Medicaid was  established in 1965 under title XIX of the Social Security Act to provide  health care coverage to certain categories of low-income families and aged  and disabled individuals. The Secretary introduced the Pharmacy Plus initiative in  January 2002 to encourage states to provide pharmacy benefits to low- income elderly populations. Four Waivers Have Been Approved Quickly to Expand Coverage

HHS has approved four section 1115 demonstration waivers to expand  coverage for the uninsured and pharmacy benefits since August 2001. HHS Has Not Always Ensured That Approved Waivers Are Consistent With the Goals and Fiscal Integrity of Medicaid and SCHIP

HHS has not, with its recent approvals of waivers under the new flexibility  initiatives, consistently ensured that waivers are in line with program goals  and are budget neutral. These waivers raise legal and policy  concerns in light of SCHIP’s stated purpose of expanding health coverage  to low-income children. In creating SCHIP,  the Congress authorized states to cover the entire family—both the  parents or custodians and their children—if it was cost effective to do so. Furthermore, allowing states  to cover parents with SCHIP funds without demonstrating its cost  effectiveness allows limited program funds to be spent on individuals not  targeted in the statute. In our view, HHS’s use of section 1115 authority to allow states to use  SCHIP funds to cover childless adults is not consistent with the program’s  statutory objectives to expand health coverage to uninsured, low-income  children. To improve the opportunity for public input into HHS consideration of  state Medicaid and SCHIP program proposals that waive statutory  requirements, we recommend that the Secretary of HHS provide for a  federal public input process that includes, at a minimum, notice of pending  section 1115 waiver proposals in the Federal Register and a 30-day  comment period in line with HHS’s 1994 policy. SCHIP Funding for Adults

With regard to our recommendation that the Secretary amend the approval  of Arizona’s HIFA waiver to prevent future use of SCHIP funds on  childless adults, and deny any pending or future state proposals for this  purpose, HHS commented that our analysis was extremely narrow and did  not recognize that the approval of the Arizona HIFA waiver promotes the  objectives of SCHIP by providing health insurance coverage to those who  were previously uninsured. Children’s Health Insurance Program: State Implementation Approaches  are Evolving.
Why GAO Did This Study

States provide health care coverage to about 40 million uninsured, low-income adults and children under two federal-state programs--Medicaid and the State Children's Health Insurance Program (SCHIP). To receive federal funding, states must meet statutory requirements, including providing certain levels of benefits to specified populations. Under section 1115 of the Social Security Act, the Secretary of Health and Human Services (HHS) can waive many of the statutory requirements in the case of experimental, pilot, or demonstration projects likely to promote program objectives. Since August 2001, HHS has approved four of 13 waiver proposals from states to either expand health insurance to uninsured populations or extend pharmacy coverage to low-income seniors, consistent with the new goals. Of the nine proposals still under review, five seek to expand coverage to uninsured populations, while four would provide pharmacy benefits for low-income seniors. GAO has both legal and policy concerns about the extent to which the approved waivers are consistent with the goals and fiscal integrity of Medicaid and SCHIP. The legal concern is that HHS has allowed Arizona to use unspent SCHIP funding to cover adults without children, despite SCHIP's objective of expanding health coverage to low-income children.

What GAO Found

GAO found that HHS' approval of the waiver to cover childless adults is not consistent with this objective, and it is not authorized. A related policy concern is that HHS used its waiver authority to allow Arizona and California to use SCHIP funds to cover parents of SCHIP and Medicare-eligible children with no regard to cost effectiveness when the statute provides that family coverage may be provided only if it is cost-effective to do so--that is, with no additional costs beyond covering the child. An opportunity for the public to learn about and comment on pending waivers has not been consistently provided in accordance with policy adopted by HHS in 1994. At the federal level, since 1988 HHS has not followed established procedures to publish notification of new and pending section 1115 waiver applications in the Federal Register with a 30-day comment period.