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Health > 28. Medicaid Eligibility Determinations

The Centers for Medicare & Medicaid Services should assess the accuracy of federal Medicaid eligibility determinations to minimize the risk of improper payments.

Why This Area Is Important

States and the federal government share in the financing of Medicaid, a joint federal-state health care financing program for certain low-income and medically needy individuals. The federal government matches most state expenditures for Medicaid services on the basis of a statutory formula known as the Federal Medical Assistance Percentage (FMAP).[1] During fiscal year 2013, Medicaid covered about 72 million individuals at a cost of approximately $431.1 billion.[2] Of this $431.1 billion, the federal share was $247.7 billion (57 percent), and the state share was $183.4 billion (43 percent). The size and diversity of the Medicaid program make it particularly vulnerable to improper payments, including payments made for treatments or services that were not covered by program rules, that were not medically necessary, or that were billed for but never provided. Improper payments are a significant cost to Medicaid, totaling an estimated $29 billion in fiscal year 2015, according to the Department of Health and Human Services (HHS). Due to concerns about Medicaid’s improper payment rate and the sufficiency of federal and state oversight, GAO added Medicaid to its list of high-risk programs in 2003.[3]

Historically, Medicaid eligibility has been limited to certain categories of low-income individuals, but the Patient Protection and Affordable Care Act (PPACA), enacted on March 23, 2010, gave states the option to expand coverage to nearly all adults with incomes at or below 133 percent of the federal poverty level, beginning January 1, 2014.[4] States that choose to expand their programs receive an increased federal match for expenditures incurred as a result of providing services to individuals whom the state had not previously covered. Some of these states may also receive an increased federal matching rate for their expenditures incurred as a result of providing care to individuals the state covered under a qualifying expansion of coverage prior to PPACA’s enactment. In addition to expanding eligibility standards, PPACA also required the establishment of a coordinated eligibility and enrollment process for Medicaid and the health insurance exchanges—whether federally facilitated or state-based exchanges—to streamline the eligibility determination process. If a state elected not to create and operate its own exchange, PPACA directed HHS to establish and operate a federally facilitated exchange in the state. As of November 2015, 34 states had federally facilitated exchanges, and among these, 8 had delegated authority to those exchanges to make Medicaid eligibility determinations.

These eligibility, funding, and process changes could have significant effects on Medicaid enrollment and expenditures. Further, implementing these changes requires states to adapt their systems, policies, and procedures, resulting in a complex realignment of processes and necessitating careful review by the Centers for Medicare & Medicaid Services (CMS)—the agency within HHS that oversees Medicaid—to ensure that determinations of eligibility are accurate and to protect against improper payments.

[1]The FMAP is calculated using a statutory formula based on the state’s per capita income, with the federal government paying a larger portion of Medicaid expenditures in states with low per capita incomes relative to the national average and a smaller portion for states with higher per capita incomes.   

[2]The number of enrollees represents the total number of individuals ever enrolled in the program in 2013; there were about 58 million individuals enrolled in the program at any one point in time. Medicaid and CHIP Payment and Access Commission, MACStats: Medicaid and CHIP Program Statistics (March 2014).  

[3]See GAO, Major Management Challenges and Program Risks: Department of Health and Human Services, GAO-03-101 (Washington, D.C.: January 2003).

[4]Pub. L. No. 111-148, 124 Stat. 119 (2010), as amended by the Health Care and Education Reconciliation Act of 2010 (HCERA), Pub. L. No. 111-152, 124 Stat. 1029 (2010). For purposes of this report section, references to PPACA include the amendments made by HCERA. PPACA also provides for a 5 percent disregard when calculating income for determining Medicaid eligibility, which effectively increases this income level to 138 percent of the federal poverty level. See42 U.S.C. § 1396a(a)(10)(A)(i)(VIII), (e)(14)(I).

What GAO Found

In October 2015, GAO reported that CMS had a gap in its interim measures for assessing the accuracy of eligibility determinations. Under PPACA’s coordinated eligibility determination process, enrollees may apply for Medicaid coverage through multiple channels, including applying to the state’s Medicaid agency or through the state’s health insurance exchange, whether federally facilitated or state-based. CMS has implemented interim efforts to assess states’ Medicaid eligibility determinations by requiring states to conduct pilot eligibility reviews. However, CMS has excluded from these reviews federal Medicaid eligibility determinations in the states that have delegated authority to the federal government to make Medicaid eligibility determinations through the federally facilitated exchanges. According to CMS officials, the agency excluded federal determinations from the pilot eligibility reviews states must conduct because these states do not have the resources to fully review the federal determinations, among other reasons.

CMS has established another mechanism—termed the eligibility support contractor pilot program—to assist in developing new methodologies for assessing eligibility determinations. According to CMS officials, this program was intended to inform revisions to the eligibility component of the Payment Error Rate Measurement (PERM) program, under which CMS measures and reports Medicaid improper payment rates to Congress.[1] However, although the eligibility support contractor program assesses methodologies for reviewing eligibility determinations, the program generally does not assess federal determinations for accuracy. Consequently, GAO determined that a gap exists in efforts to ensure that only eligible individuals are enrolled into Medicaid.

Federal internal control standards require that federal agencies identify and assess risks associated with achieving agency objectives.[2] One method for identifying the risk of inaccurate eligibility determinations could include consideration of findings from audits and other assessments. However, neither of the interim measures implemented by CMS—the pilot eligibility reviews or the eligibility support contractor program—will identify erroneous federal determinations, creating the potential risk for improper payments in the states that have delegated authority to the federal government to make eligibility determinations through the exchanges.

[1]The eligibility component of the PERM has been suspended while CMS and the states implement the pilot eligibility reviews and is to be resumed in 2018. 

[2]See GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).

Actions Needed

To improve the effectiveness of CMS’s oversight of eligibility determinations, GAO recommended that the Administrator of CMS take the following action:

  • Conduct reviews of federal Medicaid eligibility determinations to ascertain the accuracy of these determinations and institute corrective action plans where necessary.

Because GAO found that CMS did not have a process in place to identify the number of erroneous federal eligibility determinations and their associated payments, the extent to which Medicaid was at risk for improper payments in 2014 could not be determined. As a result, GAO is unable to calculate the potential financial benefits associated with this action. However, taking this action should help CMS improve the effectiveness of its oversight of eligibility determinations, thus helping protect the Medicaid program from improper payments and resulting in potential cost savings to the federal government.

How GAO Conducted Its Work

The information contained in this analysis is based on findings from the products listed in the related GAO products section. To examine CMS efforts to ensure that states are accurately verifying eligibility and that expenditures for Medicaid enrollees in different eligibility groups are appropriately matched by federal funds, GAO examined (1) relevant laws and federal regulations and CMS policy documents describing the different eligibility groups, (2) guidance to states on eligibility and expenditure reviews, and (3) instructions for eligibility and expenditure reviews conducted by states and CMS. GAO also reviewed the results of CMS’s CMS-64 expenditure reviews, state eligibility reviews, and regional office reports for nine selected states.[1] In evaluating this information, GAO considered GAO’s Standards for Internal Control in the Federal Government, which provides guidance to federal agencies on ensuring accountability.[2] In addition, GAO interviewed CMS officials about CMS’s eligibility and expenditure reviews.

Table 14 in appendix V lists the programs GAO identified that might have opportunities for cost savings or revenue enhancement. 

[1]GAO selected states to review based on their expansion status; size of the program as indicated by recent enrollment and expenditure reports; whether the state established its own state-based exchange, as authorized by PPACA, or used an exchange established by HHS, known as a federally facilitated exchange; and geographic diversity. The states selected were California, Hawaii, Kentucky, Minnesota, New Mexico, New York, North Dakota, Ohio, and West Virginia.

Agency Comments & GAO Contact

In commenting on the October 2015 report on which this analysis is based, HHS generally concurred with GAO’s recommendations and highlighted the actions the department has already taken to ensure the accuracy of Medicaid eligibility determinations made through the exchanges, citing the multilayer verification processes in place to assess applicant eligibility. HHS concurred with GAO’s recommendation to review the accuracy of federal Medicaid eligibility determinations and institute corrective action plans where necessary. HHS noted that federal eligibility determinations in two states are currently being reviewed by the eligibility support contractor and stated that federal determinations are to be included as part of the future PERM eligibility review. However, the eligibility component of the PERM will not be resumed until 2018, and in the interim, without a systematic assessment of federal eligibility determinations, GAO remains concerned that CMS lacks a mechanism to identify and correct federal eligibility determination errors and associated payments. 

GAO provided a draft of this report section to HHS for review and comment. The department did not provide comments on this report section.

For additional information about this area, contact Carolyn L. Yocom at (202) 512-7114 or

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