Need for Legislative Change Affecting the Medicaid Program

HRD-85-9: Published: Nov 30, 1984. Publicly Released: Nov 30, 1984.

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GAO has been conducting an ongoing review of the Medicaid program, which is a federally aided and state-administered medical assistance program that currently covers about 22 million low-income people.

GAO found that a possible inequity could result in states having to pay the full medical costs for certain Medicaid recipients. This possible inequity occurs when Medicaid recipients are also covered under other self-insured health plans, which are regulated by the Employee Retirement Income Security Act (ERISA). States administer Medicaid and also regulate most private health insurance plans and are, therefore, capable of ensuring that plans under their regulatory control do not operate as secondary payers to Medicaid. However, ERISA is federally administered, and insurance plans operating under it are exempt from state regulation. As a result, to the extent that ERISA plans designate themselves as secondary payers to Medicaid, states are placed in the position where they may have to pay the medical costs of Medicaid recipients without the federal government's sharing in such costs. Since states cannot regulate self-insured ERISA health plans, GAO does not believe that Congress intended to deny Medicaid funds to states because of the actions of such plans. However, federal regulations require that federal funds be denied in some cases. The Department of Health and Human Services recognizes this as inequitable and, as yet, has not disallowed federal participation in these situations. Allowing such participation, however, is contrary to Medicaid law and regulations.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: Congress enacted a provision in the Consolidated Omnibus Budget Reconciliation Act, which makes ERISA health plans primary to Medicaid. The Congressional Budget Office estimated 5-year savings of $160 million.

    Matter: Congress should consider enacting one of the following options: (1) amend the Employee Retirement Income Security Act of 1974 to establish ERISA health and welfare plans as primary payers to Medicaid; or (2) amend section 1903(o) of the Social Security Act to restrict the denial of federal financial participation to only state-regulated insurance plans that exclude payment for services covered by Medicaid.


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