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Public Input during Federal Approval Process Still A Concern' which was 
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July 24, 2007: 

The Honorable Henry A. Waxman: 
Chairman: 
Committee on Oversight and Government Reform: 
House of Representatives: 

The Honorable John D. Dingell: 
Chairman: 
Committee on Energy and Commerce: 
House of Representatives: 

The Honorable Frank J. Pallone, Jr.: 
Chairman: 
Subcommittee on Health: 
Committee on Energy and Commerce: 
House of Representatives: 

The Honorable Sherrod Brown: 
United States Senate: 

Subject: Medicaid Demonstration Waivers: Lack of Opportunity for Public 
Input during Federal Approval Process Still a Concern: 

States provide health care coverage to about 60 million low-income 
individuals through Medicaid, a joint federal and state program 
established under title XIX of the Social Security Act (the Act). Title 
XIX of the Act established parameters under which states operate their 
Medicaid programs, such as requiring states to cover certain services 
for certain mandatory groups of individuals such as low-income 
children; pregnant women; and aged, blind, or disabled adults.[Footnote 
1] The Secretary of Health and Human Services, however, possesses 
authority to allow states to depart from these requirements under 
certain conditions. Under section 1115 of the Act, the Secretary may 
waive certain Medicaid requirements and authorize Medicaid expenditures 
for experimental, pilot, or demonstration projects that are likely to 
assist in promoting Medicaid objectives. Medicaid section 1115 
demonstration projects vary in scope, from targeted demonstrations, 
which are limited to specific services and populations, to 
comprehensive demonstrations, which affect Medicaid populations 
statewide, cover a broad range of services, and account for the 
majority of a state's Medicaid expenditures.[Footnote 2] Since 1982, 
the Secretary has approved comprehensive demonstration projects in a 
number of states, including Arizona, Florida, Hawaii, Oregon, 
Tennessee, and Vermont. 

In 1994, the Department of Health and Human Services (HHS) established 
in the Federal Register the department's policies and procedures for 
evaluating Medicaid section 1115 demonstration[Footnote 3] proposals, 
including processes for soliciting public input at both the state and 
federal levels.[Footnote 4] At the state level, for example, states 
were expected to post notice of proposals in major newspapers, hold 
public hearings about the proposal, or take certain other steps to 
solicit public input. At the federal level, HHS indicated that it would 
notify interested organizations when it received a demonstration 
proposal; publish monthly notices of all new and pending demonstration 
proposals in the Federal Register; allow for a 30-day comment period 
after new proposals were received; acknowledge, if feasible, receipt of 
comments; and refrain from approving or disapproving proposals until at 
least 30 days after proposals were received. 

In July 2002, we reported that HHS had not consistently provided an 
opportunity at the federal level for the public to learn about and 
comment on pending demonstrations in accordance with its 1994 
policy.[Footnote 5] We concluded that public input was important at the 
federal level in part because approved demonstrations represent federal 
policy that may have influence beyond a single state. A federal-level 
process also provides more visibility and transparency for all affected 
and interested parties, including Congress. Because HHS disagreed with 
our recommendation that the agency provide for a federal public input 
process--indicating instead that it planned to post notice of proposed 
(pending) and approved demonstrations to its Web site--we suggested 
that Congress consider requiring the Secretary to improve the public 
notification and input processes at the federal level to ensure that 
individuals affected by section 1115 demonstrations have an opportunity 
to review and comment on proposals before they are approved. Congress 
has not yet enacted legislation that responds to this recommendation. 

Since our 2002 report, and our subsequent 2004 report on 1115 
demonstration approvals,[Footnote 6] HHS has continued to review and 
approve waivers of federal requirements for new comprehensive 
demonstration proposals. At your request, we reviewed recently approved 
comprehensive demonstrations, including the process HHS used to obtain 
public input on these proposals. This correspondence addresses: 

* implications for beneficiaries of recently approved comprehensive 
Medicaid demonstrations and: 

* the extent to which the Secretary ensured opportunities for public 
input during the approval process. 

Our review encompassed recently approved comprehensive demonstration 
programs in two states, Florida and Vermont. These were the two 
demonstration programs meeting our criteria of (1) being approved by 
HHS from July 2004 (when we last reviewed HHS-approved section 1115 
demonstrations) through December 2006 and (2) being comprehensive, 
including accounting for greater than 50 percent of the state's 
Medicaid expenditures.[Footnote 7] To assess the reliability of HHS 
information on states' Medicaid expenditures, we reviewed HHS 
documentation on the collection of and quality assurance activities 
related to the data and interviewed knowledgeable HHS officials, and 
determined the data to be reliable for our purposes. To assess 
implications for beneficiaries of the Florida and Vermont 
demonstrations, we reviewed HHS's and states' documents, including 
proposals for these demonstrations and approved demonstrations' terms 
and conditions,[Footnote 8] and federal and state laws; we also 
interviewed state and HHS officials, including officials from 
CMS.[Footnote 9] To examine public input processes, we reviewed certain 
federal and state laws and guidance; interviewed HHS and state 
officials; interviewed representatives from national, state, and local 
stakeholder groups; reviewed information posted by HHS on its Web site; 
and reviewed documentation of public meetings and written responses to 
public comments. (See enc. I for a list of stakeholder groups 
interviewed for this correspondence.) Because the Florida and Vermont 
demonstrations were in their early implementation phase during our 
review, we focused our assessment largely on determining implications 
for Medicaid beneficiaries under the terms of the states' 
demonstrations as approved by HHS. We did not, however, consider 
implications of these demonstrations with respect to other aspects of 
federal oversight of the Medicaid program.[Footnote 10] We conducted 
our review from June 2006 through June 2007 in accordance with 
generally accepted government auditing standards. 

Results in Brief: 

Recently approved Medicaid section 1115 demonstrations in Florida and 
Vermont have mixed implications for beneficiaries in terms of coverage 
and eligibility. The demonstrations are implementing different methods 
for administering each state's Medicaid program and, as of March 2007, 
had been under way less than 8 months in Florida and less than 18 
months in Vermont. Consequently, the actual effect of the 
demonstrations on beneficiaries was not yet known. 

* Florida's demonstration program. Approved by HHS in October 2005 and 
launched in July 2006, Florida's demonstration program is designed to 
give Medicaid beneficiaries more options in selecting health care plans 
and benefits. In the initial phase of the demonstration, certain 
Medicaid beneficiaries in two counties are required to enroll in 
managed care benefit plans. Managed care plans compete for Medicaid 
beneficiaries by offering different coverage options, including 
customized benefits, subject to certain limitations. For example, some 
plans could offer supplemental coverage for nonemergency dental 
benefits or over-the-counter pharmaceuticals not offered by other 
health plans. If beneficiaries do not choose a plan, they are 
automatically enrolled into a plan by the state, and coverage can be 
limited to emergency medical services and nursing home level care for 
beneficiaries for up to 30 days pending beneficiaries' enrollment in a 
managed care plan. Unlike many other previous Medicaid managed care 
systems, managed care plans in Florida have the authority to design 
benefit packages subject to approval by the state. Medicaid 
beneficiaries are notified about changes in their benefits from year to 
year and are responsible for determining whether plans continue to meet 
their health care needs. Medicaid beneficiaries may also voluntarily 
"opt out" of Medicaid coverage altogether and use a state-paid Medicaid 
premium toward their costs to enroll in an employer-sponsored insurance 
plan or--if they are self-employed--in a commercial benefit plan. In 
making this choice, however, these individuals, including mandatory 
Medicaid beneficiaries,[Footnote 11] would no longer be entitled to 
mandatory Medicaid benefits; for example, children would no longer be 
entitled to mandatory comprehensive screening and treatment benefits if 
their parents enrolled in an employer-sponsored or commercial benefit 
plan that did not provide these benefits. Medicaid beneficiaries can 
choose a new benefit plan each year. If they opt out of Medicaid but 
later desire to enroll in one of Florida's Medicaid demonstration 
managed care plans, they need to wait for a qualifying event or open 
enrollment period before reenrolling. Initially implemented in a two-
county area, the components of the demonstration are planned for 
statewide implementation by June 2010.[Footnote 12] 

* Vermont's demonstration program. Approved by HHS in September 2005 
and launched the following month, Vermont's demonstration created a 
single, state-operated managed care organization to cover virtually all 
of the state's Medicaid population.[Footnote 13] The demonstration is 
designed to contain costs; to improve system accountability and quality 
of care; and, by potentially delivering services to Medicaid 
beneficiaries for less and reinvesting savings, to allow the state to 
serve more of its uninsured population. As a condition of approval, HHS 
required that the state be at risk for paying any costs for the 
demonstration beyond an established spending limit; however, the state 
has additional flexibility beyond traditional Medicaid requirements to 
change benefits, increase cost-sharing requirements, and alter 
eligibility for nonmandatory Medicaid beneficiaries. For example, the 
state is authorized to change the covered benefit package offered to 
certain groups of beneficiaries, such as nonmandatory groups that 
previously received Medicaid coverage at the state's option, without 
additional HHS approval as long as the changes result in no more than a 
5 percent increase or decrease each year from the prior year's total 
Medicaid expenditures. 

Officials in both states took steps to obtain public input in line with 
HHS's 1994 policy, but HHS did not provide opportunity for public input 
at the federal level once the proposals were received or post the 
states' proposals on its Web site before approving them. Instead, HHS 
relied on Florida and Vermont officials to obtain and respond to public 
comments. Both states provided opportunities for public input--for 
example, by holding public hearings and posting drafts of the 
demonstration proposal on the states' Web sites. Even so, stakeholders 
in each state and at the national level said they lacked access to 
specific information about aspects of the proposals that directly 
affected beneficiaries or lacked sufficient time to review and comment 
on the proposals. In Vermont, for example, the state's Medical Care 
Advisory Committee, established by the state to facilitate consumer 
input in state Medicaid policy, voted against approval of the 
demonstration proposal because members said they lacked sufficient time 
and information to understand the proposal. In Florida, stakeholders 
said that information about the demonstration proposal provided during 
public meetings was insufficient for adequately understanding 
implications and that, upon request, state officials did not provide 
key documents related to the demonstration, such as budget and 
demographic information related to the proposal. At the federal level, 
organizations representing individuals aged 50 and above, children and 
families, and other Medicaid beneficiaries affected by the Florida and 
Vermont demonstrations said that HHS did not post the proposals to its 
Web site or provide them with timely information about the 
demonstrations upon request. Unless Congress and HHS take actions in 
response to the matters for congressional consideration and 
recommendations to HHS presented in our July 2002 report, it appears 
likely that HHS will continue to approve waivers for comprehensive 
demonstration proposals--with potentially significant implications for 
program beneficiaries--without adequate opportunity for public input. 

In commenting on a draft of this report, HHS said the department 
continues to disagree with our recommendation that the Secretary 
provide for an improved public input process at the federal level. HHS 
said that sufficient opportunities are available at the state level and 
that a new federal-level requirement could create legal challenges that 
would delay HHS's and states' implementation of innovative 
demonstrations. We disagree with HHS's contention that its current 
policies and practices allow for sufficient public input. For example, 
stakeholders reported they lacked access to specific information about 
the proposals during the public input process. Also, HHS told us in 
2002 that it planned to post proposed demonstrations on its Web site, 
but has not since established this policy in a written form in HHS 
guidance,[Footnote 14] and has not followed this practice in the case 
of recently approved demonstrations in Florida and Vermont. 
Furthermore, HHS did not explain or provide a basis for its contention 
that allowing for federal input could create legal challenges. 
Therefore, we disagree with HHS's suggestion that a public process 
should be limited in order to avoid legal challenges. Because of long-
standing concerns with inadequate opportunities for public input in the 
process and because a notice-and-comment period at the federal level 
would provide for a more open and transparent process for all parties, 
we maintain our earlier recommendation that Congress consider requiring 
the Secretary to institute such a process. 

We also provided a copy of a draft of this report to Florida and 
Vermont. Florida stated that our draft report did not provide an 
accurate representation of the demonstration structure as it 
selectively represented certain aspects of Florida's demonstration and 
omitted or underemphasized other innovative and integral aspects of the 
program. We maintain that our report accurately describes the major 
components of Florida's demonstration. We did, however, update the 
report to discuss a component of the demonstration that Florida said 
was important, specifically, information on a financial benefit to 
encourage healthy behaviors; about $34,000 had been used by 
beneficiaries as of March 2007. Vermont, while disheartened that some 
stakeholders noted that the state's public input process was somehow 
weak or not well rounded, stated that our draft report was thorough, 
thoughtful, balanced, and complete. 

Background: 

Medicaid is one of the largest programs in federal and state budgets. 
In fiscal year 2005, the most recent year for which complete 
information is available, total Medicaid expenditures were an estimated 
$317 billion. States pay qualified health providers for a broad range 
of covered services provided to eligible beneficiaries. The federal 
government reimburses states for its share of these expenditures. The 
federal matching share of each state's Medicaid expenditures for 
services is determined under a formula defined under federal law and 
can range from 50 to 83 percent.[Footnote 15] Each state administers 
its Medicaid program in accordance with a state Medicaid plan, which 
must be approved by HHS.[Footnote 16] Traditional Medicaid programs 
represent an open-ended entitlement, meaning the state will enroll all 
individuals who are eligible for Medicaid, and both the state and the 
federal government will pay, without limitation, their share of state 
expenditures for people covered under a state's approved Medicaid plan. 

States have considerable flexibility in designing their Medicaid 
programs, but under federal Medicaid law, states generally must meet 
certain requirements for which benefits are to be provided and who is 
eligible for the program, and states may impose only nominal 
deductibles, coinsurance, or co-payments on some Medicaid beneficiaries 
for certain services.[Footnote 17] For example, states are required to 
cover certain services, such as physician, hospital, and nursing 
facility services, as well as early and periodic screening, diagnostic, 
and treatment (EPSDT) services for children (under the age of 21). 
States can receive federal matching payments to cover certain optional 
services, such as prescription drugs, vision, and dental services, but 
if they do so, they must generally provide the same benefits to all 
covered beneficiaries. Groups of individuals that states are required 
to cover under the state plan are known as "mandatory" populations, and 
states may choose to provide Medicaid coverage to additional optional 
groups of individuals.[Footnote 18] Generally, optional Medicaid 
beneficiary groups share characteristics similar to the mandatory 
groups, but have higher incomes and states may cover these individuals 
under a state plan. Expansion eligibility groups are those individuals 
who do not fall under statutorily defined Medicaid eligibility 
categories but whom states are able to cover under a section 1115 
demonstration. 

Under section 1115 of the Social Security Act, the Secretary has 
authority to waive certain federal Medicaid requirements and authorize 
Medicaid expenditures for experimental, pilot, or demonstration 
projects that are likely to assist in promoting Medicaid 
objectives.[Footnote 19] States have used the flexibility granted 
through section 1115 to implement major changes to existing state 
Medicaid programs. For example, some states have used Medicaid section 
1115 demonstrations to introduce mandatory managed care for their 
Medicaid beneficiaries; other states have expanded Medicaid coverage to 
additional populations or services. 

Recognizing that people who may be affected by a demonstration project 
"have a legitimate interest in learning about proposed projects and 
having input into the decision-making process," HHS established 
procedures in a 1994 Federal Register notice for both a federal-and a 
state-level public notice-and-comment process.[Footnote 20] At the 
state level, the requirements of this policy have remained essentially 
unchanged since the notice was issued on September 27, 1994. In 
directing states to facilitate public involvement and input during the 
development of proposed demonstrations, the notice describes a variety 
of ways that states may create opportunities for public input, such as 
holding public hearings, convening commissions with open public 
meetings, enacting state legislation regarding the demonstrations, or 
posting information about demonstration proposals in newspapers. HHS's 
policy also instructs states to include in their formal 1115 
demonstration proposals a brief narrative describing the process used 
to obtain public input.[Footnote 21] In the 1994 notice, HHS indicated 
that it would post notice of new and pending demonstrations in the 
Federal Register; allow for a 30-day comment period; notify certain 
organizations of the receipt of demonstration proposals; acknowledge, 
if feasible, comments made; and refrain from approving or disapproving 
proposals until at least 30 days after proposals were received. 

Demonstrations in Florida and Vermont Have Mixed Implications for 
Beneficiaries, but Actual Effects Are Unknown: 

Recently approved demonstrations in Florida and Vermont implement 
different methods for administering each state's Medicaid program and 
have potentially wide-ranging implications for beneficiaries. In 
Florida, for example, beneficiaries have greater flexibility to choose 
among different benefit plans, but could face the loss of some 
benefits, limits on covered services, or additional cost-sharing 
requirements, and beneficiaries could face up to 30 days with limited 
coverage before being enrolled in a managed care benefit plan. Vermont 
may use savings from managed care operations to fund additional health 
care initiatives, but the state is at financial risk should 
demonstration costs exceed the approved spending limit, with uncertain 
implications for beneficiaries should that happen. Because the 
demonstrations were in early stages of implementation at the time of 
our review, the actual effect on beneficiaries of their various 
components was not yet known. 

Florida's Demonstration Provides Beneficiaries More Choice, but 
Beneficiaries Assume Risk for Their Choice of Plans, under Which 
Benefits Could Be Limited: 

Florida's demonstration proposal, which Florida submitted and HHS 
approved in October 2005, gives beneficiaries a more active role in 
determining their health care by requiring them to choose from a number 
of managed care plans in their area. Under the demonstration, HHS gave 
authority to the state to develop and pay risk-adjusted premiums 
[Footnote 22] to managed care plans that cover beneficiaries, and to 
establish an annual maximum benefit limit for adults.[Footnote 23] The 
state in turn is requiring most beneficiaries, including aged and 
disabled persons and certain families and children,[Footnote 24] to 
choose from a number of managed care plans offering a variety of 
benefit packages (beneficiaries are automatically enrolled in a plan if 
they do not make a choice), or they can opt out of Medicaid and enroll 
in employer-sponsored benefit plans or, in the case of those who are 
self-employed, in commercial benefit plans. By choosing a benefit plan 
or opting out of Medicaid to purchase employer-based or commercial 
insurance, however, beneficiaries may also experience reduced benefits 
or increased cost sharing such as co-payments or deductibles. Florida's 
demonstration program began in July 2006 in two counties, Broward and 
Duval, and is scheduled to expand statewide by 2010. 

Selected features of the Florida demonstration and implications for 
beneficiaries include the following: 

* Managed care plans have flexibility to offer state-approved benefit 
plans tailored to specific groups of beneficiaries: Participating 
managed care plans can vary the amount, duration, and scope of benefits 
offered to individual beneficiaries who share demographic 
characteristics or who have varying levels of medical need, and they 
can drop or impose cost sharing on certain services as long as the 
required cost sharing is within those limits approved for services 
under the state Medicaid plan. According to state officials, managed 
care plans must provide the same level of coverage available under the 
state plan with respect to children under age 21 and pregnant 
women.[Footnote 25] Managed care plans are encouraged to compete for 
enrollees by offering customized benefit packages--for example, by 
including additional services or lower cost sharing--targeted to 
specific populations. To ensure that all benefit plans offer sufficient 
coverage, the state must approve all benefit packages offered to 
Medicaid beneficiaries.[Footnote 26] Managed care plans participating 
in the demonstration as of March 2007[Footnote 27] offered similar 
plans, in that they each covered certain basic Medicaid benefits, such 
as hospital inpatient and outpatient services, ambulance services, and 
maternity services. However, some participating plans offered 
beneficiaries additional services, such as adult dental benefits, over-
the-counter pharmacy benefits, and frail-or elder-care services that 
were not offered by other plans. Some plans limited beneficiaries to 60 
lifetime visits for home health services--consistent with Florida's 
state-plan-required coverage--while others expanded this service to 210 
visits annually per beneficiary. Several plans had no limits on the 
amount or cost of prescription drugs a beneficiary may use, while 
others limited the number of monthly prescriptions that beneficiaries 
were allowed or the annual covered cost for prescription drugs. Nearly 
half of the plans required beneficiaries to pay some form of co-
payments, while the remaining plans did not have co-payment 
requirements. Whereas before the demonstration all beneficiaries 
meeting the same eligibility requirements received the same benefits as 
covered under the state Medicaid plan, under the demonstration, 
Medicaid beneficiaries could enroll in a participating plan based on 
the particular benefit package offered by managed care plans, much as 
they would in the commercial insurance market. In addition, unlike many 
other previous Medicaid managed care systems, managed care plans may 
change benefit packages annually with state approval. After 
beneficiaries are notified each year about changes in their benefits, 
they are responsible for determining whether their plans continue to 
meet their health care needs. Under the demonstration, beneficiaries 
can remain with the same plan or can choose a new plan each year during 
a designated open enrollment period. Beneficiaries need to review their 
plans each year to ensure that they understand how benefits may be 
changing. 

* Beneficiaries can have the state contribute towards the purchase of 
available employer-sponsored insurance or commercial health insurance 
and voluntarily opt out of Medicaid: Under Florida's demonstration, 
beneficiaries can choose to "opt out" of Medicaid and have the state 
use their Medicaid premium toward paying the costs of employer-
sponsored health insurance or, if they are self-employed, towards 
individually purchased commercial health insurance. HHS has authorized 
the state to pay for such costs up to the state-established Medicaid 
premium and receive federal matching payments for these expenditures. 
Although employer-sponsored or commercial benefit plans must meet 
minimum state licensing standards, these plans are not subject to 
benefit package requirements applicable to plans participating in the 
demonstration and, therefore, may offer fewer benefits than plans 
participating in the demonstration. Also, these plans may have greater 
cost-sharing requirements, such as deductibles, co-payments, and higher 
monthly premiums than those the state would allow for plans 
participating in the demonstration.[Footnote 28] By choosing to opt out 
of Medicaid, beneficiaries from mandatory populations could receive 
fewer benefits through employer-sponsored health plans. For example, 
children of parents who opt out and who previously had comprehensive 
Medicaid coverage for a broad range of EPSDT services could potentially 
have their benefits reduced. Medicaid beneficiaries who opt out of 
Medicaid have 90 days to choose to enroll instead in a Medicaid managed 
care plan. After 90 days, the beneficiary must remain with the employer-
sponsored insurance and can make no further changes, including 
enrolling in a Florida Medicaid managed care plan, until the next 
employer-sponsored open enrollment period, unless the enrollee no 
longer has access to employer-sponsored coverage. If a beneficiary 
loses eligibility for participation in the employer-sponsored plan, the 
state has a process for "opting back in" to a Medicaid managed care 
plan. 

* Choice counselors will assist beneficiaries with choosing benefit 
plans or with opting out of Medicaid, but beneficiaries must assume 
risk for their choices: Through the mandatory enrollment of 
beneficiaries into managed care plans that they choose, Florida's 
demonstration emphasizes individual involvement in selecting from 
benefit plan options, and the state expects to gain valuable 
information about the effects of infusing market-based approaches into 
a public entitlement program. To assist beneficiaries with their 
choices, Florida is providing counselors--called "choice counselors"--
to provide information about choosing a benefit plan and about opting 
out of Medicaid. According to the demonstration's terms and conditions, 
independent choice counselors will provide beneficiaries with 
information about each plan's coverage, benefits and benefit 
limitations, cost-sharing requirements, network and contacts, 
performance measures, results of consumer satisfaction reviews, and 
access to preventive services. Because the choice of benefit plans 
could have significant implications for beneficiaries, how well Florida 
implements choice counseling is critical to beneficiaries' 
understanding their options and making sound choices regarding which 
benefit plan best meets their needs. As of March 2007, it was too early 
to evaluate the effectiveness of choice counselors in helping 
beneficiaries choose benefits plans. 

* Florida may limit retroactive eligibility and benefits for new 
beneficiaries: Under the demonstration, Florida may limit eligibility 
to the date of an individual's Medicaid application and need not 
provide Medicaid coverage for new beneficiaries retroactively, that is, 
for up to 3 months before the date the individual applied for 
assistance. Under the statutory requirements for Medicaid, if an 
applicant is found eligible for Medicaid, a state plan must make 
medical assistance retroactive for up to 3 months. HHS approved a 
waiver of this statutory requirement for the demonstration. In 
addition, Florida could, if it chooses, restrict newly eligible 
beneficiaries' coverage for Medicaid services for up to 30 days after a 
beneficiary is determined to be eligible, but before a benefit plan is 
selected or before the state assigns a beneficiary to a benefit plan. 
During this 30-day period, or until a beneficiary selects a benefit 
plan or is assigned to one, Florida can restrict his or her care to 
only emergency medical services and nursing home level of 
care.[Footnote 29] Florida Medicaid officials, however, informed us 
that pregnant women and children under 21 years of age will continue to 
have retroactive eligibility for up to 3 months prior to the date of 
application,[Footnote 30] will receive full state plan benefits, and 
are also exempt from receiving limited benefits for up to 30 days 
before they are enrolled in a managed care plan. 

According to Florida officials, another key component of the 
demonstration is the enhanced benefit program to promote healthy 
behaviors. Under the program, accounts are established to provide 
incentives to enrollees for participating in state-defined activities 
that promote healthy behaviors. An individual who participates in 
certain state-defined activities that promote healthy behavior is given 
up to $125 per state fiscal year in "credits" in an individual enhanced 
benefit account to use for certain health-care-related expenditures. As 
of March 2007, beneficiaries had used about $34,000 of $1.7 million 
credited to their accounts under the program.[Footnote 31] 

Florida began implementation of this demonstration program in July 
2006; however, beneficiaries were not enrolled in benefit plans until 
September 2006. As of March 2007, more than 165,000 beneficiaries were 
enrolled in benefit plans. At the time of our review, the demonstration 
program was not yet far enough along to determine the effect on 
beneficiaries and the extent to which providing beneficiaries with 
increased choices, along with the increased risk associated with those 
choices, was improving care. 

Vermont's Demonstration Grants the State New Flexibility, but Some 
Beneficiaries May Have Benefits Reduced and Eligibility Delayed or 
Denied: 

Vermont's demonstration, submitted in April 2005 and approved by HHS in 
September 2005, provides the state with the flexibility necessary to 
administer most of the state's Medicaid program in a more centralized 
manner. The demonstration, which began in October 2005, allows the 
state to operate its own managed care organization. Under the 
demonstration, an office within the state's Medicaid agency was 
converted to a publicly operated managed care organization responsible 
for providing services and managing costs for most of the state's 
Medicaid program.[Footnote 32] The demonstration proposal indicated 
that changes to the state's Medicaid program under the demonstration 
would be transparent to most Medicaid enrollees in the short term: the 
demonstration would not change delivery or coverage of services to 
beneficiaries. 

Selected features of the Vermont demonstration and implications for 
beneficiaries and providers include the following: 

* Expected cost savings could enable Vermont to serve more of the 
state's uninsured population: HHS permitted the state to convert its 
Office of Vermont Health Access, which is within the state's Medicaid 
organization, into a single, state-run managed care organization. As 
described in the demonstration proposal, the demonstration is designed 
to put in place a series of health care options responsive to 
priorities supported by the governor and state legislature, including 
improved access to health care for Vermont's uninsured, cost 
containment within Medicaid, and improved system accountability and 
quality of care. Under the demonstration, the state is provided 
flexibility, including the ability to use creative payment mechanisms, 
rather than fee-for-service, to pay for services not traditionally 
reimbursable through Medicaid. The state expects the new state-run 
managed care organization to be more efficient. By employing a cost-
containment strategy, which includes standardizing provider 
reimbursement systems and managing chronic care, the new state Medicaid 
structure and finance arrangement could help state officials address 
Medicaid deficits that had been projected to occur in Vermont. Under 
the demonstration, the state automatically enrolled nearly all Medicaid 
beneficiaries in the new state-run managed care organization. In doing 
so, according to the state's Medicaid director, it hoped to introduce 
chronic-care management and disease prevention services for enrollees, 
such as smoking-cessation programs. State officials indicated that 
savings generated by the demonstration could be applied to previously 
state-funded programs, such as those for the state's uninsured. 

* Expenditures for Medicaid services are allowed to increase or 
decrease up to 5 percent annually for nonmandatory beneficiaries: Under 
Vermont's demonstration, HHS provided the state the authority to change 
the benefit package for the nonmandatory eligible population as long as 
the changes result in no more than a 5 percent cumulative increase, or 
decrease, each year in total Medicaid expenditures.[Footnote 33] The 
state is required to notify HHS of any such change in the benefit 
package but is not required to receive HHS approval for the changes. If 
Vermont's Medicaid program incurs financial setbacks or continues to 
run deficits, these beneficiaries could potentially experience a 
reduction in benefits offered by the state, such as the number of 
prescriptions allowed or number of doctor visits permitted each month, 
as long as these reductions do not decrease state expenditures for 
Medicaid by more than 5 percent annually. 

* Optional and expansion Medicaid populations may see an increase in 
their share of costs: Under the demonstration's terms and conditions, 
HHS permitted Vermont to maintain or increase premiums and co-payments 
for services for optional and expansion Medicaid populations--as long 
as such cost sharing for children in optional and expansion populations 
does not exceed 5 percent of a family's income. The state is not 
required to obtain HHS approval for changes to premiums and co-payments 
within the range specified in the demonstration's terms and conditions 
if they do not exceed 5 percent of a family's gross income for eligible 
children. The state agreed to maintain the state plan co-payments and 
premium provisions for the mandatory population. 

* Optional and expansion Medicaid populations may experience a change 
or delay in eligibility: Under the demonstration's terms and 
conditions, Vermont agreed to maintain eligibility established in the 
demonstration's base year for mandatory beneficiaries but was 
authorized, for optional and expansion populations, to impose 
enrollment caps or eliminate eligibility during the 5-year 
demonstration. The state can limit enrollment and impose waiting lists 
for these groups; however, such changes must be approved by HHS. 

* Financing approach limits federal risk but shifts risk to state and 
potentially to all beneficiaries and providers: Another component of 
Vermont's demonstration is a spending limit, which, if exceeded, would 
end federal matching payments for Medicaid services paid under the 
demonstration. By establishing a spending limit on federal matching 
funds, HHS transfers financial risk from the federal government to the 
state, with implications for all beneficiaries and providers. If the 
state experiences an unexpected increase in Medicaid beneficiaries or 
expenditures during the demonstration period, it could reach or exceed 
the demonstration's spending limit. The state would then have to 
finance the demonstration using only state funds. Without available 
federal matching funds to continue to cover the demonstration's 
required costs to provide services, options available to the state to 
reduce expenditures could include reducing benefits and increasing cost 
sharing requirements, cutting back on populations served, or decreasing 
provider payment rates. 

Vermont began implementation of this demonstration program in October 
2005, and the demonstration proposal indicated that, initially, 
delivery of services to beneficiaries would not change. Nearly all 
Medicaid beneficiaries were enrolled in the demonstration at the time 
it was initiated, and as of December 2006, the latest month in which 
information was available, more than 141,000 beneficiaries in Vermont 
were enrolled. At the time of our review, the demonstration program was 
not yet far enough along to assess the financial effects of the 
demonstration on beneficiaries' benefits, coverage, or eligibility, 
including the accuracy of the spending projections approved for the 
demonstration. 

States Provided Opportunities for Public Input on Proposals but Details 
Were Lacking, and HHS Did Not Provide for Input at the Federal Level: 

In Florida and Vermont, beneficiaries and other stakeholders had a 
number of opportunities at the state level to provide public input and 
comment during the development of demonstration proposals. Despite 
these opportunities, local stakeholders in each state we spoke to told 
us that state officials did not provide sufficient information or time 
to review the proposals prior to their submission for federal review 
and approval. At the federal level, HHS did not provide formal public 
notice or the opportunity to comment. Also, contrary to its stated 
policy of posting demonstration proposals on its Web site prior to 
approval, HHS did not do so in the case of Florida or Vermont. 

Florida and Vermont Provided Opportunities for Public Notice and 
Comment, but Stakeholders Reported That Only Limited Information Was 
Available: 

Florida and Vermont followed HHS's guidance regarding public notice and 
comment, each holding multiple public forums and posting information on 
state Web sites and in newspapers. Stakeholders in each state, however, 
reported that the information provided was primarily broad concepts, 
lacking the specificity they needed to offer constructive comments or 
ask meaningful questions. For example, stakeholders said that public 
documents did not adequately describe growth trends used to develop the 
demonstrations' budgets. In both Florida and Vermont, the state 
legislatures were active in soliciting public input and reviewing 
versions of the demonstration proposals as they were developed. 
Stakeholders in each state, however, reported that they were not given 
sufficient time to review the proposals once they were made public and 
prior to the state submitting the formal proposal to HHS for review and 
approval. 

Florida's Public Notice-and-Comment Process: 

Florida Medicaid officials followed HHS's policy for public process at 
the state level by conducting stakeholder presentations and posting a 
draft of the proposed demonstration on the state's Web site for 30 days 
during September 2005. Before submitting a proposal to HHS on October 
3, 2005, the Florida State Medicaid Director and state officials from 
the Agency for Health Care Administration (AHCA), the agency 
responsible for the state's Medicaid program, made presentations to the 
public about general concepts of the demonstration, during which the 
public could comment as well as learn about the demonstration. 
Concerned about the proposal and the speed at which it was progressing, 
Florida's legislature had earlier enacted legislation that authorized 
AHCA to implement the demonstration, subject to parameters defined 
under state law and as approved by HHS. The state law also required 
AHCA to post drafts of the section 1115 demonstration proposals on the 
state's Web site for 30 days for public comment before submitting it to 
HHS and to obtain approval from the state legislature before submitting 
and implementing the demonstration proposals.[Footnote 34] The state 
legislature also sponsored several public forums to solicit public 
input on the proposal. 

Some stakeholders we spoke to, including those representing 
beneficiaries, reported that information about the proposal was not 
available, for example, budget and demographic information and nursing 
home and pharmaceutical costs. Two stakeholders representing hospitals 
and a large managed care organization in Florida made positive comments 
about the way the state created opportunities for public input during 
the development of the proposal. However, two state-level 
organizations--one representing individuals aged 50 and older and one 
that provides legal services to low-income individuals--filed formal 
public information requests for material not made available to 
stakeholders during the development of the demonstration proposal after 
these organizations were unable to acquire documents through other 
means. In October 2005, soon after the state submitted its proposal to 
HHS, the organization that represents individuals aged 50 and older 
filed a public-records request to obtain a copy of a state-sponsored 
analysis of Medicaid expenditure trends. Organization officials told us 
they received the requested analysis, but only after repeated requests. 
Another organization--a state-level group providing legal services to 
low-income people--after experiencing difficulty obtaining sufficient 
information on the proposal from state Medicaid officials during public 
meetings, in December 2004 filed a Freedom of Information Act request 
with HHS for copies of draft proposals, state plan amendments related 
to the demonstration, budget and demographic information, and 
correspondence between HHS and state officials. As of June 2007, 20 
months after HHS approved the demonstration proposal in Florida, the 
organization had not received the requested documents from 
HHS.[Footnote 35] In addition, stakeholders in Florida expressed 
concern that the state's Medical Care Advisory Committee[Footnote 36] 
did not participate in the development of the demonstration proposal 
because it had not convened while the demonstration proposal was under 
development and review. 

Vermont's Public Notice-and-Comment Process: 

Vermont Medicaid officials followed HHS's requirements for public 
process at the state level, and the final demonstration proposal 
submitted to HHS included a record of public comments and the responses 
offered by the state Medicaid officials. Officials from the Vermont 
Agency of Human Services and Office of Vermont Health Access, both 
responsible for administering the state's Medicaid program, held three 
public hearings during which they received public questions and 
comments. Additionally, the Vermont legislature made several changes to 
the proposal before voting to approve the demonstration. For example, 
counsel to the legislature advised the state legislature that HHS would 
not have authority to approve a Medicaid demonstration as a block 
grant, as the governor and state Medicaid officials had initially 
proposed. As required under state law, the Vermont legislature oversees 
the demonstration by approving any changes made to demonstration 
components or financing.[Footnote 37] 

Stakeholders in Vermont also reported difficulties in obtaining 
sufficient information on the demonstration proposal, such as the 
effect of the demonstration on benefits for beneficiaries and methods 
the state used to formulate the demonstration's projected savings. 
Local stakeholders we interviewed told us that the level of detail 
provided by Vermont Medicaid officials in presentations was limited to 
broad examples used to illustrate how the demonstration would operate 
and that state officials could not offer a comprehensive explanation of 
the demonstration's implementation. These stakeholders told us they 
were unclear about many of the implications for beneficiaries. Members 
of the state's Medical Care Advisory Board, established by the state to 
facilitate consumer input to its Medicaid policies, told us that they 
had lacked time and information to review the demonstration proposal 
prior to its formal submission to HHS for review and approval and had 
voted in April 2005--just before the proposal was submitted to HHS--not 
to approve its going forward. The board did not receive information it 
had requested from the state on federal matching formulas, 
disenrollment rates, historical cost and caseload trends, programs 
included in the budget projection, or how the demonstration interacts 
with the state budget. Because the board's role was advisory, however, 
the state submitted the demonstration proposal despite the board's lack 
of support. 

At the Federal Level, HHS Did Not Provide Notice and Opportunity for 
Public Comment by Stakeholders: 

At the federal level, HHS did not provide a process for public notice 
and comment on either Florida's or Vermont's proposed demonstrations. 
In January 2007, HHS officials reiterated statements made to us by HHS 
officials in 2002 that the agency no longer followed the federal public 
notice-and-comment process in its 1994 policy published in the Federal 
Register and instead was posting pending and approved demonstration 
proposals to its Web site. (Table 1 shows the differences between the 
1994 and 2007 federal-level policies.) However, some national 
stakeholders reported that HHS did not post the proposals to its Web 
site before approving the Florida and Vermont demonstrations. Further, 
HHS had not posted to its Web site a demonstration amendment proposal 
submitted by Vermont Medicaid officials to HHS in September 2006 until 
mid-April 2007.[Footnote 38] All of the national stakeholders we 
queried about the demonstration amendment told us that they were 
unaware of the proposed amendment and that neither HHS nor state 
Medicaid officials had provided them a copy. 

Table 1: Comparison of HHS's 1994 and 2007 Policies on Public Notice 
and Comment at the Federal Level: 

Federal action: State notified as to adequacy of intended public 
process; 
1994: [check]; 
2007: [check]. 

Federal action: Monthly notice of all new and pending proposals 
published in Federal Register; 
1994: [check]; 
2007: [Empty]. 

Federal action: Federal Register notice published indicating that HHS 
is accepting written comments on proposals; 
1994: [check]; 
2007: [Empty]. 

Federal action: List maintained of organizations requesting notice of 
receipt of demonstration proposal; 
1994: [check]; 
2007: [Empty]. 

Federal action: Organizations notified when proposal received; 
1994: [check]; 
2007: [Empty]. 

Federal action: Thirty-day comment period provided before decision on 
proposal; 
1994: [check]; 
2007: [Empty]. 

Federal action: Acknowledgment issued for receipt of all comments; 
1994: [check]; 
2007: [Empty]. 

Source: 59 Fed. Reg. at 49,249 (Sept. 27, 1994) and HHS officials. 

[End of table] 

In January 2007, HHS officials told us--as they had told us in 2002--
that the department no longer adhered to the 30-day waiting period to 
accept and consider comments before rendering a decision on a 
demonstration proposal as described in the agency's 1994 policy. For 
example, in Florida, HHS approved the state's demonstration proposal 16 
days after the state submitted the formal proposal to HHS.[Footnote 39] 
Nearly all of the national stakeholders we interviewed told us that 
this window was not enough time to allow them to review and comment on 
Florida's final proposal. Further, stakeholders said that HHS does not 
notify interested groups or the public when HHS receives a 
demonstration proposal for review. As a result, in contrast to the 
department's 1994 policy, beneficiaries and other interested parties 
may be unaware that HHS has received a proposal until after the 
proposal has been approved, as some reported was the case for Florida. 

Several national stakeholders reported that requests they made to HHS 
for information about both demonstrations went unanswered. These 
stakeholders told us that such information helps their organizations to 
evaluate proposed demonstrations before providing comments and to 
assist local stakeholders in understanding the implications of proposed 
demonstrations. 

The Medicaid Commission recently endorsed compliance with policies 
requiring a public input process at the federal level for achieving 
Medicaid reform.[Footnote 40] In December 2006, the commission issued a 
report to the Secretary of Health and Human Services, which 
recommended, among other things, that compliance with existing policies 
regarding public notice of section 1115 demonstration proposals, such 
as HHS's 1994 public notice-and-comment policy, be monitored and 
enforced. The report recommended that HHS and states enforce existing 
federal and state laws and regulations so that stakeholders such as 
beneficiaries, providers, and family members may provide input while 
new programs and delivery models affecting them are developed and 
implemented. The Medicaid Commission found that information and 
perspectives offered during public comment periods constituted 
important feedback and recommended that HHS and state officials elicit 
public feedback when state Medicaid agencies pursue policies that would 
restructure state Medicaid programs. 

A broad range of national stakeholder organizations have also raised 
concerns to Congress about the need for an improved federal-level 
process for public input during HHS review of demonstration proposals. 
A group of nearly 60 national stakeholder organizations sent a letter 
in February 2006 to the Chairman and Ranking Member of the Senate 
Committee on Finance, expressing concern that significant and complex 
policy changes are made to the Medicaid program through section 1115 
demonstrations, often with little opportunity for public input. This 
group of national stakeholders further stated that it wanted to ensure 
that major changes made to Medicaid were subject to appropriate public 
input and congressional oversight and that the ramifications of these 
changes for beneficiaries were well understood. 

Views varied among the national stakeholder groups we interviewed 
concerning the need for a public input-and-comment process at the 
federal level. National stakeholder organizations representing state 
governors and legislatures did not believe that additional measures 
were required at the federal level to provide for public input. These 
groups--the National Governors Association, National Conference of 
State Legislatures, and the Center for Health Transformation--told us 
that state-level public input processes were sufficient for providing 
information and opportunities for comment and that additional action at 
the federal level would not add to stakeholders' understanding of 
demonstration proposals. In contrast, national stakeholder groups we 
interviewed that represent beneficiaries generally told us that a 
process for public comment at the federal level was important to their 
organizations. In November 2006, a panel of 16 representatives from a 
broad range of national stakeholder organizations described the 
relationship between HHS's current actions and their organizations' 
activities: 

* Providing public input during the federal approval process. 
Representatives said that providing public input on topics that affect 
their constituents is a significant responsibility for their 
organizations during the federal approval process. HHS did not, 
however, provide an opportunity for national groups to offer public 
input during the approval process for the Florida and Vermont 
demonstrations. An official from a national group representing 
community health centers said, for example, that HHS had not provided 
the organization an opportunity to offer input to the pending 
demonstration proposals, both of which affect health centers in those 
states. Officials from other national groups confirmed that HHS directs 
their organizations to offer input to states rather than to HHS, even 
after HHS has received a formal demonstration proposal from a state. In 
addition, an official from a national organization providing legal 
services to low-income individuals, including Medicaid beneficiaries, 
said that HHS has no formal process to notify national stakeholders of 
pending proposals received for HHS review and that if advocates and 
organizations did not actively seek out information through other 
channels, they would not be aware of pending demonstration proposals. 

* Providing technical assistance to local affiliates and beneficiaries. 
Representatives told us that information from HHS on proposed 
demonstrations during the approval process is critical for their 
organizations to provide technical assistance to beneficiaries and 
local affiliates, particularly if the state-level public input process 
was insufficient. For example, an official from a national organization 
representing children with behavioral health issues (many of whom are 
Medicaid beneficiaries) commented that local members often call the 
national organization to ask for information about demonstration 
proposals pending in their own state. Likewise, an official from an 
organization representing individuals with Alzheimer's disease said 
that state and local chapters rely on the national organization for 
expertise and information on public policy issues, including proposed 
Medicaid demonstrations. An official from a national group providing 
social services to low-income seniors told us that the group uses 
information provided by HHS to inform its constituency of implications 
of new or untested Medicaid policies on long-term care services. 
Officials from other national groups we contacted also told us that HHS 
did not provide requested information related to pending demonstrations 
in Florida and Vermont, including copies of the proposals. 

* Informing HHS about lessons learned from past demonstrations. 
Representatives said that HHS itself cannot necessarily track every 
implication for beneficiaries that could occur over a demonstration's 5-
year period for all the demonstrations it approves for different 
states. As a result, national stakeholders try to inform HHS on which 
provisions and procedures from former demonstrations have and have not 
worked and on what implications may have developed for beneficiaries. 
National groups told us they have an "experiential base" of knowledge 
about the past performance of demonstrations, which, through an open 
exchange of information with stakeholders, can benefit HHS officials in 
deciding whether to approve a demonstration proposal. 

* Monitoring changes to federal Medicaid policy. Representatives also 
expressed concern that HHS has introduced major changes to federal 
Medicaid policy through approvals of state demonstrations and that 
public input at the federal level is an important requirement for 
monitoring and anticipating these changes. An official from a national 
organization representing providers of mental health services told us 
that the federal approval process for demonstration proposals has 
become so complex that changes in federal Medicaid policy have occurred 
without a complete paper trail available to the public showing how 
demonstration proposals were developed, which limits accountability and 
transparency for HHS. 

Concluding Observations: 

Both the Florida and Vermont demonstrations embody significant changes 
in how these states operate their Medicaid programs. In approving these 
demonstrations, HHS has approved state Medicaid reforms that depart 
from previously approved demonstrations. These reforms have potentially 
mixed implications for beneficiaries covered under the demonstrations 
in terms of how the demonstrations may affect their access to health 
care services. In Florida, which will test the effects of combining 
market-based commercial approaches with the delivery of services to the 
low-income Medicaid population, it is important that beneficiaries are 
fully informed and understand the trade-offs involved with their health 
care choices, especially if they are relinquishing certain Medicaid 
benefits, such as EPSDT. In Vermont, the federal financial risk is 
limited to a specified level, but the risk of increased costs due to 
unforeseen circumstances is assumed by the state--and could potentially 
result in program changes for beneficiaries and providers should the 
spending limit be exceeded. As HHS noted in issuing its 1994 policy, 
people who may be affected by a demonstration have a legitimate 
interest in learning about proposed demonstrations and should have an 
opportunity to provide input to the decision-making process. Although 
Florida and Vermont officials provided for public input and comment 
during the development of their proposals, many stakeholders reported 
seeking, but not obtaining, more time and information to understand and 
provide informed input on the proposed changes. A federal-level process 
does not exist that would allow stakeholders and beneficiaries to learn 
of, review, and provide input on the submitted proposals. 

HHS's objective of expediting the waiver review and approval process is 
reasonable. But, as we stated in our 2002 report, public input into new 
demonstration proposals is important not only because such input helps 
ensure that demonstrations are consistent with overall Medicaid goals 
and that the waiver of certain statutory provisions is justified by the 
benefits obtained, but also because approved demonstrations represent 
federal policy whose influence may reach beyond a single state. A 
notice-and-comment opportunity at the federal level would provide for a 
more open and transparent process for all affected and interested 
parties, including Congress--something that, as shown by our earlier 
work and more recently in Florida and Vermont, may be better 
accomplished at the federal rather than state level. Unless Congress 
and HHS take action in response to the matters for congressional 
consideration and recommendations to the Secretary that we presented in 
our July 2002 report--namely that Congress consider requiring the 
Secretary to improve public notification and input at the federal level 
and that the Secretary provide for an improved process--it appears 
likely that HHS will continue to approve waivers for comprehensive 
Medicaid demonstrations without adequate opportunity for public input. 
Improvements should include, at minimum, posting pending demonstration 
proposals to the HHS Web site, implementing a 30-day comment period 
after receipt of a demonstration proposal before issuing a decision, 
and notifying interested parties of the receipt of proposals. 

Agency and State Comments and Our Evaluation: 

We provided a draft of this report for comment to HHS, Florida, and 
Vermont. Each provided written comments, which we summarize and 
evaluate below. 

HHS's Comments and Our Evaluation: 

As in 2002, when we reported concerns with the lack of opportunity for 
public input to the section 1115 demonstration approvals, HHS disagreed 
with our recommendation that called for the Secretary to improve the 
opportunities for public input at the federal level. HHS expressed a 
view that opportunities for public input are more than adequate because 
states have a broad array of options for soliciting public input, and 
because HHS holds states accountable for complying with its 1994 policy 
and subsequent guidance regarding public input. HHS expressed concern 
that requirements that the department build a new process would create 
redundancy and slow the approval process, delaying states' creative 
approaches under the demonstrations. Of greatest concern to HHS was 
that federal legislation could create a pathway to court that would 
allow a single individual to delay implementation of a Medicaid 
demonstration and in so doing, disrupt a state's budget. 

Our report points out that Florida and Vermont offered opportunities 
for public notice and comment consistent with HHS's policy for input at 
the state level; however, we do not agree that such a process at the 
state level precludes the need for input to HHS once a proposal is made 
final and submitted to HHS for approval. It is only at this point in 
the process that a state's final plans may be made clear. As discussed 
extensively by HHS in its comments, states may make significant changes 
to plans for the demonstration before submitting a proposal to HHS; 
stakeholders may not be aware of these changes or the plans as laid out 
in the final proposal.[Footnote 41] Further, demonstrations have 
potentially far-reaching implications for beneficiaries beyond a 
state's borders, as approval of an innovative approach in one state 
paves the way for other states to follow suit through similar 
demonstrations. Finally, HHS did not explain or provide a basis for its 
contention that allowing for input at the federal level would create 
legal challenges. Therefore, we disagree with HHS's suggestion that a 
public process should be limited in order to avoid legal challenges. 
Although ensuring that opportunities for comment are available for 30 
days or longer after a proposal is received could slow the current 
process--since HHS is approving some proposals more quickly, as in 
Florida--we believe this added time is a cost that is outweighed by the 
potential benefits in improved transparency and the potential for 
meaningful federal consideration of input from beneficiaries and 
others. We maintain that such a process is important for ensuring that 
precedent-setting decisions to waive Medicaid requirements are made 
after the consideration of concerns of stakeholder organizations and 
those affected by the decisions. Furthermore, because not all 
information key to stakeholders may be available to them during the 
state process and because the proposal might be changing significantly 
during the state's process, a notice-and-comment process that provides 
openness and transparency for all affected and interested parties at 
the federal level remains important for ensuring adequate public input 
to the final proposal as submitted to HHS. Consequently, we continue to 
believe our recommendation is valid. 

HHS committed to several actions to ensure a transparent approval 
process which we summarize and respond to below. 

* HHS noted that its 1994 policy predates widespread access to, and use 
of, the Internet. HHS said that it has a policy to post applications on 
its Web site within 10 days after the application, renewal, or 
amendment request is received.[Footnote 42] HHS also stated its 
intention to add to the CMS Web site within the next several months a 
summary page of pending actions including state and federal contact 
information. We note that HHS did not have a 10-day-to-Web site policy 
during the course of our review and that HHS told us in 2002 that it 
planned to post waiver applications to its Web site but did not do so 
in the case of Florida and Vermont. When asked for a copy of its new 10-
day policy, HHS officials told us that the policy was contained in 
division manager performance expectations and was communicated to staff 
who work with 1115 demonstrations. 

* HHS also noted that CMS accepts and responds to written comments on 
demonstration proposals at any time. Officials had made this 
observation during our review, but also provided documentation 
indicating that they had received only one comment on the Florida 
demonstration and none on the Vermont demonstration during the process. 

Finally, HHS offered several additional comments of a technical nature, 
including questioning our selection of Florida and Vermont as the focus 
of our review. HHS indicated that other state demonstrations have 
higher matching rates and high federal financial exposure; in 
particular, family planning demonstrations, for which states receive a 
90 percent matching rate. We recognize HHS has approved many section 
1115 demonstrations, some of which carry higher matching rates than the 
Florida and Vermont demonstrations. Yet we focused our work on recently 
approved comprehensive demonstrations, for which the majority of the 
state's Medicaid spending was directed by the demonstration's terms, 
precisely for the reason indicated by HHS--that these "two projects are 
significant demonstrations with far-reaching financial and programmatic 
implications." Other recently approved section 1115 demonstrations 
identified by HHS either were not comprehensive, or did not affect more 
than 50 percent of the state's Medicaid spending.[Footnote 43] The 
family planning demonstrations that HHS highlighted as at high risk of 
federal financial exposure because of their high matching rates cover a 
small portion of many Medicaid services that states provide, and these 
demonstrations are not consistent with HHS's definition of 
"comprehensive." We incorporated other of HHS's technical comments 
where appropriate. HHS's comments are reproduced in enclosure III. 

State Comments and Our Evaluation: 

In commenting on a draft of this report, Florida stated that our draft 
report did not provide an accurate and unbiased representation of its 
demonstration. In particular, Florida said the report did not 
acknowledge key aspects of the state's demonstration, such as the use 
of choice counselors to provide information to beneficiaries and the 
implementation of an enhanced benefit program. Florida said such 
omissions and underemphasized facts could lead to inaccurate 
conclusions about the nature of the demonstration and its implications 
for beneficiaries. Florida also said the report overemphasized the 
customized benefit packages and opt-out program components of its 
demonstration and did not adequately describe other important 
components. From our analysis of the demonstration's terms and 
conditions, we believe the draft report accurately reflects the major 
potential implications for beneficiaries over the 5-year demonstration 
period; we have nonetheless added information to our report on the 
enhanced benefit program which had not previously been described. 
Florida also took issue with the use of the phrase "commercial managed 
care plans," saying that the state is not solely contracting with 
commercial plans. Because the state did not consider all contracted 
plans as "commercial," we removed this word when describing the plans 
with which Florida contracts. We note that Florida acknowledges that 
its demonstration seeks to build upon the "commercial" market 
structure. 

Florida also reiterated its extensive efforts to provide opportunities 
for public comment during development of the demonstration proposal and 
stated that it would not be prudent to duplicate the state's process at 
the federal level. Florida offered opportunities for public comment; 
nevertheless, stakeholders reported that information about the proposal 
was not available and two state-level groups filed public information 
requests to obtain this information. Stakeholders also expressed 
concern that Florida's Medical Care Advisory Committee--required by 
federal regulation to provide consumer input to the state on Medicaid 
policy development and program administration--did not participate in 
the development of the demonstration proposal. Finally, Florida 
provided several technical comments, which we incorporated as 
appropriate. Florida's comments are reproduced in enclosure IV. 

Vermont stated that our draft report was thorough, thoughtful, 
balanced, and complete; nonetheless, state officials were disheartened 
that some stakeholders reported that the state's public input process 
was somehow weak or not well rounded. Vermont also noted that there is 
no more uncertainty regarding future benefit levels under the Vermont 
demonstration than there is without any demonstration at all, as 
optional Medicaid populations have always been subject to inclusion at 
states' discretion. Vermont's comments are reproduced in enclosure V. 

As arranged with your office, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
after its issue date. At that time, we will send copies of this report 
to the Secretary of Health and Human Services, the Administrator of the 
Centers for Medicare & Medicaid Services, and other interested parties. 
We will also make copies available to others upon request. In addition, 
the report will be available at no charge on the GAO Web site at 
[hyperlink, http://www.gao.gov]. 

If you or your staff members have any questions, please contact me at 
(202) 512-7114 or allenk@gao.gov. Contact points for our Office of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. Major contributors to this report are acknowledged 
in enclosure VI. 

Signed by: 

Kathryn G. Allen: 
Director, Health Care Issues: 

[End of section]

Enclosure I: National, State, and Local Stakeholder Groups Contacted: 

National stakeholder groups that GAO contacted: 

* Alzheimer's Association: 

* American Association of Homes and Services for the Aging: 

* AARP (formerly the American Association of Retired Persons): 

* American Network of Community Options & Resources: 

* Center for Health Transformation: 

* Center on Budget and Policy Priorities: 

* Families USA: 

* Georgetown Health Policy Institute: 

* The Heritage Foundation: 

* March of Dimes: 

* National Association for Children's Behavioral Health: 

* National Association of Community Health Centers: 

* National Conference of State Legislatures: 

* National Governors Association: 

* National Health Law Program: 

* National Health Policy Forum: 

* National Mental Health Association: 

* National Senior Citizens Law Center: 

* National Women's Law Center: 

* Service Employees International Union: 

State-level and local stakeholder groups in Florida and Vermont that 
GAO contacted: 

* Florida AARP: 

* Florida Association of Health Plans: 

* Florida Hospital Association: 

* Florida Legal Services: 

* Low Income Pool Council (in Florida): 

* Florida Pediatric Society: 

* WellCare (in Florida): 

* Vermont Association of Hospitals and Health Systems: 

* Bi-State Primary Care Association (in Vermont): 

* Vermont Legal Aid: 

* Vermont Medical Care Advisory Committee (known as the Medicaid 
Advisory Board): 

[End of Section]

Enclosure II: Summary of Mandatory Federal Requirements for Traditional 
State Medicaid Programs: 

Table: Summary of Mandatory Federal Requirements for Traditional State 
Medicaid Programs. 

Mandatory health benefits. 

States must cover, at a minimum, the following services under their 
state plans: 

* Inpatient hospital services.

* Outpatient hospital services.

* Prenatal care. 

* Vaccines for children. 

* Physician services. 

* Nursing facility services for persons aged 21 or older. 

* Family planning services and supplies. 

* Rural health clinic services. 

* Home health care for persons eligible for skilled-nursing services 

* Laboratory and x-ray services. 

* Pediatric and family nurse practitioner services. 

* Nurse-midwife services. 

* Federally qualified health-center services. 

* Early and periodic screening, diagnostic, and treatment services for 
children under age 21[A].

Mandatory eligibility groups.

States must cover, at a minimum, the following individuals under their 
state plans: 

* Individuals eligible for Aid to Families with Dependent Children 
program (now known as Temporary Assistance for Needy Families, or TANF) 
if they meet requirements that were in effect in their state on July 
16,1996. 

* Children under age 6 whose family income is at or below 133 percent 
of the federal poverty level (FPL). 

* Pregnant women whose family income is below 133 percent of FPL. 

* Supplemental Security Income recipients in most states. 

* Recipients of adoption or foster care assistance under Title IV of 
the Social Security Act. 

* Special protected groups. 

* All children born after September 30, 1983, who are under age 19 and 
in families with incomes at or below FPL. 

* Certain Medicare beneficiaries[B]. 

Cost-sharing limits. 

States are limited to the following cost-sharing requirements under 
their state plans:

* States may not impose enrollment fees or premiums on mandatory 
eligibility groups. 

* States may impose nominal deductibles, coinsurance, or co-payments on 
some Medicaid beneficiaries for certain services. 

* Certain Medicaid beneficiaries must be exempt from this cost sharing, 
including pregnant women, children under age 18, and hospital and 
nursing home patients expected to contribute most of their income to 
institutional care. 

* All Medicaid beneficiaries must be exempt from co-payments for 
emergency services, hospice services,and family-planning services[C]. 

Source: GAO analysis of federal laws and Department of Health and Human 
Services regulations and guidance. 

[A] Social Security Act  1902(a)(10)(A), 1905(a) (codified, as 
amended, at 42 U.S.C.  1396a(a)(10)(A), 1396d). Effective March 31, 
2006, states also have the option of limiting coverage of services for 
certain Medicaid recipients to either benchmark coverage or coverage 
that provides a benefit package equal in value to benchmark coverage. 
Benchmark coverage is defined as (1) the Federal Employee Health 
Benefits Program (Blue Cross/Blue Shield) benefit plan, (2) the health 
benefits plan offered to state employees, (3) coverage offered by a 
health maintenance organization with the largest enrollment in the 
state, or (4) a package of benefits approved by the Secretary of Health 
and Human Services. SSA  1937 (to be codified at 42 U.S.C.  1396u-7). 

[B] SSA  1902(a)(10)(A)(i)) (codified, as amended, at 42 U.S.C.  
1396a(a)(10)(A)(i)). 

[C] SSA  1916 (codified, as amended, at 42 U.S.C.  1396o). Effective 
March 31, 2006, states may impose premiums on certain previously exempt 
Medicaid recipients with family incomes above 150 percent of the FPL. 
States may also impose more than nominal cost sharing on certain 
services such as nonpreferred drugs and nonemergency services provided 
in an emergency room. States also have the option of imposing co-
payments on certain individuals in previously exempt populations. SSA  
1916A (to be codified at 42 U.S.C.  1396o-1). 

[End of table] 

[End of section]

Enclosure III: Comments from the Department of Health and Human 
Services: 

Department Of Health & Human Services:

Centers for Medicare & Medicaid Services: 
200 Independence Avenue SW: 
Washington. DC 20201:
 
June 7, 2007: 

To: Marjorie Kanof:
Managing Director, Health Care: 
Government Accountability Office: 

From: Leslie V. Norwalk, Esq.:
Acting Administrator: 

Subject: Government Accountability Office (GAO) Draft Report: "Medicaid 
Demonstration Waivers: Lack of Opportunity for Public Input during 
Federal Approval Process Still a Concern" (GAO-07-694R): 

The Centers for Medicare & Medicaid Services (CMS) appreciates the 
opportunity to comment on the above mentioned GAO draft report. We note 
that the report included no new recommendations for the Department of 
Health and Human Services ("HHS" or "the Department") or Congressional 
action, but reiterates a July 2002 recommendation (from report GAO-02-
817, "Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver 
Projects Raise Concerns") to establish a Federal public input process 
that includes, at a minimum, notice in the Federal Register and a 30-
day public comment period. 

We continue to disagree with this recommendation because the 
opportunity for public input remains more than adequate, as we detail 
below. The Department continues to take steps in partnership with 
States to ensure that there are many opportunities for interested 
parties to share their views. States have a broad array of options for 
soliciting public input, and States are in the best position to decide 
which public input process will be most effective. We continue to hold 
States accountable for having in place a public process for comments, 
as described in the September 27, 1994, Federal Register notice and 
later reaffirmed in subsequent policy guidance on May 3, 2002. 
Acceptable practices for new section 1115 demonstration proposals 
include: public hearings, commission process, State legislative 
process, the State's own administrative procedures Act, or publication 
in newspapers of large circulation. Legislation requiring the 
Department to build a new public input process would create redundancy 
and slow the demonstration approval process, delaying States' creative 
approaches to expanding coverage. Of greatest concern is that 
legislation could create a pathway to court which would allow a single 
individual thousands of miles away to hold up the decisions made by 
elected State legislators and governors responsible for their Medicaid 
programs perhaps for years, throwing a State budget into disarray. 

Furthermore, the Department also stipulates in the Special Terms and 
Conditions (STCs) (in essence, the contract between Federal and State 
governments) governing a section 1115 demonstration that any subsequent 
program changes use a similar process. States seeking approval to amend 
substantive aspects of their demonstrations are required to describe in 
the amendment request the public process undertaken for the proposed 
change. We note that this latter requirement with respect to program 
changes is an enhancement under this administration to assure adequate 
public involvement; it has been in place now for nearly 4 years. 

Further, we believe that the most effective involvement of stakeholders 
is through their local and regional branches, which may avail 
themselves of the public process used at the State level. This kind of 
up-front involvement of regional or local stakeholders can assist the 
State in shaping the demonstration, resolving concerns, and building 
support for the proposal ultimately submitted to the Department. We 
also contend that it is primarily the responsibility of the State 
government staff to ensure that there is adequate and appropriate 
involvement of outside stakeholder groups on a demonstration proposal; 
it is the responsibility of CMS staff to involve other Federal 
Government stakeholders, such as staff from other Department operating 
divisions, Department staff divisions, and the Office of Management and 
Budget, as appropriate. 

The GAO report states that stakeholders in Florida and Vermont did not 
have adequate opportunities to provide input at the State level. In 
both the cases of Florida and Vermont, the States provided ample 
opportunity for review and comment to their citizens. In Vermont, the 
Medicaid reform proposal went through the State legislative process, 
which included multiple legislative hearings and testimony before the 
Health Access Oversight Committee, monthly meetings of the Medicaid 
Advisory Board, and consistent coverage by the media. Furthermore, 
solicitation of citizen and stakeholder input was provided from 
February to April of 2005 in a wide variety of forums, including the 
distribution of the concept paper, public announcements, public 
hearings, and a written comment period. A full description of the 
public process occupied an entire chapter of the State's final 
application. The chapter included a detailed chronology of events that 
allowed interested parties input into the design of the demonstration. 
The State also noted that 56 written comments were submitted by the 
deadline. 

Likewise, the State of Florida also made a significant effort to 
provide opportunities for public comment during all stages of 
development of the demonstration. The Florida Agency for Health Care 
Administration posted Florida's section 1115 Medicaid Reform 
demonstration application on its Web site for a 30-day period prior to 
submitting the final application to CMS. The State reported that during 
the 30-day period, 92 written comments were received. The agency 
provided individualized written response to these comments. 

However, the State's effort at building public awareness was not 
limited to this single 30-day period. The Florida Medicaid Reform 
demonstration, as submitted, was almost identical to the concept paper 
developed in early 2005. The concept paper was widely available for 
almost 7 months prior to the State's submission of an 1115 
demonstration application. It was added to the Governor's Web site 
following a January 11, 2005, press release and provided an opportunity 
for questions and comments. This posting was followed by five public 
hearings between February and March of 2005. Prior to the concept 
paper, the Governor issued a white paper and the State held public 
workshops in June, July, August, October, and November of 2004. 
Clearly, by the time of the 30-day public notice period described in 
the preceding paragraph, the concepts that informed the Florida 
Medicaid reform proposal, and indeed many of the proposed programmatic 
details, were widely known for those parties that wished to stay 
abreast of the Governor's health reform plan. 

With respect to the Department's listing of pending proposals in the 
Federal Register, we again note, as in previous Agency comments on the 
prior 2002 GAO report, that the now nearly 13-year-old notice predates 
widespread access to, and use of, the internet. Accordingly, over time, 
the Health Care Financing Administration (predecessor agency to CMS) 
discontinued the listing of pending proposals in the Federal Register. 
Additionally, States have since continued to demonstrate that they 
provide adequate public notice at the State level. 

To provide information about section 1115 waiver applications and 
subsequent amendments, it is our policy to post waiver applications on 
our Web site within 10 days after the application, renewal, or 
amendment request is received. We note that CMS accepts and responds to 
written comments on all demonstration proposals at any time. 

We also post other critical information on our Web site once a 
demonstration is approved. These items include demonstration program 
overviews, fact sheets, STCs, award letters, waiver and expenditure 
authorities lists, amendment proposals, and other significant 
communications with the State about the demonstration. We are also 
currently in the process of adding quarterly reports, annual reports, 
and demonstration evaluations completed to date. These additions will 
ensure stakeholders are fully informed with regard to program 
operations and outcomes. We believe that stakeholder access to 
information on operations and outcomes is equally important as the up-
front stakeholder input during the development phase of a 
demonstration, as described in the Florida and Vermont examples above. 

We also intend to add to the CMS Web site a summary page of pending 
actions including State and Federal contact information within the next 
several months. The summary will be updated as necessary to reflect 
current State activities. This new Web site feature will replace, in 
electronic fashion the Federal Register list highlighted in section 
VIII of the January 1994 Federal Register guidance. These additional 
documents and features on the CMS Web site will further enhance the 
Department's goal of transparency. 

We also want to emphasize process issues with respect to the posting of 
demonstration proposals under discussion to the CMS Web site. As noted 
in our 1994 Federal Register notice, to reduce administrative burden on 
the States, the Department adopted a number of procedures, including 
expanding pee-application consultation with interested States. Through 
this consultative process, many demonstration proposals develop from 
very basic initial concepts into complex documents through an iterative 
process where information is passed back and forth between the State 
and the Department. An initial demonstration proposal often evolves 
rapidly into a vastly different document, such that regimented public 
posting and input solicitation may not keep up with changes to the 
document. Alterations, additions, and deletions are made along the way, 
often on a more-than-daily basis. In these instances, States may not 
have labeled a particular document the "official or final submission;" 
therefore, the Department intends to place increased emphasis on 
working with States to make such a determination and immediately post 
these documents. Heightened Departmental efforts in this area will 
ensure that all documents identified as formal submissions are posted 
in a timely fashion. 

We also note that GAO took particular issue with the processing of the 
State of Florida's demonstration application. Specifically, the report 
notes with criticism that "HHS approved the State's demonstration 
proposal 16 days after the State submitted the formal proposal to HHS." 
Again, we emphasize the Department's commitment to pre-application 
consultation, as described above. The Department has continued this 
courtesy over 13 years and 2 administrations. Pre-application 
consultation with Florida, for instance, lasted over a year, during 
which time the public could involve itself through the State-level 
process, also described above. 

Finally, the report raises several concerns about beneficiaries' 
information with regard to selection of a plan under the Florida 
demonstration. The Department strongly agrees that it is crucial that 
beneficiaries have access to full information about the benefits they 
receive before they choose their health care plans. In fact, in the 
case of Florida, the Department and the State agreed during 
negotiations that informed choice is a key element of what is being 
tested under the demonstration. The Choice Counseling Program performs 
this pivotal function under Florida Medicaid Reform in order to ensure 
that beneficiaries make such informed choices. The choice counselor 
provides information about each plan's coverage, benefits and benefit 
limitations, cost-sharing requirements, contact information, and data 
on access to preventive services. The choice counselor also provides 
information to individuals interested in opting out of Medicaid should 
the individual be interested in pursuing an employer-sponsored 
insurance option. Choice counseling materials are provided in a variety 
of ways including, print, telephone, and face-to-face. 

The State of Florida began the effort to implement a Choice Counseling 
Program immediately upon approval of the demonstration in October 2005. 
The process included public meetings asking potential plans, advocates, 
and stakeholders how the program should be structured and how the 
program should assist in improving health literacy. The State 
contracted with a choice counseling vendor and worked with Florida 
State University to develop a Choice Counseling Certification Program 
to assist in training prospective counselors. The course is Web-based 
and consists of 10 training modules. The Department regularly requests 
updates on these aspects of choice counseling operations on monthly 
monitoring calls. 

In summary, we continue to disagree with the recommendation that 
legislation be adopted to establish a Federal public notice process for 
section 1115 demonstration waivers. Public notice and comment 
opportunities are available at the State level, and we review waiver 
applications carefully to ensure that States have provided adequate 
public notice. In addition, we note that requiring the Department to 
build a new public posting and input solicitation process for waivers 
also would have broader implications. Establishing a procedure that 
treats a waiver application like a regulation would set a precedent 
that could be applied to other waiver applications as well as grant 
applications. The ensuing delays would make it difficult for States and 
the Department to come up with creative approaches to expand coverage 
and has implications for programs beyond Medicaid and the State 
Children's Health Insurance Program. 

Additionally, CMS offers the following additional comments: 

 Page 2 -We believe the first footnote is an inaccurate 
characterization of what constitutes a "comprehensive section 1115 
demonstration." While it is true that we would generally expect a 
demonstration labeled "comprehensive" to be state-wide, it does not 
have to be "applicable to all populations and benefits under a State's 
Medicaid program." While that is one possibility, and that would indeed 
be regarded as comprehensive, we believe "comprehensive" could also be 
used to describe a demonstration that includes a majority of a 
substantial population. We also note that comprehensive demonstrations 
may in fact offer differential benefits to various populations (e.g., 
full. Medicaid benefits to a Medicaid State plan population: something 
else for higher-income "expansion" groups). 

 Page 17, second bullet  We note that the 5 percent cost-sharing cap 
parallels what is permissible under the title XXI statute so it is 
reasonable to define 5 percent as a "ceiling" underneath which cost-
sharing may be applied (and varied as necessary). 

 Page 17, third bullet  Vermont indeed has an enrollment cap which by 
its nature "changes or delays eligibility;" this is not a feature of 
the Vermont demonstration that uniquely affects enrollment in this 
particular State's program. Enrollment caps or waiting lists have been 
approved in other States for non-Medicaid State plan populations. 

 Page 20, Status of Freedom of Information Act (FOIA) request  The 
response to the FOIA request is pending. 

 Page 22  With reference to the Catamount Health amendment to the 
Vermont demonstration, we note that CMS informed the State that its 
September 2006 submission would be regarded as a concept. The actual 
formal submission date was December 15, 2006. We also note that the 
Catamount Health legislation was passed in the Vermont legislature with 
a good deal of attention in May 2006, so it is unlikely that 
stakeholders were unaware of the impending proposal. 

 Page 26  The report states, "National stakeholders try to inform 
IIHS on which provisions and procedures have and have not worked and 
what implications may have developed for beneficiaries." We welcome 
such input. 

 Page 26  In "Concluding Observations, "the report notes that Florida 
and Vermont have features that depart from previously-approved 
projects. We note that this is the nature of a demonstration project 
under section 1115 of the Social Security Act. By definition, they 
allow departure from past practice (whether in Medicaid State plan or 
other authority), and CMS has attached an important evaluative 
component in both of these demonstrations. Moreover, during the 
entrance conference, in an effort to put section 1115 demonstrations in 
context; we suggested GAO look at several demonstration projects 
approved since 2004. However, GAO targeted Florida and Vermont out of 
several comprehensive demonstrations currently approved. While these 
two projects are indeed significant demonstrations with far-reaching 
financial and programmatic implications, there are other demonstration 
types with higher matching rates, and, concomitantly, high Federal 
financial exposure. These the GAO neglected to include in its scope of 
work. Family planning section 1115 demonstrations, in which State 
spending is matched at 90 percent, provide one clear example. 

 Page 27  There is a specific reference to unforeseen circumstances 
affecting the State and the attendant financial exposure for the State. 
This is the nature of an aggregate cap where the spending ceiling is a 
pre-determined fixed number. We believe the STC's that CMS negotiates 
with States, including those pertaining to budget ceilings, are both 
comprehensive and contain sufficient safeguards to address emergency 
circumstances. They are binding to both parties to the agreement, the 
Federal Government and the States. 

 Page 28  Public input is again identified as somehow having been 
less than "adequate;" we disagree --see discussion above. 

The CMS again appreciates the opportunity to review and comment on the 
subject draft report.

[End of section]

Florida Medicaid:

Charlie Crist: 
Governor:

Andrew C. Agwunobi, M.D.: 
Secretary:

May 23, 2007:

Dr. Marjorie Kanof:
Health Care Managing Director: 
United States Government Accountability Office: 
441 G Street, NorthWest: 
Washington, DC 20548: 

Dear Dr. Kanof: 

Thank you for providing the Agency for Health Care Administration, the 
single state agency for administering the Florida Medicaid program, 
with the opportunity to comment on the draft report entitled Medicaid 
Demonstration Waivers: lack of Opportunity for Public Input during 
Federal Approval Process Still a Concern (GAO-07-694R). As requested by 
your staff, we are providing our requested technical corrections in 
Attachment A; otherwise, our comments are below. As provided for under 
Section 1115 of the Social Security Act, the Secretary for Health and 
Human Services has broad authority to grant waivers of statutory 
provision to implement experimental, pilot, or other demonstration 
projects likely to assist in promoting the objectives of the Medicaid 
statute. Florida was granted such a waiver in order to implement our 
state legislated reform project in October 2005. The draft report 
focuses on recent waivers approved in Florida and Vermont, and attempts 
to address the following issues: 

* Implications for beneficiaries as a result of recently approved 
comprehensive Medicaid demonstrations; and

* The extent to which the Secretary ensured opportunities for public 
input during the approval process.

We support the Government Accounting Office's (GAO's) efforts to 
evaluate Florida's Medicaid Reform effort and analyze the above issues. 
Florida understands the need to carefully monitor the impact of our 
demonstration in meeting the established goals as it has the potential 
to fundamentally reshape the Medicaid program and make it more 
effective. Florida also recognized the importance of obtaining public 
input as part to the demonstration process and made significant efforts 
to ensure that Florida's 1115 Florida Medicaid Reform Waiver was 
developed in a manner that considered the impact on beneficiaries and 
provided the opportunity for meaningful public input.

To address the above objectives, Florida believes that the GAO's report 
should provide an accurate and unbiased representation of events. 
Medicaid is a very complex program governed by many complex statutory 
and federal requirements. Operating under a waiver further complicates 
the Medicaid program. Therefore, to understand Florida's 1115 research 
and demonstration waiver program and draw accurate implications, there 
must be a fundamental and accurate representation and understanding of 
the demonstration program structure. 

From our perspective, the report falls short of the objective as there 
is selective representation of certain aspects of Florida's 1115 
Medicaid Reform Waiver while other innovative and integral concepts are 
omitted entirely or underemphasized. The draft report contains some 
factual errors regarding our program design and actual structure of 
Florida's 1115 Medicaid Waiver program is relegated to footnotes. These 
errors are related to the description of the program as well as the 
phrasing used to describe the program. While page 10 recognizes the 
actual effects are unknown at this time, the report draws some 
speculative conclusions regarding the impact of Florida's 1115 Medicaid 
Reform Waiver. As a result, the report provides a slanted review of our 
program and may lead a reader to draw inaccurate conclusions about the 
implications. Below is an outline of our concerns and recommendations 
for the report to ensure that it more accurately represents our 
Medicaid Reform efforts. 

Results in Brief: 

In this section of the draft report, a description of Florida's 
demonstration program is provided. As indicated above there are several 
items that are incorrect and should be corrected prior to publishing 
the report. Below are our comments regarding this section. 

* Page 5 describes Florida's demonstration program. The description 
focuses exclusively on the customized benefit packages and the opt-out 
program. This section fails to mention the Enhanced Benefits program 
and the expanded Choice Counseling Program created under Florida's 1115 
Medicaid Reform Waiver. As indicated in the waiver document, patient 
empowerment and responsibility are fundamental principles of Reform, 
and are designed to encourage recipient participation. To advance this 
goal, Florida created the Enhanced Benefits Program as an integral 
component of the program design. The program has been well received by 
virtually all stakeholders. The program has the potential to positively 
impact an individual as it provides them with new incentives to seek 
preventive health care. The state expects this will ultimately lead to 
healthier individuals and reduce future health care costs. The Choice 
Counseling Program was significantly expanded for the population 
affected by Florida's 1115 Medicaid Reform Waiver: face-to-face choice 
counseling (a local choice counseling presence), at-home visits, 
education sessions, extended call center hours, and the development and 
implementation of an independent certification process for choice 
counselors are unique to the Medicaid Reform Choice Counseling Program. 
While these were significant parts of Florida's 1115 Medicaid Reform 
Waiver, they were completely omitted in the 'Results in Brief' 
description of the waiver. 

* Pages 5 and 11 use the phrase "commercial managed care plans." The 
use of the term commercial appears to be a misnomer as it traditionally 
refers to a line of business. Under Florida's 1115 Medicaid Reform 
Waiver, beneficiaries are required to enroll in managed care plans. 
These plans still must meet the requirements of a Medicaid plan 
established by Congress under Sections 1903(m) and Section 1932 of the 
Social Security Act. While Florida's 1115 Medicaid Reform Waiver seeks 
to build upon the commercial market structure, the State is not solely 
contracting with commercial plans. We request that the word commercial 
be deleted when describing contracted plans under Florida's 1115 
Medicaid Reform Waiver.

* Page 5 states, "..., and if they opt out of Medicaid and desire to 
enroll in a Medicaid plan at a future date, they would need to reapply 
to Florida's Medicaid program." This is incorrect. As written, this 
appears to imply that if a beneficiary opts out of Medicaid and enrolls 
in his or her employer-sponsored insurance plan (ESI) plan, then he/she 
must reapply for Medicaid at a later date if the beneficiary chooses to 
enroll in a Medicaid plan. This is inaccurate as Florida's 1115 
Medicaid Reform Waiver does not change or affect Medicaid eligibility. 
An individual that opts out of Medicaid continues to be eligible for 
Medicaid. If a beneficiary is enrolled in an ESI plan and later chooses 
to enroll in a Medicaid Reform health plan, then the beneficiary must 
wait until his/her open enrollment period or his/her employer's open 
enrollment period in order to request enrollment in the health plan. 
However, the beneficiary does not need to reapply to Medicaid. 
Additionally, if the beneficiary loses eligibility for participation in 
the ESI plan (for example, is no longer is employed by that employer), 
then there is a process for that beneficiary to request enrollment in a 
Medicaid Reform health plan prior to the annual open enrollment period.

* Page 5, description of the Opt-Out Program, we believe that it is 
essential that the draft report recognize that this is a completely 
voluntary option with a process for 'opting back in' if the beneficiary 
loses eligibility for participation in the ESI program. These facts 
should be recognized in other sections of the draft report when 
describing opt out. 

Demonstration in Florida and Vermont Have Mixed Implications for 
Beneficiaries, But Actual Effects Are Unknown.

Under this section, the draft report identifies potential implications 
for beneficiaries. Below are our comments regarding this section. 

* Page 10 states that, "In Florida, for example, beneficiaries have 
greater flexibility to choose among different benefit plan, but could 
face,...new cost sharing requirements." Under Florida's 1115 Medicaid 
Reform Waiver, managed care plans are allowed to charge cost sharing 
consistent with regulations specified in 42 CFR 438.108. Therefore, the 
health plans can charge cost sharing consistent with the nominal levels 
currently approved for services covered under the State Plan. These 
represent existing costs sharing requirements  these are not new cost 
sharing requirements. Many plans chose to eliminate any cost sharing 
requirements, while other plans decided to implement cost sharing for 
select services. This should also be corrected on page 12. 

* Page 10, footnote 21, is incorrect. The paragraph should refer to 
comprehensive only. Medicaid Reform health plans that accept 
comprehensive and catastrophic coverage are at full risk and Florida 
will not pay any excess claims. 

* Page 11 describes the flexibility of plans to offer state-approved 
benefit plans tailored to specific groups of beneficiaries. However, 
key facts regarding the design and evaluation of the program are 
identified in footnotes 23 and 24. Specifically, plans have the 
flexibility to provide a customized benefit package to non-pregnant 
adults only. A Medicaid Reform health plan must continue to cover all 
medically necessary services for pregnant women and children. These are 
integral design issues that should be described in the text of the 
draft report instead of footnoted. Since the report highlights that 
beneficiaries who opt out of Medicaid do not have access to other 
Medicaid services, including EPSDT, the reader could be left with the 
incorrect impression that such protections do not exist for pregnant 
women and children in a Medicaid Reform health plan. We request that 
footnotes be incorporated into the text of the report so that 
inaccurate conclusions will not be made. 

* Page 12 states, "Some plans limited beneficiaries to 60 lifetime 
visits for home health services, while others expanded this service to 
210 visits annually per beneficiary." While this is accurate, the draft 
report does not put this in context with current coverage under the 
State Plan. Without knowing the current coverage requirements, the 
reader is left wondering the impact of the flexibility. Under the State 
Plan, Florida Medicaid covers up to 60 lifetime home health visits 
without a prior authorization and then additional visits subject to 
prior authorization. Therefore, Reform health plans covering 60 
lifetime visits without prior authorization is consistent with coverage 
outside of Florida's 1115 Medicaid Reform Waiver.

* Page 12 states that beneficiaries can opt out into a commercial 
health insurance. This is incorrect as only self-employed Medicaid 
beneficiaries who would be purchasing their own insurance may opt out 
into a commercial health insurance plan (other Medicaid beneficiaries 
could opt-out into ESI plans). Please clarify the participation 
requirement. 

* Page 13 states that when beneficiaries opt out of Medicaid they could 
not re-apply to the Florida Medicaid Program. As indicated above, this 
is inaccurate as Florida's 1115 Medicaid Reform Waiver does not change 
Medicaid eligibility. If an individual were to opt out and enroll in 
the ESI plan, but later lose Medicaid coverage due to excess income or 
assets, the beneficiary could reapply to Medicaid. If they were to 
regain eligibility, then the beneficiary would be allowed a new choice 
of selecting a Medicaid Reform health plan or reenrolling in his/her 
ESI plan. The reenroilment timeframes outlined apply to a beneficiary 
that is enrolled in an ESI plan and when he/she can disenroll from the 
ESI plan and enroll in a Medicaid Reform health plan. This language 
should be corrected.

* On page 14, the report states that the information available to 
choice counselors, moreover, may be incomplete. Specifically, 
stakeholders stated that the choice counselors did not have access to 
the health plans' drug formularies. If an individual is seeking this 
information, he/she is advised of, and can obtain it, directly by 
calling the Medicaid Reform health plan or visiting the plan's website. 
It should be further noted that prior to development of the procurement 
document for Choice Counseling services public meetings were held to 
discuss the design of the Choice Counseling program. The need for the 
health plans' preferred drug list was not identified until several 
months after implementation of Medicaid Reform. The Agency has been 
working on methods to make this information more accessible. To date, 
Medicaid reform plans have made their PDLs available on their websites, 
and the Choice Counseling vendor has implemented a special needs unit 
to assist beneficiaries with complex conditions to ensure they have all 
the information necessary (including PDL information) to make an 
informed choice. 

* Page 14 further states that Florida officials informed you that 
pregnant women and children under 21 years of age continue to have 
retroactive eligibility for up to 3 month prior to the date and will 
received full state plan benefits, and this group is also exempt from 
receiving limited benefits for up to 30 days before enrolled in managed 
care plan. Please note that all individuals continue to be authorized 
for retroactive eligibility for up to 90 days. While the Centers for 
Medicare and Medicaid Services granted a waiver of Section 1902(a)(34) 
so that the State was not required to provide retroactive eligibility 
for up to 90-days prior to the application, the Agency has not 
implemented this component of the program.

State Provided Opportunities for Public Input on Proposals but Details 
were Lacking, and HHS Did Not Provide for Input at the Federal Level. 

Under this section, the draft report provides comments regarding the 
process used by Florida, Vermont, and DHHS to obtain public comments 
from stakeholders. The stakeholders stated that details of the proposal 
were lacking and expressed difficulty in obtaining responses to request 
for information submitted to the Agency. We address both issues below.

Florida made an extensive effort to provide opportunities for public 
comment during all stages of the waiver development as well as during 
the implementation period. Most notably, the Agency posted Florida's 
1115 Medicaid Reform Waiver application on-line for 30 days. During 
this period of time, we received 92 written comments to which the 
Agency provided an individual written response to each letter received. 
This process of responding to public comment goes beyond any state or 
federal requirement and was provided by the Agency to ensure 
stakeholders comments were considered. 

We regret that some stakeholders informed the GAO that they perceive 
Florida state officials did not provide sufficient information. We do 
not believe that is accurate as the 1115 Medicaid Reform Waiver 
application was posted for a 30 day comment period. Furthermore, the 
waiver was almost identical to the concept paper developed in March of 
2005 and was widely available for almost seven months prior to our 
submission of the waiver application to the Centers for Medicare and 
Medicaid Services. As you note, two stakeholders representing hospitals 
and a large managed care organization made positive comments about the 
way the state created opportunities for public comment. 

As you are aware, Medicaid is an extremely complex program. The Agency 
made every effort to provide information and obtain input from 
stakeholders; however, the apparent discrepancy in the perception of 
the opportunity for comments may be more attributable to these 
stakeholders understanding of the Medicaid program rather than the lack 
of opportunity for comments. For example, the draft report specifically 
states that information regarding nursing home costs was not available. 
As the report notes in footnote 22, beneficiaries residing in nursing 
homes are exempt from the program. As such, their costs were not 
material to program and were not included in budget neutrality 
analysis. Florida Medicaid made repeated efforts to clarify this with 
advocates but it appears that the group was still confused about the 
impact of the 1115 Medicaid Reform Waiver on Medicaid beneficiaries 
residing in nursing homes. The group may have been referencing another 
initiative called Florida Senior Care which was authorized by the 
Legislature. However, this program is unrelated to Florida's 1115 
Medicaid Reform Waiver. As such, we request that you clarify or delete 
this reference. 

In addition, the draft report notes that many requests were made for 
information and details regarding information related to budget 
neutrality of the waiver. Specifically, advocates noted that detailed 
analysis regarding trends were not made available to fully understand 
how the trends were developed. As indicated above, Medicaid is an 
extremely complex program and budget neutrality is one of the more 
difficult and complex aspects of the Medicaid program. Florida believes 
its 1115 Medicaid Reform Waiver provided a sufficient explanation of 
budget neutrality and the trends developed. 

The draft report also notes that a state level group providing legal 
services to low-income people had difficulty obtaining sufficient 
information on the proposals in December 2004. This group submitted a 
request for all records, electronic and hard copy, in any medium, 
related to reform proposals, 1115 waivers, state plan amendments, 
including emails, calendars, etc. As noted in Attachment 8, the Agency 
held workshops in June, July, August, October and November of 2004. The 
Governor's white paper was released in January 2005 which provided a 
broad framework for the demonstration. The State did not withhold 
documents as implied by the advocates. Rather, the State responded to 
all requests timely. In this one instance, the broadness and sheer 
volume of the request required extensive time to collect the 
information, review it to ensure it was appropriately included and to 
redact any beneficiary information as needed. 

In addition, the group representing individuals age 50 and older stated 
that they only received a copy of a state-sponsored analysis of 
Medicaid expenditure trends in October 2005, after repeated requests. 
Florida's 1115 Medicaid Reform Waiver was posted on line prior to 
submission to the Centers for Medicare and Medicaid Services and 
included the cost trend data. Therefore, we are unclear what document 
was not made available and only provided after repeated attempts. 

While we cannot speak to activities undertaken by DHHS to obtain public 
comment, the Centers for Medicare and Medicaid Services routinely 
inquired about the state's activities to obtain comments in an effort 
to ensure that public input was obtained. We believe that it would not 
be prudent to duplicate the public input process if the State has 
provided ample opportunity for input. While many national stakeholders 
felt that they should be able to submit comments directly to DHHS, this 
seems to usurp a State's ability to administer a Medicaid program. As 
Medicaid programs are designed at the State level, they differ in each 
state and Medicaid state officials work directly with state 
organizations. Most national organizations may not be sufficiently 
familiar with a particular state Medicaid program to provide comments 
to help improve the administration of the program. Further, many of the 
national associations represent provider groups which may have material 
interest in protecting their role in Medicaid. These goals are 
sometimes at odds with improving Medicaid to make it more efficient and 
effective. Therefore, we believe that such stakeholders should be 
directed back to the State to provide comment. 

Again, we appreciate the opportunity to provide comments on your draft 
report and we reiterate the need for an accurate representation of our 
Medicaid Reform efforts. Should you have any questions about our 
comments, please contact me at (850) 488-3560. 

Sincerely,

Signed by: 

Thomas W. Arnold:
Deputy Secretary for Medicaid:
 

Enclosure
cc: Mr. Mark Thomas, Chief of Staff: 
Mr. Clint Fuhrman, Deputy Secretary for Communications and Legislative 
Affairs:

Enclosure: Comments from the Department of Health and Human Services 
(HHS): 

State of Vermont: 
Cynthia D. LaWare, Secretary: 
Agency of Human Services: 
Office of the Secretary:

[phone] 802-241-2220: 
[fax] 802-241-2979: 
[hyperlink, http://www.ahs.state.vt.us]:

103 South Main Street:
Waterbury, VT 05671-0204:

May 22, 2007:

Marjorie Kanof:
Managing Director, Health Care: 
The United States Government Accountability Office: 
441 G Street, NW:
Washington, DC 20548:

Dear Ms. Kanof: 

I am writing in response to your letter dated May 8, 2007, to Joshua 
Slen, the Director of the Office of Vermont Health Access. The Agency 
of Human Services in Vermont is the Single State Agency for receipt of 
Federal Medicaid Revenues and as such Mr. Slen forwarded your letter to 
my office for response. 

The State of Vermont appreciates the thorough and thoughtful draft 
report, and thanks you for the opportunity to provide comments from 
Vermont's perspective prior to it becoming final. Overall, I found the 
report to be balanced and complete. On page 6 you describe the Vermont 
Global Commitment to Health Waiver as "...designed to contain costs; to 
improve system accountability and quality of care; and, by potentially 
delivering services to Medicaid beneficiaries for less and reinvesting 
savings, to allow the state to serve more of its uninsured population." 
This statement represents one of the most concise and accurate 
descriptions that I have read. 

On page 10 you state that "Vermont may use savings from managed care 
operations to fund additional health care initiatives, but the state is 
at financial risk should demonstration costs exceed the approved 
spending limit, with uncertain implications for beneficiaries should 
that happen." I wish to offer that there is no more uncertainty 
regarding future benefit levels under the Vermont Waiver than there is 
without any waiver at all. Historically, Vermont has been in the 
forefront of broad inclusion (both populations and services) in its 
Medicaid program. This commitment continues as reflected in our 2006 
Health Care Reform Legislation and continues in 2007 with a new 
comprehensive Oral Health Initiative proposed by the Governor and 
enacted into law by the General Assembly. By your own analysis of the 
Waiver Terms and Conditions, Vermont cannot make reductions to services 
for mandatory populations and by design all other optional populations 
have always been subject to inclusion by affirmative action on the part 
of both our state executive and legislative branches. By its very 
design the granting of "flexibility" carries with it the possibility 
that covered services and populations may change over time. I would 
argue that this differs from the traditional program design only in 
express authority and not in intent or practice. In other words, the 
State has constantly led the nation in covering populations and in 
offering a breadth of services. 

The ability to manage the Vermont program in a manner that provides for 
the alignment with the statewide implementation of the Blueprint for 
Health Initiative (a public-private partnership intended to transform 
the system of care across the state) is critically important component 
of the Waiver design. In fact, on page 16 of the report you indicate; 

Expected cost savings could enable Vermont to serve more of the state's 
uninsured population. ...As described in the demonstration proposal, 
the demonstration is designed to put in place a series of health care 
options responsive to priorities supported by the Governor and State 
Legislature, including improved access to health care for Vermont's 
uninsured, cost containment within Medicaid, and improved system 
accountability and quality of care. Under the demonstration, the state 
is provided flexibility, including the ability to use creative payment 
mechanisms rather than fee-for-service to pay for services not 
traditionally reimbursable through Medicaid. 

The series of initiatives partially identified in your report arc 
integral to the comprehensive system reform effort in Vermont. The 
transformation of the health care system from one focused on acute 
interventions to one designed to care for chronic conditions across the 
lifespan involves dozens of separate but related changes in medical 
practice. The Waiver allows the state to continue its commitment to 
health care access and affordability for all Vermonters. 

One aspect of the report that I found disheartening was the suggestion 
that Vermont's public input process was somehow weak or not well 
rounded. Please note that the public input process began in January 
2005. The ongoing process involved multiple Public Announcements in 
statewide media, public hearings that were held in various locations 
around the State as well as broadcast on interactive TV, informational 
sessions and numerous updates to specific stakeholder groups, and 
continuous updates to comments, questions and answers posted on various 
State websites (see Attachment). All of this culminated in debate, 
testimony, refinements and ultimate approval of the waiver in our very 
public citizen legislature process. 

Once again I would like to applaud your thoughtful analysis. My 
comments herein are intended to highlight some of the additional 
details and to draw out the important Vermont context without which the 
readers of your report might conclude that Vermont was in the process 
of changing policies that have been deeply imbedded in state policy for 
decades. The bottom line is that Vermont continues to be committed to 
broad access to health care and is continually exploring new innovative 
programs to provide better quality care efficiently to all Vermonters. 

Sincerely,

Signed by: 

Cynthia D. LaWare, Secretary: 
Agency of Human Services:

Attachment:

Medicaid Advisory Board Meetings: 

The State of Vermont Global Commitment to Health Waiver was an agenda 
topic at the following MAB meetings:

1/27/05:  
2/24/05: 
3/28/05: 
4/7/05: 
6/5/05: 
8/5/05: 
9/05/05: 
10/05/05: 

Public Announcements:

February 24th, 2005  Concept paper and notice of Public Hearings 
distributed to Medicaid Advisory Board, Vermont Legislature, Agency of 
Human Services Policy Executives and posted on the website home pages 
of the Agency of Human Services and the Office of Vermont Health 
Access. 

February 25th, 2005  Public Announcements published in statewide 
newspapers. 

March 4th, 2005  Second publication of Public Announcements in 
statewide newspapers. 

Public Hearings: 

3/15/05  Rutland, VT: 
3/16/05  Burlington, VT and on VT Interactive TV in Bennington, 
Brattleboro, Castleton, Johnson, Lyndonville, Randolph, Rutland:  
3/17/05  Williston, VT: 

OVHA/AHS Website Postings:

Concept Paper 2/24/05: 
Comments, Questions and Responses  March 2005: 
PowerPoint Presentation for Public Hearings  March 2005: 
Global Commitment Waiver Proposal Final Version  4/15/05: 
MCO Implementation Workplan  Updated 9/23/05: 
Questions and Responses  Updated 9/23/05: 
Federal Terms and Conditions  Updated 9/23/05: 
Federal Approval Letter - 9/28/05: 

Contact and Staff Acknowledgments:

GAO Contact: 

Kathryn G. Allen, (202) 512-7114 or allenk@gao.gov: 

Acknowledgments: 

In addition to the contact mentioned above, Katherine M. Iritani, 
Assistant Director; Ted Burik; Ellen W. Chu; Tom Moscovitch; Terry 
Saiki; Stan Stenersen; Hemi Tewarson; and Jennifer Whitworth made key 
contributions to this report. 

[End of section]

FOOTNOTES 

[1] See Social Security Amendments of 1965, Pub. L. No. 89-97,  121, 
79 Stat. 286, 343-352 (1965) (adding new sections 1901-1905 and 
amending sections 1109, 1115 of the Social Security Act, codified, as 
amended, at 42 U.S.C.  1309, 1315, 1396-1396d). 

[2] For the purposes of this report, we use the Department of Health 
and Human Services' (HHS) Center for Medicare & Medicaid Services (CMS) 
definition that "comprehensive Medicaid section 1115 demonstrations" 
include those that affect a broad range of services for Medicaid 
populations statewide; in addition, we add the criterion that the 
comprehensive demonstrations we reviewed account for greater than 50 
percent of a state's Medicaid expenditures. 

[3] For purposes of this report, we refer to "Medicaid section 1115 
demonstrations," "section 1115 demonstrations," "demonstration 
projects," and "demonstrations" interchangeably. 

[4] In September 1994, HHS published in the Federal Register its policy 
on public participation during the demonstration approval process. At 
the federal level, HHS's policy stated that the department would post 
notice of pending demonstrations in the Federal Register; notify 
organizations that request information; and acknowledge, if feasible, 
comments received. At the state level, HHS's policy expected states to 
facilitate public involvement in developing demonstration proposals, 
such as by holding public hearings, convening commissions with open 
public meetings, enacting state legislation regarding the 
demonstrations, or posting information in newspapers. See Medicaid 
Program; Demonstration Proposals Pursuant to Section 1115(a) of the 
Social Security Act; Policies and Procedures, 59 Fed. Reg. 49,249 
(Sept. 27, 1994). 

[5] GAO, Medicaid and SCHIP: Recent HHS Approvals of Demonstration 
Waiver Projects Raise Concerns, GAO-02-817 (Washington, D.C.: July 12, 
2002). 

[6] GAO, Medicaid Waivers: Recent HHS Approvals of Pharmacy Plus 
Demonstrations Continue to Raise Cost and Oversight Concerns, GAO-04-
480 (Washington, D.C.: June 30, 2004). 

[7] Our findings from HHS's approval of these two states' 
demonstrations cannot be generalized to HHS's approval of other states' 
demonstrations. We used this criterion for purposes of our assessing 
HHS's process as it was applied in these particular cases of 
importance. These cases we considered important because the majority of 
the state's Medicaid spending was governed by the terms of the 
demonstration. 

[8] For each demonstration it approves, HHS approval documents may 
include a demonstration approval letter, a demonstration fact sheet, 
the terms and conditions of the demonstration, and a description of 
waiver and expenditure authorities granted by the Secretary for the 
demonstration. The state documents its acceptance of HHS's approval 
with an approval acceptance letter. A demonstration's terms and 
conditions describe general requirements of the demonstration program, 
such as benefits, eligibility, populations covered, cost-sharing 
requirements, enrollment, evaluation, and allocated budget. 

[9] Although HHS has delegated the administration of the Medicaid 
program, including the approval of section 1115 demonstrations, to CMS, 
we refer to HHS throughout this report because section 1115 
demonstration authority ultimately resides with the Secretary, and, 
accordingly, other HHS components are involved in the review and 
approval of these demonstrations. 

[10] In a separate letter to the Secretary of Health and Human 
Services, we discuss concerns about the consistency of the Florida and 
Vermont demonstrations with federal law. See B-309734, July 24, 2007. 

[11] Mandatory Medicaid beneficiaries are those individuals who must be 
covered under a Medicaid program, such as children under age 6 in 
families with incomes at or below 133 percent of the federal poverty 
level and pregnant women whose family income is below 133 percent of 
the federal poverty level. (See enc. II for a summary of mandatory 
Medicaid benefits, eligibility requirements, and cost-sharing limits.) 

[12] Florida's demonstration is expected to expand to five counties in 
2007 and to expand statewide by 2010. 

[13] Populations not covered by the state managed-care organization 
include individuals enrolled in the state's long-term care 
demonstration and the State Children's Health Insurance Program 
(SCHIP). 

[14] When asked for a copy of its policy, HHS officials clarified that 
the expectation that waiver applications be posted on the Web site is 
not contained in formal HHS policy guidance, but in performance plans 
for certain CMS division managers. 

[15] See Social Security Act  1903(a)(1), 1905(b) (codified, as 
amended, at 42 U.S.C.  1396b(a)(1), 1396d(b)). States with lower per 
capita income typically receive higher federal matching shares. 

[16] A state Medicaid plan details the fundamental characteristics of a 
state's program such as the mandatory and optional populations a 
state's program serves; the amount, scope, and duration of mandatory 
and optional services the program covers; and the rates of and methods 
for calculating payments to providers. 

[17] See Social Security Act  1902(a)(10)(A), 1905(a), 1916, 1916A 
(codified, as amended, at 42 U.S.C.  1396a(a)(10)(A), 1396d(a), 
1396o, 1396o-1). 

[18] Social Security Act  1902(a) (10)(A)(i), (ii) (codified, as 
amended, at 42 U.S.C. 1396a(a)(10)(A)(i), (ii)). In 2006, income 
thresholds for Medicaid eligibility as a percent of the federal poverty 
level in Florida were 200 percent for infants, 133 percent for children 
age 1-5, 100 percent for children age 6-19, 185 percent for pregnant 
women, 22 percent for nonworking parents, and 58 percent for working 
parents. In Vermont, income thresholds in 2006 were 300 percent for 
infants and children up to age 19, 200 percent for pregnant women, 185 
percent for nonworking parents, and 192 percent for working parents. 
The federal poverty level for a family of four in 2006 was $20,000. 

[19] Social Security Act  1115 (codified, as amended, at 42 U.S.C.  
1315). 

[20] 59 Fed. Reg. at 49,250-251. 

[21] In addition to HHS's 1994 policy, a May 3, 2002, letter issued by 
HHS to state Medicaid directors reiterated that the public should 
continue to be involved in the development of demonstrations and that 
HHS will continue to review demonstrations to ensure that states are 
following public-notice procedures. The letter stated that the states 
have responsibility for providing opportunity for public input, for 
example, through public forums, legislative hearings, placement of 
information on the state's Web site with a link for public comments, or 
distribution of draft proposals for comment. Letter to state Medicaid 
directors 02-007 (May 3, 2002), available at [hyperlink, 
http://www.cms.hhs.gov/SMDL/SMD/list.asp#TopOfPage] (downloaded Feb. 
15, 2007). 

[22] Florida calculates risk-adjusted premiums for Medicaid 
beneficiaries based on eligibility groups, age, and gender for a 
specific geographic area and then adjusts for risks associated with 
health status. 

[23] For plans accepting risk for comprehensive coverage only, the plan 
would be responsible for care up to a $50,000 limit per beneficiary. 
Once the plan reaches $50,000, the state reimburses the plan at 95 
percent of the state's current Medicaid fee-for-service rate for costs 
accrued up to the $550,000 annual maximum benefit limit for nonpregnant 
adults. For plans accepting risk for both comprehensive and 
catastrophic care, the plan is responsible for care of nonpregnant 
adults up to the $550,000 annual maximum benefit limit. 

[24] Specifically, the state is requiring aged and disabled persons 
receiving cash assistance under the Supplemental Security Income 
program and children and families receiving cash assistance under the 
Temporary Assistance to Needy Families program to participate in the 
demonstration. The demonstration will initially exclude several special-
needs groups currently receiving Medicaid services, such as foster-care 
children, individuals with developmental disabilities, and individuals 
residing in nursing homes or psychiatric facilities. 

[25] In commenting on a draft of this report, Florida indicated that 
managed care plans must also provide the same level of coverage 
available under the state plan to Supplemental Security Income (SSI) 
beneficiaries, and must provide emergency services to all enrollees in 
the demonstration. 

[26] To meet requirements of the demonstration, a managed care plan 
must cover all the categories of mandatory services, as well as 
optional services covered under Florida's state plan when indicated by 
historical data. The plan, however, may cover services in differing 
amount, duration, and scope as long as the plan can demonstrate that 
its proposed benefits are actuarially equivalent to historical 
utilization levels and are sufficient to cover the needs of the vast 
majority of enrollees. 

[27] As of March 2007, 16 plans were under contract to provide services 
for the Florida demonstration. 

[28] Under the demonstration, HHS approved a waiver of a statutory 
requirement that establishes limits on the imposition of cost-sharing 
on Medicaid populations and services, thereby allowing the state to 
authorize participation by beneficiaries in employer-sponsored or 
commercial health plans that may impose cost sharing amounts that 
exceed such limits. 

[29] Under the demonstration, HHS approved a waiver of a statutory 
requirement that would otherwise have required the state to provide 
mandatory benefits to all mandatory and optional Medicaid 
beneficiaries, thereby allowing the state to limit coverage, for up to 
30 days, pending enrollment in a managed care organization, to 
emergency services and nursing home level of care. 

[30] In commenting on a draft of this report, Florida said that 
although HHS granted a waiver so that the state was not required to 
provide retroactive eligibility for up to 90 days prior to the 
application, the state had not as of June 2007 implemented this 
component of the program. 

[31] In March 2007--the latest month for which data were available--
about $15,000 of $524,000 credited by the state under the program had 
been used by Medicaid beneficiaries. About 1,000 of 19,000 enrollees 
receiving credits had used them. 

[32] In addition to the recently approved comprehensive 1115 
demonstration in Vermont (known as Global Commitment to Health), the 
Secretary approved Vermont's Long Term Care demonstration in June 2005. 
The Long Term Care demonstration enables the state to provide long-term 
care beneficiaries home-and community-based alternatives to 
institutional or nursing home care. The Global Commitment to Health and 
Long Term Care demonstrations encompass Vermont's entire state Medicaid 
program, with the exception of Medicaid Management Information System 
(MMIS) costs, State Children's Health Insurance Program (SCHIP) 
payments, and disproportionate share hospital (DSH) payments. DSH 
payments are a form of Medicaid financing that allows states and HHS to 
compensate those hospitals that care for a disproportionate number of 
low-income Medicaid and uninsured patients in a state. Unlike other 
federal Medicaid matching payments, federal Medicaid DSH payments do 
not flow to states on an open-ended basis. Instead, these payments are 
allocated among states as defined under federal law. States may claim 
federal matching funds for DSH payments made to qualifying hospitals up 
to these ceilings. 

[33] Vermont is not obligated to provide state plan services to 
optional or expansion beneficiaries but can instead provide coverage as 
approved by HHS, which includes inpatient and outpatient hospital 
services, physicians' surgical and medical services, laboratory and x-
ray services, and well-baby and well-child care. 

[34] Fla. Stat. ch. 409.91211 (2006). 

[35] In commenting on a draft of this report, HHS acknowledged that its 
response to this request was pending. 

[36] Under federal regulations, states are required to establish a 
Medical Care Advisory Committee to advise the Medicaid agency about 
health and medical care services. This committee must include members 
of consumer groups who, along with other members, must have the 
opportunity to participate in the development of Medicaid policies and 
administration, including furthering the participation of recipient 
members in the agency program. In Vermont, the committee is known as 
the Medicaid Advisory Board. See 42 C.F.R.  431.12. 

[37] Vt. Stat. Ann. tit. 33  1901, 1901a, 1901e (2006). 

[38] In commenting on a draft of this report, HHS indicated that it 
considered the September 2006 submission a concept paper and did not 
consider the amendment as a formal application until December 2006. 

[39] For Vermont's demonstration, the HHS approval process took more 
than 5 months; state Medicaid officials submitted the proposal to HHS 
on April 15, 2005, and received HHS approval on September 27, 2005. 

[40] The Medicaid Commission, appointed in July 2005 by the Secretary, 
was charged by the Secretary with identifying reforms necessary to 
stabilize and strengthen Medicaid. The commission issued its report and 
recommendations in December 2006. 

[41] In its comments, HHS acknowledged that demonstration proposals 
often evolve rapidly--alterations, additions, and deletions are made 
along the way, often on a more-than-daily basis. Further, states may 
not have labeled a particular document the "official or final 
submission." 

[42] Because of the widespread availability of the Internet, we are not 
reiterating the specific portion of our previous recommendation that 
HHS post proposals in the Federal Register. 

[43] In addition to Florida and Vermont, we identified California and 
Iowa as states with recently approved comprehensive demonstrations. We 
estimated the portion of total state Medicaid expenditures covered in 
demonstration year one to be 4.6 percent and 4.4 percent, respectively.

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