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Medicaid Improper Payment Rates Don’t Measure Ineligible Enrollees, Fraud, or Abuse

Update, November 21: We updated this post to reflect CMS’ release of improper payment rates.

The Centers for Medicare & Medicaid Services (CMS) recently released the 2019 Estimated Payment Error Rate Measurement (PERM) rate, which measures “improper” payments in Medicaid and the Children’s Health Insurance Program (CHIP). But contrary to how they’ve been represented, these rates measure state procedural mistakes — they don’t necessarily mean a beneficiary did anything wrong or was ineligible for Medicaid. Moreover, policymakers shouldn’t use the rates to justify imposing additional, burdensome verification and paperwork requirements that will worsen the problem of eligible people losing coverage and access to care.

The data CMS released are based on audits of whether a state is implementing its programs in accordance with federal and state policies. PERM estimates payment error rates in three areas — fee-for-service payments, managed care payments, and eligibility — for a rotating subset of about 17 states each year.

Many Medicaid errors occur when states enroll providers or providers bill for services without following all relevant federal and state procedures. But that doesn’t mean the payments shouldn’t have been made. While PERM audits may find some incorrect eligibility determinations, most eligibility errors reflect paperwork problems or other procedural mistakes that can easily occur even when eligible people enroll. In fact, the CMS report notes that “Medicaid and CHIP eligibility improper payments are mostly due to insufficient documentation to verify eligibility,” rather than a finding of ineligibility.

For example, all of the following procedural mistakes would count toward the error rate, even though they wouldn’t result in ineligible people getting coverage:

  • Incorrect coding. A state inadvertently assigns the parent eligibility code to an eligible child. This is a clerical error but would count as an improper payment.
  • Incorrect federal match. A state claims the enhanced federal match rate available only for those enrolled through the Affordable Care Act (ACA) Medicaid expansion for a parent who would have been eligible for Medicaid even before expansion.
  • Insufficient documentation in a beneficiary’s case file. When conducting eligibility determinations, states can use electronic sources to verify the information on a Medicaid or CHIP application. An improper payment would occur if an eligibility worker fails to document the verification sources they used when they processed an application. According to CMS, state failure to document verification sources is one of the biggest drivers of an increase in improper payment rates.
  • Incorrect assignment to managed care. States are expanding the use of managed care in their programs by enrolling populations previously receiving benefits through the state’s fee-for-service program, such as people with disabilities. A state incorrectly enrolling a beneficiary in managed care when they should’ve remained in fee-for-service — a mistake likely to occur when a state is transitioning thousands of beneficiaries to managed care — would count as an improper payment.
  • Incorrect health insurance program assignment. A state incorrectly determines a beneficiary eligible for CHIP when they should have been determined eligible for Medicaid. CMS cited this as a factor behind an increase in the CHIP improper payment rate.

States can also be found in error when their actions are based on misunderstanding of policy, or even when CMS changes its interpretation of federal policy. This happened recently in Idaho. Based on past CMS guidance, Idaho automatically renewed beneficiaries who had previously attested they had no income and for whom electronic data sources also show no income. But during Idaho’s PERM audit, CMS informed the state that its process didn’t comply with federal requirements and that all such renewals would count toward its PERM rate.

Idaho’s experience also illustrates the harm that can occur when states are pushed to impose new and burdensome verification requirements. Because of CMS’ feedback, Idaho has changed its verification process, requiring additional documentation from beneficiaries before renewing their coverage. These changes have caused beneficiaries, including eligible children with complex health care needs, to lose coverage and forgo needed medical care while trying to re-enroll in Medicaid.

According to the CMS report, the overall PERM was 14.9 percent in 2019, versus 9.79 percent in 2018. But CMS notes that “these results are not comparable as the measurement has changed dramatically.” And while critics of Medicaid expansion point to the increased PERM rate to claim that Medicaid expansion has undermined program integrity, the reality, as we’ve explained, is that expansion is overwhelmingly serving the people it’s supposed to: low-income people who are eligible and need it.

CMS Administrator Seema Verma has indeed already cited the increase in error rates as justification for “overhauling” regulations “to tighten the standards for eligibility verification” and ensure that “proper safeguards” are in place. But such changes would mean more eligible people losing Medicaid coverage. Over the past two years, Medicaid enrollment has declined, and uninsurance has risen, for both children and adults — trends that the Administration’s push to increase verification and paperwork requirements is already contributing to.