Congress Lifts the Sunset on the "$500 Million Fund" -- revised 12/1/99

Congress Lifts the Sunset on the "$500 Million Fund"
Extends Opportunities for States to Ensure Parents and Children
Do Not Lose Health Coverage
by Donna Cohen Ross and Jocelyn Guyer

The 1996 federal welfare law allocated funds to help states pay for the costs associated with ensuring that children and parents do not lose Medicaid coverage as a result of changes brought about by the new law. A total of $500 million in federal matching funds was made available to states at enhanced rates to implement the delinking of welfare and Medicaid eligibility for families with children.⁽¹⁾ The law provided that states could use these new federal funds to help cover allowable costs incurred during the first full 12 quarters their TANF programs were in effect; in addition, the fund was scheduled to sunset on October 1, 2000. Accordingly, states that did not use their share of the fund within this period would lose access to the unspent portion of their allocations.

As of June 30, 1999, $49.7 million out of $500 million had been spent. With a large portion of the fund still remaining, 16 states lost access to the fund on September 30, 1999 and others were rapidly running out of time to use their allocations. To assure states continued access to the fund, Congress recently lifted the requirement that states use their share of the fund during the first full 12 quarters their TANF programs are in effect and lifted the October 1, 2000 sunset on the fund. This restores access to the states that had lost it, and allows states to draw from the fund until the money is fully expended.

The elimination of the time limits on states access to the "$500 million fund" gives states a new chance to take advantage of a key resource available to reverse the decline in Medicaid enrollment among eligible children and their parents. The latest data available from the Census Bureau show that the United States has made little progress in recent years in reducing the number of low-income children without health insurance coverage, despite strong economic growth, the lowest unemployment rate in a quarter of a century, and continued expansions in children's eligibility for publicly-funded coverage. This lack of progress cannot be attributed to shortcomings in the new Children's Health Insurance Program, which was just getting started in 1998, the year covered by the new census data. Instead the lack of progress appears to result largely as a result of a decline in the number of poor children who are enrolled in Medicaid. Between 1996 and 1998, the number of children with incomes below the poverty line on Medicaid declined by 1.3 million, from 9.2 million in 1996 to 7.9 million in 1998 and the uninsured rate among poor children climbed to 26.5 percent, from 24.1 percent in 1997. These data are consistent with other studies and reports showing that welfare changes have inadvertently — and inappropriately — caused families eligible for Medicaid to lose out on coverage.

Each state is allocated a share of the $500 million fund, which it can use to help cover the cost of activities aimed at preventing families from losing health coverage as a result of the delinking of welfare and Medicaid eligibility. Such activities may include redesigning application forms, updating computer systems, conducting public education campaigns and outreach. States can receive federal reimbursement for 75 percent to 90 percent of the cost of such activities. Since these costs are otherwise reimbursed at a 50 percent matching rate, the $500 million fund makes it more attractive for states to engage in such activities.

This paper explains how the $500 million fund can be used, providing specific examples from several states. It also includes state-specific information on how much money remains in each state's allocation and the total amount of federal funds available, presuming states use their entire allocations.

One reason states have been slow to draw down their share of the $500 million fund is that there has been considerable confusion about whether activities financed with these funds had to be limited to individuals directly affected by the delinking of TANF and Medicaid. Since well-executed public education and outreach activities are likely to reach a broader population of families with children eligible for health coverage, state officials have been concerned that claims may be disallowed if the activities lead to enrolling children beyond those directly affected by delinking. While the cost of these activities could be reimbursed at the basic 50 percent Medicaid matching rate (the rate paid to all states for Medicaid administrative costs), a larger investment of non-federal funds would be required. Consequently, some states have steered away from using the critical resources available to them for the intensive outreach efforts needed to reduce the number of uninsured children.

To allay states' concerns, and to encourage them to use these dollars to help improve Medicaid and CHIP enrollment, HCFA guidance issued on March 22, 1999 advised states that efforts aimed at identifying and enrolling individuals eligible for Medicaid under "Section 1931" — the provision of the 1996 federal welfare that delinked TANF and Medicaid eligibility — qualify for reimbursement at enhanced rates even if they result in individuals who are eligible on other grounds getting enrolled in health coverage. The guidance stated, " ... It is neither administratively efficient nor practical, with respect to claims for Section 1931 outreach activities, to distinguish between activities resulting in eligibility determination under Section 1931 and activities related to Medicaid eligibility under other statutory authorities. Therefore, so long as the outreach activities are designed principally to address the eligibility determinations related to Section 1931, states may claim the costs of such activities at the enhanced Federal matching rate." ⁽²⁾ Despite this recent HCFA guidance, there remains some ambiguity about the allowable uses of the $500 million fund. Nevertheless, as the examples below illustrate, a number of states that have been using the fund have found that it can plan an important role in helping low-income families with children enroll in health coverage programs.

Following are some specific examples of how several states have used their share of the fund.

Colorado. Colorado has used money from the $500 million fund to provide training to county eligibility technicians on the Section 1931 eligibility category and to help cover the costs of making eligibility determinations under this category. Colorado also has used money from the fund to help catalyze local outreach activities. Last March, the state invited each county to submit a plan describing how it would undertake outreach and enrollment efforts. Plans from 30 counties subsequently received funds for an array of activities, including the establishment of 25 new outstation sites at federally qualified health centers, hospitals, and some community-based sites, such as schools. In addition, the counties have used money from the fund to develop informational brochures and produce public service announcements, to conduct outreach and enrollment activities at special community events, and to train providers, staff of community-based organizations, and school personnel to assure that families know they can get Medicaid even if they are working and do not receive cash assistance. Several counties also have hired staff to serve as a liaison between the county's TANF unit and Medicaid to promote better communication between the two programs and to be sure that eligibility is properly determined for families who are seeking cash assistance or who are leaving TANF.

Indiana. The Indiana Division of Family and Children has used a portion of its share of the $500 million fund to provide grants to local social services offices to finance outreach campaigns to identify children and parents eligible for Medicaid and to help them enroll. The campaigns designed by the social services offices are conducted in conjunction with community groups. The state also has used the funds to provide grants directly to community groups that represent African-American and Hispanic families to enable them to do targeted outreach in their communities. Finally, the state has also used some of its funds to help pay for a broad-based media campaign, including billboards and print advertising, to encourage families to sign up for health insurance coverage.

Ohio. The Ohio Department of Human Services invited each of its 88 counties to submit plans describing how money from the $500 million fund could be used locally to encourage enrollment of eligible children in Medicaid. Across the state, 72 counties have taken advantage of the available funding and have implemented outreach plans. Their efforts include neighborhood canvassing to ensure families know that they can retain health coverage when they leave Ohio Works First (the state's TANF program), helping families apply for Medicaid through telephone helplines, and providing application assistance in community-based settings such as child care programs and on mobile health vans.

Pennsylvania. The Pennsylvania Department of Public Welfare is currently producing written materials (brochures, posters, etc.) to market coverage programs and developing a common Medicaid/CHIP application. In addition, Pennsylvania has recontacted and reinstated some 32,000 TANF families whose cases were recently closed, to ensure that all individuals who may have been eligible for additional Medicaid coverage receive that coverage. A television ad has been developed to let people know that eligibility for health insurance does not depend on eligibility for cash assistance and resources are being devoted to assuring the spot gets wide exposure. To ensure that individuals who leave TANF retain their health coverage, Pennsylvania also is using money from the fund to update its computer system to reflect the delinking provisions. The state plans to use a portion of its allocation to provide enrollment assistance in federally qualified health centers, increase helpline services and provide specialized training for welfare staff to ensure they are helping families understand health coverage is available to those not receiving cash assistance.

Washington. In 1998, Washington's Medical Assistance Administration invited applications for county-based Medicaid outreach projects supported by the state's share of the $500 million fund. Currently, 32 of Washington's 39 counties participate in the Client Outreach Project. Public entities such as health departments, county governments and tribal authorities use the funding to identify families potentially eligible for Medicaid, provide application assistance to such families and enroll families in Healthy Options, the state's Medicaid managed care program. County organizations also are using the money to coordinate their efforts with child care agencies, WIC sites, schools and others.

Wisconsin. The Wisconsin Department of Health and Family Services has used a portion of its share of the $500 million fund to provide training on Medicaid eligibility to public health agencies, tribal agencies, and community-based organizations, and to develop demonstration projects in eight counties. Through the demonstration projects, county workers are able to take full Medicaid applications at a wide range of community sites, including health clinics, food pantries, schools, hospitals and others. The state also has used money from its share of the $500 million fund to add capacity to the state's customer assistance telephone line and to finance a public information campaign.

In addition, many other states are adopting important system changes to be sure that families moving in and out of the welfare system do not lose out on Medicaid coverage. States are discovering the need for new computer systems, notices to families, and staff training so that families not receiving welfare, including families leaving welfare for employment, are properly evaluated. The $500 million fund is a crucial resource for carrying out these activities.

The examples above highlight that states' efforts to implement delinking can encompass a broad range of outreach and enrollment activities. Procedures to prevent welfare changes from causing parents and children to lose health coverage inappropriately, and intensive outreach activities, are needed to reverse declines in states' Medicaid caseloads. Taking aggressive steps to correct this disturbing trend is integral to overall efforts to reduce the number of uninsured children.

**Table 1:**
How Much Does Your State Have Left of its Share of the "$500 Million Fund"?* (Based on data available as of 6/30/99)
STATE	Original State Allocation	How much has your state already spent?	% of State Allocation Spent	How much does your state have left of the $500 million funds?
ALABAMA	$6,504,897	$0	0%	$6,504,897
ALASKA	$3,039,335	$216,006	7%	$2,823,329
ARIZONA	$7,961,603	$113,483	1%	$7,848,120
ARKANSAS	$5,095,513	$1,287,359	25%	$3,808,154
CALIFORNIA	$83,719,458	$5,602,814	7%	$78,116,644
COLORADO	$5,166,316	$0	0%	$5,166,316
CONNECTICUT	$5,756,737	$0	0%	$5,756,737
DELAWARE	$2,801,757	$233	0%	$2,801,524
DC	$3,259,072	$0	0%	$3,259,072
FLORIDA	$22,262,239	$1,903,058	9%	$20,359,181
GEORGIA	$11,591,549	$0	0%	$11,591,549
HAWAII	$3,435,742	$0	0%	$3,435,742
IDAHO	$3,288,535	$586,898	18%	$2,701,637
ILLINOIS	$19,363,894	$317,058	2%	$19,046,836
INDIANA	$7,545,162	$708,741	9%	$6,836,421
IOWA	$4,782,362	$2,405,247	50%	$2,377,115
KANSAS	$4,496,386	$1,784,856	40%	$2,711,530
KENTUCKY	$7,269,014	$1,374	0%	$7,267,640
LOUISIANA	$9,029,185	$0	0%	$9,029,185
MAINE	$3,569,238	$0	0%	$3,569,238
MARYLAND	$7,595,943	$0	0%	$7,595,943
MASSACHUSETTS	$9,463,490	$1,872,597	20%	$7,590,893
MICHIGAN	$15,975,445	$3,425,223	21%	$12,550,222
MINNESOTA	$7,708,769	$4,669,759	61%	$3,039,010
MISSISSIPPI	$6,617,604	582,416	9%	$6,035,188
MISSOURI	$8,561,965	$3,889,775	45%	$4,672,190
MONTANA	$2,764,134	$7,653	0%	$2,756,481
NEBRASKA	$3,308,247	$0	0%	$3,308,247
NEVADA	$3,258,808	$3,258,808	100%	$0
NEW HAMPSHIRE	$2,875,952	$469,222	16%	$2,406,730
NEW JERSEY	$11,012,253	$3,078,591	28%	$7,933,662
NEW MEXICO	$4,860,333	$0	0%	$4,860,333
NEW YORK	$37,034,556	$618,914	2%	$36,415,642
NORTH CAROLINA	$11,550,703	$0	0%	$11,550,703
NORTH DAKOTA	$2,537,922	$354,421	14%	$2,183,501
OHIO	$16,909,161	$3,752,346	22%	$13,156,815
OKLAHOMA	$5,938,082	$380,704	6%	$5,557,378
OREGON	$5,740,656	$1,497,655	26%	$4,243,001
PENNSYLVANIA	$17,553,339	$16,535	0%	$17,536,804
RHODE ISLAND	$3,459,771	$3,002	0%	$3,456,769
SOUTH CAROLINA	$6,221,783	$0	0%	$6,221,783
SOUTH DAKOTA	$2,642,597	$985,582	37%	$1,657,015
TENNESSEE	$9,250,889	$0	0%	$9,250,889
TEXAS	$27,523,806	$0	0%	$27,523,806
UTAH	$4,006,172	$0	0%	$4,006,172
VERMONT	$2,891,672	$0	0%	$2,891,672
VIRGINIA	$8,531,522	$2,493,251	29%	$6,038,271
WASHINGTON	$10,443,170	$2,977,700	29%	$7,465,470
WEST VIRGINIA	$5,420,593	$178,755	3%	$5,241,838
WISCONSIN	$7,023,766	$49,362	1%	$6,974,404
WYOMING	$2,475,344	$212,430	9%	$2,262,914
United States	$491,096,441	$49,701,828	10%	$441,394,613
* The "500 million fund" is also known as the "TANF-Medicaid delinking fund." ** The total United States allocation does not sum to $500 million as territories are not included. Source: Health Care Financing Administration

On May 14, 1997, the Health Care Financing Administration (HCFA) published a notice in the Federal Register announcing the amount of the $500 million fund allocated to each state.⁽³⁾ The notice also enumerated the activities that would qualify for reimbursement at the enhanced federal matching rates under the $500 million fund and described how states can claim reimbursements for allowable activities.

A state can obtain federal reimbursement for any allowable activity at the 90 percent matching rate until it has used up the first $2 million of its allocation. Thereafter, the state can continue to receive matching funds at the 90 percent rate up to its total allocation for certain, specified "beneficiary-oriented activities," including outreach. The costs of other allowable activities can be reimbursed at the 75 percent matching rate. Since all of the allowable activities are usually reimbursed at the 50 percent matching rate under the regular Medicaid program, the notice specifies that claims for allowable administrative activities will reduce a state's allocation only by the amounts that are in excess of the usual 50 percent matching rate and not by the entire amount of the enhanced federal matching payment. As a result, the amount of federal funding available to finance allowable activities far exceeds the amount of a state's allocation. (See Table 2 for state-specific information on the amount of federal funding still available, at either the 75 percent or 90 percent matching rates, if the state uses its entire allocation from the $500 million fund.)

A state can use its share of the $500 million fund for "allowable activities" that are divided into two categories. The higher priority category includes activities considered "beneficiary-oriented" and can be reimbursed at the higher, 90 percent matching rate.
These activities include:

The second category of activities, reimbursed at the 75 percent matching rate, include:

This table is designed to show the range of total federal Medicaid funds available to finance delinking and related outreach activities at the enhanced matching rates available under the $500 million fund. It takes into account that the $500 million fund is used only to finance the differential between the regular 50 percent matching rate that applies to most Medicaid administrative activities and the enhanced matching rates of 75 percent and 90 percent available under the $500 million fund.

For example, column 1 of the table indicates that Alabama has $6,504,897 remaining out of its share of the $500 million fund. If the state were to use all of these remaining funds for activities that are matched at the 75 percent matching rate, then, as shown in column 2, the federal government would in total provide Alabama with $18,014,691 in federal matching funds. If, however, Alabama elected to use all of its remaining funds for activities that are matched at the 90 percent matching rate, then, as shown in column 3, the federal government would in total provide the state with $14,636,018 in federal matching funds. In practice, it is likely that the state would use its remaining share of the $500 million fund for some activities matched at the 90 percent rate, and others that are matched at the 75 percent rate.

**Table 2:**
Matching Rates for Delinking and Outreach Activities?* (Based on data available as of 6/30/99)
STATE	How much does your state have left of the $500 million funds?	Total federal funds remaining (assuming 75% matching rate)	Total federal funds remaining (assuming 90% matching rate)
ALABAMA	$6,504,897	$18,014,691	$14,636,018
ALASKA	$2,823,329	$7,131,992	$6,352,490
ARIZONA	$7,848,120	$22,129,472	$17,658,270
ARKANSAS	$3,808,154	$10,889,981	$8,568,347
CALIFORNIA	$78,116,644	$234,349,932	$175,762,449
COLORADO	$5,166,316	$13,998,948	$11,624,211
CONNECTICUT	$5,756,737	$15,770,211	$12,952,658
DELAWARE	$2,801,524	$6,904,747	$6,303,429
DC	$3,259,072	$8,277,216	$7,332,912
FLORIDA	$20,359,181	$61,004,837	$45,808,157
GEORGIA	$11,591,549	$33,274,647	$26,080,985
HAWAII	$3,435,742	$8,807,226	$7,730,420
IDAHO	$2,701,637	$7,045,085	$6,078,683
ILLINOIS	$19,046,836	$55,878,302	$42,855,381
INDIANA	$6,836,421	$19,540,819	$15,381,947
IOWA	$2,377,115	$7,131,345	$5,348,509
KANSAS	$2,711,530	$7,973,232	$6,100,943
KENTUCKY	$7,267,640	$20,303,951	$16,352,190
LOUISIANA	$9,029,185	$25,587,555	$20,315,666
MAINE	$3,569,238	$9,207,714	$8,030,786
MARYLAND	$7,595,943	$21,287,829	$17,090,872
MASSACHUSETTS	$7,590,893	$22,677,127	$17,079,509
MICHIGAN	$12,550,222	$37,650,666	$28,238,000
MINNESOTA	$3,039,010	$9,117,030	$6,837,773
MISSISSIPPI	$6,035,188	$17,042,376	$13,579,173
MISSOURI	$4,672,190	$14,016,570	$10,512,428
MONTANA	$2,756,481	$6,775,183	$6,202,082
NEBRASKA	$3,308,247	$8,424,741	$7,443,556
NEVADA	$0	$0	$0
NEW HAMPSHIRE	$2,406,730	$6,072,107	$5,415,143
NEW JERSEY	$7,933,662	$23,800,986	$17,850,740
NEW MEXICO	$4,860,333	$13,080,999	$10,935,749
NEW YORK	$36,415,642	$108,211,112	$81,935,195
NORTH CAROLINA	$11,550,703	$33,152,109	$25,989,082
NORTH DAKOTA	$2,183,501	$5,316,319	$4,912,877
OHIO	$13,156,815	$39,470,445	$29,602,834
OKLAHOMA	$5,557,378	$15,457,662	$12,504,101
OREGON	$4,243,001	$12,352,244	$9,546,752
PENNSYLVANIA	$17,536,804	$51,122,813	$39,457,809
RHODE ISLAND	$3,456,769	$8,872,559	$7,777,730
SOUTH CAROLINA	$6,221,783	$17,165,349	$13,999,012
SOUTH DAKOTA	$1,657,015	$4,210,232	$3,728,284
TENNESSEE	$9,250,889	$26,252,667	$20,814,500
TEXAS	$27,523,806	$81,071,418	$61,928,564
UTAH	$4,006,172	$10,518,516	$9,013,887
VERMONT	$2,891,672	$7,175,016	$6,506,262
VIRGINIA	$6,038,271	$18,114,813	$13,586,110
WASHINGTON	$7,465,470	$22,396,410	$16,797,308
WEST VIRGINIA	$5,241,838	$14,359,580	$11,794,136
WISCONSIN	$6,974,404	$19,460,234	$15,692,409
WYOMING	$2,262,914	$5,448,065	$5,091,557
United States	$441,394,613	$1,273,295,074	$993,137,879
* As explained in the body of the paper, the $500 million fund is used only to finance the differential between the regular 50% matching rate that applies to most Medicaid administrative and outreach activities, and the enhanced matching rate of 75% or 90% (depending on the activity) available under the $500 million fund. As a result, the TOTAL amount of federal funds available to finance outreach and delinking activities significantly exceeds the size of each state's share of the $500 million fund. Source: Column 1 is based on HCFA data; columns 2 and 3 are based on calculations performed by CBPP.

1. Prior to enactment of the 1996 federal welfare law, families with children enrolled in AFDC were automatically eligible for Medicaid. When AFDC was repealed by the 1996 federal welfare law, the eligibility link between welfare and Medicaid was broken and replaced with a new Medicaid eligibility category (the "section 1931" eligibility category). As a result of "delinking," states must now offer Medicaid to low-income families with children without regard to whether they receive welfare.

2. Health Care Financing Administration, Supporting Families in Transition: A Guide to Expanding Health Coverage in the Post-Welfare Reform World, March 1999.

Column 1:	Column 1 displays the amount remaining of a state's original share of the $500 million fund.
Column 2:	Column 2 shows how much TOTAL federal funding a state would receive if it elected to use all of its remaining allocation for activities that qualify for a 75 percent matching rate. It takes into account that regular Medicaid funds finance 50 percent of the cost of such activities, while the $500 million fund is used to finance only 25 percent of these activities. (Note, however, that the column does reflect that the first $2 million that a state spends out of its allocation is matched at a 90 percent rate, regardless of whether the activity otherwise would qualify only for a 75 percent rate).
Column 3:	This column shows how much TOTAL federal funding a state would receive if it elected to use all of its remaining allocation for activities that qualify for a 90 percent matching rate. It takes into account that regular Medicaid funds finance 50 percent of the cost of such activities, while the $500 million fund is used to finance only 40 percent of these activities.