverage is expected to exceed the cost of the COBRA premiums.

With respect to the cost-effectiveness determination for CCBs,

States must determine that likely Medicaid expenditures on individuals

would be higher (if the individuals were not enrolled in the COBRA

plan) than the cost the State would pay in COBRA continuation premiums.

In other words, the State must determine that enrolling the individuals

in COBRA continuation coverage results in savings in likely Medicaid

expenditures that exceed the cost of paying the COBRA premiums. This

requires the State to make a reasonable decision that the individuals

(or family members that would be covered by the COBRA coverage) are

likely to become eligible for Medicaid during the COBRA continuation

period and that enrollment is expected to save money for the Medicaid

program. This decision would include an assessment of whether the

individuals would be likely to become Medicaid eligible.

In contemplating scenarios under which this cost-effectiveness

could be satisfied, we have identified a number of situations in which

individuals would appear ``likely'' ultimately to generate Medicaid

expenditures in the absence of COBRA continuation coverage, even if

they were not currently Medicaid eligible. This would be true, for

example, of a COBRA-eligible individual who is HIV positive, and

accordingly is determined ``likely'' to become Medicaid eligible based

upon disability, and to incur Medicaid costs that exceed the cost of

COBRA premiums. A COBRA eligible individual who is not eligible for

Medicaid may have Medicaid-eligible family members who would be covered

by a COBRA continuation plan if COBRA premiums were paid by the State.

In this case, savings in Medicaid expenditures would be likely to

result from the individual's enrollment even though he or she is not

Medicaid eligible, nor expected to become Medicaid eligible. Finally, a

COBRA-eligible individual may be eligible for Medicaid as ``medically

needy'' upon the satisfaction of some modest ``spend-down''

requirement. In such a case, it may well be reasonable for the State to

conclude that ``likely'' Medicaid expenditures would exceed the cost of

paying COBRA continuation premiums that would have the effect of

precluding the individual from incurring expenses sufficient to make

him or her Medicaid eligible.

Section 1902(u)(2) defines the term ``COBRA premiums'' as the

applicable premium imposed with respect to COBRA continuation coverage.

Section 1902(u)(3) defines COBRA continuation coverage as coverage

under a group health plan provided by an employer with 75 or more

employees provided under title XXII of the Public Health Service Act,

section 4980B of the Internal Revenue Code of 1986, or title VI of the

Employee Retirement Income Security Act of 1974.

Clause (XI) in the matter following section 1902(a)(10)(F), as

amended by section 4713(a)(1)(D) of OBRA '90, requires that medical

assistance available to an individual defined in section 1902(u)(1) who

is eligible for medical assistance only because of section

1902(a)(10)(F) be limited to medical assistance for COBRA continuation

premiums (as defined in section 1902(u)(2)).

Section 1905(a)(x), as added by section 4713(b) of OBRA '90 amends

the definition of medical assistance to include the new group of

individuals described in section 1902(u)(1) who may be eligible for

Medicaid through payment of premiums for COBRA continuation insurance

coverage.

Section 1902(u)(4) specifies that, for individuals who may qualify

for Medicaid payment for COBRA continuation coverage and who are

receiving an optional State supplementary payment, the State must apply

an income standard (as determined under section 1612 of the Act) of no

more than 100 percent of the Federal poverty level applicable to a

family of the size involved. In determining income, except for costs

described under section 1612(b)(4)(B)(ii) of the Act for certain

functionally disabled individuals, the State must exclude costs

incurred for medical care and for any other type of remedial care under

this provision.

Because individuals identified in section 1902(u)(4) are by

definition already eligible for Medicaid, we are unaware of the

relevance of this provision to individuals eligible under section

1902(a)(10)(F). Moreover, we are unaware of anything in the legislative

history of section 4713 which indicates what Congress intended to

accomplish by this provision.

2. Eligibility Conditions

In interpreting the provisions of section 1902(u)(1), we propose to

require that a CCB must also meet the existing general non-financial

requirements or conditions of eligibility for medical assistance

contained in our regulations in 42 CFR part 435. These general

requirements include, for example, the filing of an application for

Medicaid (Sec. 435.907), furnishing a social security number

(Sec. 435.910), providing citizenship and residency information

(Secs. 435.406 and 435.408), and assigning rights to third party

payments to the State Medicaid agency (Sec. 435.604). However, these

individuals do not have to meet the categorical requirements of either

the SSI or AFDC programs. An individual who is otherwise eligible for

Medicaid under the State plan may also be eligible as a CCB. An

individual who is eligible for Medicaid as a CCB as well as under some

other Medicaid eligibility group may choose, as specified in

Sec. 435.404, to have eligibility determined only under one category.

However, the individual is not required to make such a choice. The

individual is entitled to have eligibility determined under all

categories for which he or she may qualify.

If an individual does not specifically and voluntarily choose to

have his or her eligibility determined under a specific category, and

if he or she is eligible both as a CCB and under another group in the

State plan, the individual is designated as being eligible both as a

CCB and the other group for which he or she is eligible.

3. Determination of Financial Eligibility

In determining the income and resource eligibility for CCBs under

section 1902(u)(1)(B) and (C), we would require the State to use the

income and resources methodologies of the SSI program under sections

1612 and 1613 of the Act, respectively. By methodologies, we mean the

methods for determining the individual's countable income and

resources, that is, the amounts that may be considered to be available

to the individual.

4. Determination and Redetermination of Eligibility

The rules for timely determination of eligibility and periodic

redetermination of eligibility set forth in existing Secs. 435.911 and

435.916 would apply to determinations and redeterminations of CCB

eligibility. Specifically, Sec. 435.911 requires the State to establish

time standards for determining eligibility, and inform the applicant of

what they are. Section 435.916 requires the State agency to redetermine

Medicaid eligibility, with respect to circumstances that may change, at

least every 12 months or when it has knowledge of changes that may

affect eligibility, and requires States to have procedures for

recipients to report changes that may affect their eligibility.

Section 1902(f) States may use more restrictive eligibility

criteria than are used by the SSI program in determining eligibility

for CCBs.

5. Effective Date for Payment of Premiums as Medical Assistance

An individual's effective date for Medicaid payment of COBRA

premiums under sections 1902(a)(10)(F) and 1902(u) can be no earlier

than January 1, 1991, the effective date of section 4713 of OBRA '90.

The individual's effective date of eligibility date is based on the

date of application and the date on which all eligibility criteria,

including election of COBRA continuation coverage, are met. CCBs are

subject to the existing policy of up to 3 months retroactive

eligibility as specified in Sec. 435.914.

6. Federal Financial Participation

FFP is available for medical assistance for COBRA premiums to

individuals who are entitled to elect COBRA continuation coverage.

7. Changes in the Regulations

We propose to amend part 435 (Eligibility in States, the District

of Columbia, the Northern Mariana Islands, and American Samoa) and part

436 (Eligibility in Guam, Puerto Rico, and the Virgin Islands) as

follows: Eligibility Requirements.

Sections 435.10 and 436.10 would be revised and new Secs. 435.240

and 436.274 would be added to specify criteria for determining COBRA

continuation coverage.

Federal Financial Participation

Sections 435.1002 and 436.1002 would be revised to provide for FFP

in expenditures for medical assistance on behalf of CCBs for COBRA

premiums.

Conforming Changes

We would also make conforming changes to Secs. 435.2, 435.3,

435.400, 435.600, 436.2, 436.400 and 436.600.

III. Regulatory Impact Statement

We generally prepare a regulatory flexibility analysis that is

consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601

through 612), unless the Secretary certifies that a proposed regulation

would not have a significant economic impact on substantial number of

small entities. Individuals and States are not included in the

definition of small entity.

In addition, section 1102(b) of the Act requires the Secretary to

prepare a regulatory impact analysis for any final rule that may have a

significant impact on the operations of a substantial number of small

rural hospitals. Such analysis must conform to the provisions of

section 603 of the RFA. For purposes of section 1102(b) of the Act, we

define a small rural hospital as a hospital with fewer than 50 beds

located outside a Metropolitan Statistical area.

Although these regulations do not themselves have a significant

impact on the general economy, the statutory provisions on which they

are based are expected to have an impact. In particular, we have

determined that the part of the regulation dealing with section 4402 of

OBRA '90 has the following savings impact for the Medicaid program:

Federal and State Savings

[Dollars in Millions]

------------------------------------------------------------------------

FY 1994 FY 1995 FY 1996 FY 1997

------------------------------------------------------------------------

Federal..................... $130 $140 $150 $160

State....................... 100 105 110 115

-------------------------------------------

Total..................... 230 245 260 275

------------------------------------------------------------------------

We used the following methodology to estimate these savings. We

used data from the Current Population Survey (CPS) and the National

Medical Expenditure Survey (NMES) to estimate the fraction of Medicaid

recipients having access to employer-sponsored insurance (ESI) but not

currently enrolled in it: about 3 percent for children and \1/2\

percent for adults (including the disabled). We assumed that about 75

percent of these individuals would be subject to the group health

enrollment requirements. In addition, we assumed that ESI premiums

rates are based on utilization which is 80 to 90 percent of that of

Medicaid enrollees for adults and children and 30 to 40 percent of

these premiums on average. Employee cost-sharing was estimated at 20

percent, and the ratio of Medicaid to employer plan recognized charges

was assumed to be about two-thirds.

At present, we do not have the data to estimate the impact of

section 4713 of OBRA '90 regarding optional Medicaid payment of group

health plan premiums for COBRA continuation beneficiaries. Although

this legislation creates a new eligibility group, we do not believe a

significant number of individuals would become eligible. Further, this

provision is optional for the States. To the extent these individuals

become eligible for Medicaid, we believe this provision would reduce

expected future Medicaid costs through continued coverage by employer

group health plans in lieu of Medicaid coverage for a period of up to

29 months.

The Secretary certifies that this proposed rule will not have a

significant economic impact on a substantial number of small entities

and will not have a significant impact on the operation of a

substantial number of small rural hospitals. We have, therefore, not

prepared a regulatory flexibility analysis.

In accordance with the provisions of Executive Order 12866, this

regulation was reviewed by the Office of Management and Budget.

IV. Collection of Information Requirements

Sections 435.10 and 436.10 of these proposed rules contain

information collection requirements that are subject to review by the

Office of Management and Budget (OMB) under the authority of the

Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.). We estimate

that any State plan amendments required by these provisions will take a

total of not more than 50 hours total. A notice will be published in

the Federal Register when approval is obtained. Organizations and

individuals desiring to submit comments on the information collection

and recordkeeping should direct them to the OMB official whose name

appears in the ADDRESSES section of this preamble.

V. Response to Public Comments

Because of the large number of items of correspondence we normally

receive on a proposed rule, we are unable to acknowledge or respond to

them individually. However, we will consider all comments that we

receive by the date and time specified in the COMMENT PERIOD section of

this preamble to the final rule.

List of Subjects

42 CFR Part 435

Aid to families with dependent children, Grant programs--health,

Medicaid, Reporting and recordkeeping requirements, Supplemental

security income (SSI), Wages.

42 CFR Part 436

Aid to families with dependent children, Grant programs--health,

Guam, Medicaid, Puerto Rico, Supplemental Security Income (SSI), Virgin

Islands.

Note: We have reprinted in the following proposed regulations

text certain provisions included in a final rule with comment period

that was published in the Federal Register on January 19, 1993 (58

FR 4908). The January 19, 1993 rule made numerous changes to the

organization and numbering of the Medicaid regulations. Therefore,

we have reprinted the provisions in order to set forth appropriate

text for the provisions of this proposed rule. The effective dates

for the January 19 final rule have been delayed (58 FR 9120,

February 19, 1993; 58 FR 44457, August 23, 1993; and 59 FR 8138,

February 18, 1994). If at the time we issue the final rule for these

proposed regulations, the reprinted text has been revised or is not

in effect, we will make appropriate changes to ensure that the

existing CFR text is reflected.

42 CFR chapter IV, subchapter C would be amended as follows:

A. Part 435 is amended as set forth below:

PART 435--ELIGIBILITY IN THE STATES, DISTRICT OF COLUMBIA, THE

NORTHERN MARIANA ISLANDS, AND AMERICAN SAMOA

1. The authority citation for part 435 continues to read as

follows:

Authority: Sec. 1102 of the Social Security Act (42 U.S.C.

1302).

2. Section 435.2 is revised to read as follows:

Sec. 435.2 Purpose and applicability.

(a) Eligibility and coverage in general. This part sets forth, for

the 50 States, the District of Columbia, the Northern Mariana islands,

and American Samoa--

(1) The eligibility provisions that a State plan must contain;

(2) The mandatory and optional groups of individuals to whom

Medicaid is provided under a State plan;

(3) The eligibility requirements and procedures that the Medicaid

agency must use in determining and redetermining eligibility, and

requirements it may not use;

(4) The availability of FFP for providing Medicaid and for

administering the eligibility provisions of the plan; and

(5) Other requirements concerning eligibility determinations, such

as use of an institutionalized individual's income for the cost of

care.

(b)-(d) [Reserved]

(e) Payments on behalf of COBRA continuation beneficiaries. This

part also sets the requirements for determining COBRA continuation

beneficiary status, which at State option entitles individuals to have

Medicaid pay COBRA premiums for continuation coverage in a group health

plan. These payments are optional in the 50 States, the District of

Columbia, the Northern Mariana Islands, and American Samoa.

(f) Payments of premiums, coinsurance, deductibles, and other cost-

sharing obligations on behalf of recipients under group health plans

where it is cost-effective to do so. This part also sets forth the

requirement that the State determine as a condition of eligibility that

an individual must enroll in a group health plan, where the enrollment

is cost-effective. Enrollment in cost-effective plans is mandatory in

the 50 States and the District of Columbia.

3. Section 435.3 is amended by adding the following statements in

numerical order to read as follows:

Sec. 435.3 Basis.

* * * * *

1902(a)(10)(E) Makes medical assistance available for payment for

Medicare cost-sharing (as defined in section 1905(p)) for qualified

Medicare beneficiaries.

1902(a)(10)(F) At State option, pay COBRA premiums for individuals who

are entitled to elect COBRA continuation coverage under a group health

plan provided by an employer with 75 or more employees.

* * * * *

1902(e)(11) Optional continued Medicaid eligibility of up to 6 months

for certain group health plan enrollees.

* * * * *

1902(u)(1) Definitions of COBRA continuation beneficiaries.

* * * * *

1903(u)(1) Allows FFP to be available for erroneous payments made in

violation of section 1906 of the Act.

* * * * *

1905(a) Expenditures for Medicare cost-sharing and premiums under Part

* * * * *

1906 Mandatory enrollment of Medicaid eligibles in cost-effective

group health plans.

* * * * *

4. Section 435.10 is revised to read as follows:

Sec. 435.10 State plan requirements.

(a) General rule. A State plan must provide that the requirements

of this part are met, and include the specifications required by

paragraphs (b), (c), (d), and (e) of this section.

(b) Covered groups. The plan must specify the groups (as described

in subparts B, C, and D of this part) to whom the State provides

Medicaid, and the eligibility conditions for individuals in those

groups.

(c)-(D) [Reserved]

(e) Requirements for COBRA continuation coverage. A State may elect

to provide COBRA continuation coverage. If a State elects to do so, the

State must--

(1) Specify that the State must pay all premiums on behalf of

recipients enrolled in the group health plan as provided in

Sec. 435.240;

(2) Specify a methodology for determining the cost-effectiveness of

an individual's enrollment in a COBRA group health plan. This

methodology, at minimum, must account for the employee's COBRA

premiums. It also must compare these costs to the likely Medicaid

expenditures for the individual. The methodology must also include an

assessment explaining why the State would be likely to incur Medicaid

expenditures on behalf of the individual in the absence of enrollment

in COBRA continuation coverage.

(3) Treat the COBRA group health plan as a third party resource in

accordance with the third party liability requirements specified in

Sec. 433.138, except FFP is available as provided in Sec. 435.1002.

(4) Specify the basic requirements for payment of group health

insurance premium expenses on behalf of any individual specified in

Sec. 435.240.

(f) Requirements for Medicaid payments for recipients under group

health plans. In the case of the 50 States and the District of

Columbia, the agency must specify that it meets the requirements of

Sec. 435.186 of this part.

5. The title of subpart B is revised to read as follows:

Subpart B--Mandatory Coverage of the Categorically Needy and for

Special Groups

6. A new undesignated center heading and Sec. 435.186 are added at

the end of subpart B to read as follows:

Eligibility for Special Groups

Sec. 435.186 Medicaid payments for recipients under group health

plans.

(a) Scope and applicability. The provisions of this section are

mandatory in the 50 States and the District of Columbia.

(b) Basic requirements. The agency must--

(1) Identify cases in which enrollment of a Medicaid recipient in

an employer-based group health plan is cost-effective and require, as a

condition of eligibility, that individuals (or in the case of a child,

the child's parent) apply for enrollment in such plans, except as

provided in paragraph (c) of this section;

(2) Specify a methodology for determining the cost-effectiveness of

an individual's enrollment in a group health plan that is acceptable to

HCFA. The agency may--

(i) Use the methodology established by the Secretary; or

(ii) Use an alternative methodology, which, at a minimum, must

include factors accounting for the employee's premiums, coinsurance,

deductibles, and other cost-sharing obligations under the group health

plan. It also must compare these factors to the State's average

Medicaid expenditures for an equivalent set of services for an

individual in similar circumstances, and may include factors not

specified in this paragraph, for example, considering recipients'

diagnosis.

(3) Include in its Medicaid plan provisions for payment of all

enrollee premiums necessary for such enrollment, and all deductibles,

coinsurance, and other cost-sharing obligations for services under the

State plan for Medicaid recipients enrolled in an employer-based group

health plan that has been determined by the State to be cost effective;

(4) Provide for payment for premiums for non-Medicaid eligible

family members only if the cost-effective employer-based group health

plan requires enrollment of a non-Medicaid eligible family member as a

condition for a Medicaid eligible family member to enroll in the group

health plan;

(5) Treat the group health plan as a third party resource in

accordance with third party liability requirements as specified in

Sec. 435.138, except FFP is available as provided in Sec. 435.1002; and

(6) Specify that the Medicaid recipient will receive Medicaid

services pending the submission of the group health plan application

during the group health plan's next open season.

Medicaid eligibility, that a child enroll in a cost-effective employer-

based group health plan, when the parent of that child fails to enroll

the child in a group health plan in accordance with paragraph (b)(1) of

this section.

7. In Sec. 435.201, the introductory text of paragraph (a) is

republished, and paragraph (a)(7) is added to read as follows:

Sec. 435.201 Individuals included in optional groups.

(a) The agency may choose to cover as optional categorically needy

any group or groups of the following individuals who are not receiving

cash assistance and who meet the appropriate eligibility criteria for

groups specified in the separate sections of this subpart:

* * * * *

(7) Individuals described in section 1902(u)(1) of the Act who are

entitled to elect COBRA continuation coverage (as specified in

Sec. 435.240).

8. A new undesignated center heading and Sec. 435.240 are added at

the end of subpart C to read as follows:

Options for Coverage of Special Groups Who Have Limited Eligibility

Sec. 435.240 COBRA continuation beneficiaries.

(a) Scope and applicability. The provisions of this section are

optional in the 50 States, the District of Columbia, the Northern

Mariana Islands, and American Samoa.

(b) Basic requirements. The agency that elects this option must

include in its Medicaid State plan the payment of group health

insurance premiums on behalf of any individual who--

(1) Is entitled to elect COBRA continuation coverage as defined in

paragraph (c) of this section;

(2) Has resources, as determined in accordance with the SSI

methodology at section 1613 of the Act, that do not exceed twice the

maximum amount established for SSI eligibility for that individual;

(3) Has income, as determined in accordance with the SSI

methodology at section 1612 of the Act, that does not exceed 100

percent of the Federal poverty guidelines (as defined by the Office of

Management and Budget, and revised and published annually by the

Department of Health and Human Services) applicable to a family of the

size involved; and

(4) The State has determined that COBRA continuation coverage

premiums to be paid by the State with respect to enrolling an

individual are expected to be less than the likely Medicaid

expenditures on behalf of the individual in the absence of enrollment.

COBRA continuation coverage means coverage under a group health

plan provided by an employer with 75 or more employees under title XXII

of the Public Health Service Act, section 4980B of the Internal Revenue

Code of 1986, or title VI of the Employee Retirement Income Security

Act of 1974.

COBRA premiums means the applicable premium imposed with respect to

COBRA continuation coverage.

(d) Determination of COBRA continuation coverage--

(1) Except as provided in paragraph (d)(2) of this section, States

must use the SSI methodologies in sections 1612 and 1613 of the Act to

determine income and resource eligibility for COBRA continuation

benefits.

(2) States that have exercised their option under section 1902(f)

of the Act may use more restrictive income and resource standards,

methodologies, and criteria in determining eligibility for COBRA

continuation coverage.

(3) States may not apply more liberal income and resource

methodologies under section 1902(r)(2) of the Act to this group.

(e) Services available to COBRA continuation beneficiaries--(1) A

COBRA continuation beneficiary (CCB) who is not otherwise eligible for

Medicaid (that is, does not belong to any other eligibility group

covered under the State plan) is only eligible to have Medicaid pay

premiums specified under the COBRA plan on his or her behalf.

(2) A CCB who belongs to one of the other eligibility groups

covered under the Medicaid State plan may also be eligible for the full

range of Medicaid services provided under the State plan to members of

the other group to which the CCB belongs.

9. In Sec. 435.301, the introductory text of paragraph (b) and

(b)(2) are republished, paragraphs (b)(2)(vi) through (ix) are added

and reserved and paragraph (b)(2)(x) is added to read as follows:

Sec. 435.301 General rules.

* * * * *

(b) If the agency chooses this option, the following provisions

apply:

* * * * *

(2) The agency may provide Medicaid to any of the following groups

of individuals:

* * * * *

(vi)-(ix) [Reserved]

(x) Individuals described in section 1902(u)(1) of the Act who are

entitled to elect COBRA continuation coverage (Sec. 435.240).

10. Section 435.400 is revised to read as follows:

Sec. 435.400 Scope.

This subpart prescribes general requirements for determining

eligibility of categorically and medically needy individuals and of

special groups of individuals with limited eligibility specified in

subparts B, C, and D of this part.

11. In Sec. 435.600 the introductory text is republished and

paragraph (a) is revised to read as follows:

Sec. 435.600 Scope.

This subpart prescribes: (a) General financial requirements and

options for determining the eligibility of categorically and medically

needy individuals and of special groups of individuals specified in

subparts B, C, and D of this part. Subparts H and I prescribe

additional financial requirements.

* * * * *

12. A new Sec. 435.611 is added to read as follows:

Sec. 435.611 Limitation of payment for special groups of individuals.

(a)(1) Except as provided in paragraph (a)(2) of this section, a

State agency must require, as a condition of eligibility, that

individuals otherwise entitled to Medicaid (or in the case of a child,

the child's parent) apply for enrollment in a group health plan, where

such enrollment is determined to be cost-effective.

(2) The agency may not require, as a condition of Medicaid

eligibility, that a child enroll in a cost-effective employer-based

group health plan if the parent of that child fails to enroll the child

in a cost-effective group health plan in accordance with paragraph

(a)(1) of this section.

(b) A Medicaid recipient must--(1) As a condition of eligibility,

enroll in the group health plan described in paragraph (a)(1) of this

section to obtain or maintain his or her Medicaid eligibility; and

(2) Meet the general Medicaid eligibility requirements for State

residence, assignment of rights to third party payments, and furnishing

of his or her social security number, as set forth, respectively in

Secs. 435.403, 435.604, and 435.910.

13. Section 435.1002 is amended by adding and reserving paragraphs

Sec. 435.1002 FFP for services.

* * * * *

(c)-(d) [Reserved]

(e) FFP is available in expenditures for--

(1) Payment of COBRA premiums under group health plans, in

accordance with this part 435.

(2) Payment of premiums, deductibles, coinsurance, and other cost-

sharing obligations under group health plans on behalf of a recipient

in accordance with this part 435.

(3) Payment of premiums under group health plans on behalf of

individuals enrolled in a group health plan for a period defined by the

State of up to 6 months after enrollment (beginning on the date an

individual becomes Medicaid eligible in Sec. 435.186) even if the

enrollee ceases to be eligible for Medicaid during that period, but

only for services covered under the group health plan.

B. Part 436 is amended as set forth below:

PART 436--ELIGIBILITY IN GUAM, PUERTO RICO, AND THE VIRGIN ISLANDS

1. The authority citation for part 436 continues to read as

follows:

Authority: Sec. 1102 of the Social Security Act (42 U.S.C.

1302).

2. Section 436.2 is amended to add the following statements in

numerical order to read as follows:

Sec. 436.2 Basis.

* * * * *

1902(a)(10)(E) Makes medical assistance available for payment for

Medicare cost-sharing described in section 1905(p) for qualified

individuals.

1902(a)(10)(F) At State option, pay COBRA premiums for individuals who

are entitled to elect COBRA continuation coverage under a group health

plan provided by an employer with 75 or more employees.

* * * * *

1902(u)(1) Definition of COBRA continuation beneficiaries.

* * * * *

3. Section 436.10 is revised to read as follows:

Sec. 436.10 State plan requirements.

(a) General rule. A State plan must provide that the requirements

of this part are met, and include the specifications required by

paragraphs (b), (c), (d), and (e) of this section.

(b) Covered groups. The plan must specify the groups (as described

in subparts B, C, and D of this part) to whom the State provides

Medicaid, and the eligibility conditions for individuals in those

groups.

(c)-(d) [Reserved]

(e) Payments on behalf of COBRA continuation beneficiaries. A State

may elect to provide COBRA continuation coverage. If a State elects to

do so, the plan must--

(1) Specify that the State may pay all premiums on behalf of

recipients enrolled in the group health plan as provided in

Sec. 436.274;

(2) Specify a methodology for determining the cost-effectiveness of

an individual's enrollment in a COBRA group health plan. This

methodology, at minimum, must account for the employee's COBRA

premiums. It also must compare these costs to the likely Medicaid

expenditures for the individual. This methodology must also include an

assessment explaining why the State would be likely to incur Medicaid

expenditures on behalf of the individual in the absence of enrollment

in COBRA continuation coverage.

(3) Treat the COBRA group health plan as a third party resource in

accordance with the third party liability requirements specified in

Sec. 433.138, except FFP is available as provided in Sec. 436.1002.

(4) Specify the basic requirements for payment of group health

insurance premium expenses on behalf of any individual specified in

Sec. 436.274.

4. The title of subpart C is revised to read as follows:

Subpart C--Options for Coverage as Categorically Needy and for

Special Groups

5. A new undesignated center heading and Sec. 436.274 are added at

the end of subpart C to read as follows:

Limited Eligibility for Special Groups

Sec. 436.274 COBRA continuation beneficiaries.

(a) Scope and applicability. The provisions of this section are

optional in Guam, Puerto Rico, and the Virgin Islands.

(b) Basic requirements. The agency that elects this option must

include in its Medicaid State plan the payment of group health

insurance premiums on behalf of any individual who--

(1) Is entitled to elect COBRA continuation coverage as defined in

paragraph (c) of this section;

(2) Has resources, as determined in accordance with the SSI

methodology at section 1613 of the Act, that do not exceed twice the

maximum amount established for SSI eligibility for that individual;

(3) Has income, as determined in accordance with the SSI

methodology at section 1612 of the Act, that does not exceed 100

percent of Federal poverty guidelines (as defined by the Office of

Management and Budget, and revised and published annually by the

Department of Health and Human Services) applicable to a family of the

size involved; and

(4) The State has determined that the COBRA continuation coverage

premiums to be paid by the State with respect to enrolling an

individual are expected to be less than the likely Medicaid

expenditures on behalf of the individual in the absence of enrollment.

COBRA continuation coverage means coverage under a group health

plan provided by an employer with 75 or more employees under title XXII

of the Public Health Service Act, section 4980B of the Internal Revenue

Code of 1986, or title VI of the Employee Retirement Income Security

Act of 1974.

COBRA premiums means the applicable premium imposed with respect to

COBRA continuation coverage.

(d) Determination of COBRA continuation coverage--(1) States must

use the SSI methodologies at sections 1612 and 1613 of the Act to

determine income and resource eligibility for COBRA continuation

benefits.

(2) States may not apply more liberal income and resource