INDEPENDENT CHOICES: A National Symposium on Consumer-Direction and Self-Determination for the Elderly and Persons with Disabilities. Consumer-Directed Fiscal and Supportive Intermediary Services: An Overview

Susan A. Flanagan, MPH
EP&P Consulting, Inc.

I. Overview

  • Historically, professional authority has played a dominant role in the social organization of medical care and related human services.
  • Over the pay decade, the countervailing philosophies, of consumer-direction and self-determination have begun to assert themselves in the health and human services domain.
  • The philosophy of consumer-direction has developed, in part, from the independent living and disability rights movements. From this philosophy has developed consumer-directed personal assistance service programs.
  • The philosophy of self-determination has developed from the developmental disability arena. Self-Determination modes of financing and of delivering services emphasize a participant-driven approach and individualized budgeting.
  • Consumer-directed modes of financing and delivering of support services permit the individual--as opposed to medical or social work professionals--comparatively greater choice and control over all aspects of service provision: hiring/selecting and training workers, defining their duties and work schedule, deciding when and how specific tasks or services are to be performed and discharging workers when appropriate.
  • Recently, an increasing number of states have begun to apply the principles of consumer-direction to their support service delivery systems for persons with disabilities and chronic conditions of all ages.
  • Although there is no single service delivery model that encompasses the entire range of consumer-directed support service programs, in general, a service can be considered consumer-directed if the person receiving the service has choice and control over: (1) identifying their service needs and developing their service plan, (2) hiring/selecting their worker(s), (3) setting the terms and conditions of work, (4) managing or purchasing services to manage the administrative responsibilities of an employer, in particular employment taxes and payroll, and (5) supervising, disciplining, and terminating their worker(s) as necessary.
  • With increased individual choice and control come responsibilities, many of which are imposed by federal, state and county statutes and regulations.
  • A challenge for states and local governments implementing consumer-directed support service programs is balancing individuals' desire for enhanced choice and control over their services and workers with regulatory compliance, program accountability, liability and program participants' health and safety.
  • One concept that has emerged from states' experience with consumer-directed support service programs is the intermediary service organization (ISO).
  • ISOs can provide an array of fiscal and supportive services to public payers, program participants and their representatives and to a limited extent, workers, in order to facilitate the delivery of consumer-directed support services.
  • The type of ISO services appropriate for an individual depends on his or her ability and desire to perform the required employer tasks for his or her worker(s).
  • Six ISO models have been identified in the literature (Flanagan and Gree, 1997). They vary in their corporate organizational structure, the types of services provided, administrative costs and the nature of the employer/employee relationship.
  • This intensive workshop will be to: (1) provide an overview of the types of intermediary service organization (ISO) models currently being used in conjunction with consumer-directed support service programs with a focus on Supportive, Fiscal ISOs, and Agency with Choice ISOs, (2) review issues that states have had to address in implementing consumer-directed support service programs using ISO, and (3) provide "real life" operational information regarding the tasks, benefits and challenges related to operating these entities.

II. Types of Intermediary Service Organizations (ISOs) that Facilitate Individuals' Use of Consumer-Directed Support Service Programs

NEW HAMPSHIRE'S SELF DETERMINATION PROJECT
SUMMARY OF INDIVIDUAL OUTCOMES
ISO Model Operating Entity Worker's Employer of Record ISO's Responsibilities
Fiscal Conduit ISO Government or Vendor Individual or representative unless they choose to use an agency for the provision of supports. Disburse public funds via cash or voucher payments to individuals/representatives and related duties (e.g., invoicing state, processing worker time sheets. Providing reports for State and individuals and their representatives.)
Government (IRS Employer Agent) Fiscal ISO State/County (IRS Rev. Proc. 80-4) Individual or representative unless they choose to use an agency for the provision of supports. Per IRS Revenue Proc. 80-4, Fiscal ISOs act as "employer agents" for individuals/representatives for limited purpose of withholding, filing and depositing federal employment taxes. They also invoice the state for public funds manage payroll (including state taxes and insurances) and distribute workers' checks and pay other vendors as required. Some also broker workers' compensation and other insurance policies on behalf of individuals/representatives.
Vendor Fiscal ISO Vendor (IRS Rev. Proc. 70-6) Individual or representative unless they choose to use an agency for the provision of supports. Same as Government model above (also an IRS Employer Agency) except that the vendor entity performs the FI functions in accordance with IRS Revenue Proc. 70-6.
Supportive ISO Distinct vendor, services provided through other ISO models or independent individuals selected by an individual/rep. or state. Individual or representative or agency Provide an array of supportive services to individuals, representatives and, on a limited basis, to workers including: conduct employer skills training, (e.g., employment tax and payroll management), assist with recruitment and hiring regular and relief.
Agency with Choice ISO Agency (e.g., CIL, Home Health, AAA, or Social Service) Agency or its subcontracting agency (e.g., CIL, Home Health, AAA, or Social Service Agency) Invoice State for public funds, process employment documents and criminal background checks on workers, manage all aspect of payroll for individuals/representatives. May also provide supportive services as described above and train and monitor performance.
Spectrum ISO Agency (e.g., CIL, Home Health, AAA, or Social Service) and subcontracting agencies, if applicable Individual, representative or agency Provides Fiscal Conduit, Fiscal Agent, Supportive and Agency with Choice services under the umbrella CD-PAS program either directly to individuals/representatives or through the use of subcontractors.

III. Use of ISO Models by the Level of an Individual's Ability and Desire to Manage the Employer-Related Tasks Associated with Consumer-directed Support Service Programs

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IV. What are Fiscal ISOs?

  • There are three models of Fiscal ISOs: (1) Fiscal Conduit, (2) Government (IRS Employer Agent) Fiscal ISO, and (3) Vendor (IRS Employer Agent) Fiscal Intermediary. In all three models, the individual is the employer of record of his or her worker(s).
  • Fiscal Conduit ISO. This model is often used by state and local governments to administer consumer-directed support service programs that allow individuals to receive public funds via cash grants or vouchers and pay their workers directly. Either a government entity or a private vendor entity under contract with a government entity can serve as the Fiscal Conduit ISO. The Fiscal Conduit ISO may also: (1) invoice a government entity to obtain individuals public benefits for disbursement, (2) collect and verify workers' time sheets, and (3) generate standardized reports for the government entity with which it has a contract and program participants and their representatives when appropriate.
  • Under this ISO model, individuals or their representatives are the employer of record of their workers (those not from agencies).
  • Government (IRS Employer Agent) Fiscal ISO. Under this Fiscal ISO model, a state or local government entity may apply for and receive approval for the IRS (under IRS Revenue Procedure 80-4) to be an employer agent on behalf of individuals for the limited purpose of withholding, filing and depositing workers' employment taxes (e.g., FICA, FUTA/SUTA). These entities also manage state and federal income taxes if required/requested, federal advanced earned income credits, if applicable, withhold, file and deposit state employment taxes (SUTA/disability) and prepare and distribute workers' payroll checks. Fiscal ISO also may broker worker's compensation and/or group health insurance policies, collect and verify worker timesheets, process and pay non-labor related invoices, conduct criminal background checks on prospective workers, assist individuals with verifying workers' citizenship/legal alien status and generate standardized reports for the state/county program agencies, program participants and their representatives, when appropriate.
  • Under this Fiscal ISO model, a government entity can perform these employer functions and ensure program accountability and tax and labor law compliance without being considered the employer of record of an individual's workers.
  • The individuals/representatives are the employer of record of their workers (those not from agencies).
  • Vendor (IRS Employer Agent) Fiscal ISO. Under this Fiscal ISO model, a private or public vendor entity or authority may apply for and be approved by the IRS (under IRS Revenue Procedure 70-6) to act as an employer agent on behalf of individuals for the limited purpose of withholding, filing and depositing workers' employment taxes (e.g., FICA, FUTA/SUTA). These entities also manage state and federal income taxes if required/requested, federal advanced earned income credits, if applicable, withhold, file and deposit state employment taxes (SUTA/disability) and prepare and distribute workers' payroll checks. Fiscal ISO also may broker worker's compensation and/or group health insurance policies, collect and verify worker timesheets, process and pay non-labor related invoices, conduct criminal background checks on prospective workers, assist individuals with verifying workers' citizenship/legal alien status and generate standardized reports for the state/county program agencies, program participants and their representatives, when appropriate.
  • Under this Fiscal ISO model, a vendor entity can perform these employer functions and ensure program accountability and tax and labor law compliance without being considered the employer of record of an individual's workers.
  • The individuals/representatives are the employer of record of their workers (those not from agencies).

V. What is a Supportive ISO?

  • Supportive ISO. Under this model, a private or public vendor or authority or an individual (e.g., an independent case manager, support broker) may provide a variety of support services to individuals and their authorized representative, when applicable, and on a limited basis, to workers. Supportive services can include: conducting individuals' assessments and re-assessments; providing them with employer skills and self-advocacy training; assisting individuals/representatives with the recruitment, screening and hiring of workers including conducting criminal background checks on potential workers, assisting individuals in developing emergency/back-up service plans and accessing workers, developing and maintaining worker registries; arranging training opportunities for workers (on a limited basis); providing case management/counseling services; and monitoring service quality and individuals/representative satisfaction.
  • Program participants may or may not be the employer of record when accessing services from this type of ISO model.
  • This ISO model usually operates in conjunction with one of the other ISO models (Fiscal ISO) or as services incorporated into another model (e.g., Agency with Choice ISO or a combination Counseling/Fiscal ISO).

VI. What is an Agency with Choice ISO?

  • Agency with Choice ISO. This ISO model may include a variety of different types of agencies (e.g., Center for Independent Living, social service agencies such as United Cerebral Palsy and Easter Seals, traditional home health agencies, Area Agencies on Aging, and organizations that are developed specifically to fulfill the role, such as Concepts of Independence in NY or Granite State Independent Living Foundation (GSILF) in NH) that provide support services to individuals in a consumer-directed manner. The agency is the employer of record of the worker while the individual and/or his or her representative is considered the managing employer of the worker. Duties of an Agency with Choice may include: invoicing the state/county for public funds, processing employment documents, conducting criminal background and reference checks, managing all aspects of payroll, providing a variety of support services as described in the Supportive ISO description earlier, providing training for workers and monitoring workers' performance in conjunction with the individual and his or her representative. Individuals and their representatives are often permitted to recruit their workers and refer them to the ISO for processing and discharge them when necessary. Some Agency with Choice ISOs (e.g., Concepts for Independence in NYC and GSILF in NH) allow individuals to train their workers, supervise and evaluate all aspects of their activities and terminate them when necessary.
  • The services provided and level of consumer-direction afforded to individuals and representatives under the Agency with Choice ISO model can vary significantly depending on the needs of individuals and their representatives, program design, the type of agency involved, and its geographic location (rural vs urban).

VII. What is Spectrum ISO?

  • Spectrum ISO. This is an operational model where a variety of fiscal and supportive intermediary services are made available to individuals and their representatives under one umbrella ISO. The ISO may choose to provide all of the fiscal and supportive services itself or it may subcontract with other entities to provide some of the services. The individual or representative can choose whether or not to be the employer of record of his or her worker depending on the type of intermediary services they select. This ISO model provides a seamless way for a state/county to provide services that best meet an individual's needs throughout his or her life while enhancing the individual's choice and control.

VIII. ISO Models Operationalized as a Spectrum ISO

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IX. What Issues Have States Had to Address In Implementing Consumer-directed Support Service Programs Using ISOs?

  • States have had to address a number of issues in implementing consumer-directed support service programs using Intermediary Service Organizations (ISOs). These include:
    • Determining the size, configuration and characteristics of the target service population
    • Selecting the appropriate ISO model(s) for the targeted service population:
      • individuals have varying levels of ability (e.g., cognition) and desire to perform the required employer tasks.
    • Determining individuals' and representatives' ability and desire to manage employer-related tasks:
      • Some consumer-directed support service programs provide skills training to individuals/representatives to assist them in participating in the program, and
      • Some consumer-directed support service programs assess individuals' competency in performing the required tasks in order to certify them to participate under certain ISOs (e.g., Fiscal Conduit).
    • Defining the role and responsibilities of individuals' representatives in consumer-directed support service programs that use ISOs:
      • a relative versus non-related representative,
      • a representative who is a primary member of the individual's Network of Support versus someone who interacts with the individual on an infrequent basis (e.g., lawyer, legal guardian or person with durable power of attorney), and
      • the role the representative is willing to play (e.g., be the employer of record of the individual's worker(s)).
    • Determining the optimal plan for initiating the system (e.g., pilots, phase-in for newly eligible individuals, geographic locations, etc.)
    • Defining the role and responsibilities of the ISO(s) and the type of services it will provide:
      • Clearly defining the roles and responsibilities of each type of ISO used, the program agency, the individual and his or her representative and workers and identifying the services to be provided by each ISO type is key for effective program design and implementation.
      • Identifying and resolving any potential areas where there may be conflicts of interest.
    • Establishing the budget levels that will be available to the individual for services through the ISO and resolving issues relating to potential surpluses and deficits in individuals' accounts.
    • Identifying federal requirements (e.g., labor, tax, insurance) for Fiscal ISOs:
      • Requesting approval to be an IRS Employer Agent and filing the IRS Form 2678 (Government vs Vendor Fiscal ISO) on behalf of individuals/representatives,
      • Filing IRS Forms SS-4 and obtaining a federal employer identification number (EINs) for the entity to be the Fiscal ISO (Government and Vendor Fiscal ISO) and for each individual a Vendor Fiscal ISO represents,
      • Minimum wage and overtime rules per the federal Fair-Labor Standards Act for Domestic Employees
        • Domestic service worker
        • Companionship exemption
        • Live-in help exemption
        • Night help provision
        • Recent DoL proposal to amend the provisions of the Companionship Exemption
      • Federal income tax withholding (optional for domestic employees),
      • Social Security Domestic Reform Amendments (SSDERA) of 1994
        • Filing IRS Forms 940/941 quarterly vs Schedule H annually,
        • Social Security and Medicare withholding (FICA),
        • Federal Unemployment Tax withholding (FUTA),
      • Identifying federal requirements (labor, tax, insurance) for Fiscal ISOs (continued):
        • Depositing rules,
        • Preparation of the IRS Forms W-2 and W-3,
        • Refunding the employer and employee for withheld employment taxes (e.g., FICA) when the worker does not earn the minimum gross wage amount to pay federal employment taxes in a calendar year (i.e., $1,300 in CY 2001 for FICA),
        • Federal Advanced Earned Income Credit, and
        • INS Verification of Citizenship and Legal Alien Status.
      • Identifying local and state-specific requirements (e.g., labor, tax, insurance, worker training and nurse practice act) for Fiscal ISOs:
        • Some states' Departments of Labor do not recognize the companionship and live-in help exemptions,
        • State income tax withholding, filing and depositing may be required even though federal income tax is not,
        • State unemployment tax (SUTA) laws related to withholding, filing and depositing vary by state,
        • Worker's compensation law varies by state,
        • Five states have disability insurance laws (CA, HI, NJ, NY and RI),
        • Some states require that criminal background checks be performed for all persons providing supportive services in the home,
        • Some states have a basic training requirement for all non-licensed personal care workers and may require their activities to be overseen by a health care professional,
        • State nurse practice acts vary by state and can have a significant effect on what a worker may or may not do for an individual in the home, and
        • Some states and counties have specific contracting requirements for service providers.
      • Recruiting entities to bid to be an ISO(s):
        • Currently, ISOs are a new and broadly defined niche market; with a small provider pool that varies significantly in vendors' knowledge of and experience with the required tasks,
        • State and county RFP processes represent a significant amount of time and effort, and
        • Some states have required ISOs to provide a broad range of services and, at times, these requirements can deter vendors from bidding, limiting the selection pool.
      • Selecting an ISO(s) vendor/provider and monitoring its performance:
        • An ideal ISO provider is one that has the required skills and experience and is committed to the philosophy of consumer-direction,
        • States continue to analyze the benefits of having one statewide ISO or a number of regional ISOs. Decisions reflect a number of trade-offs, and
        • Development of clear and concise contracts with measurable performance standards and an effective monitoring system is key to successfully purchasing services from an ISO. States/counties must be able to terminate an ISO contract without undue service interruption for individuals when poor performance occurs.
      • States vary in how they pay ISOs (e.g., total budget amount versus price per transaction performed).
      • States vary on how they operationalize a Fiscal ISO (e.g., issue state contract as adjunct to State's fiscal agent vs Medicaid provider).
      • States vary in whether and how they apply cost-sharing provisions to program participants to cover some/all of the cost of ISO services rendered.
      • States that choose to be the Government (IRS Employer Agent) Fiscal ISO:
        • Find that incorporating the payroll function for workers into the state payroll function extremely problematic; running separate but parallel systems has been found to be more successful,
        • Find that identifying and tracking expenses related to performing the Fiscal ISO function is a challenge, and
        • Find it a challenge to achieve significant cost efficiencies.
      • Claiming federal matching funds for the ISO function:
        • DHHS/HCFA is in the process of finalizing how ISO expenses will be treated for the purpose of claiming FFP.
      • HCFA's Medicaid provider agreement requirement:
        • HCFA requires that Medicaid agencies execute a Medicaid provider agreement with every provider and vendor that receives Medicaid funds,
        • A provider agreement can be brief (1-2 pps). To date, HCFA is in the process of determining what the key components should be. However, the agreement should include an assurance/statement that the worker is capable of performing the required tasks.
      • Identifying and enforcing the criteria that agencies must meet to be an Agency with Choice ISO.
      • Availability of benefits for workers associated with Agency with Choice ISOs.
      • Designing Spectrum ISOs that have the appropriate "fire walls" to eliminate possible conflicts of interest.
      • Addressing individual/representative noncompliance:
        • The majority of support service workers are employees of someone. Rarely are they independent contractors. This can be verified by filing an IRS Form SS-8 to request a ruling from the IRS for a particular worker.
        • The liability for individual/representative non-compliance with filing and paying federal and state employment taxes and insurances rests with the individual/representative. However, taxing authorities (particularly state unemployment) may look to the state when an individual can not pay the back taxes due, since the state is the original source of the public funds. As a result, compliance is important to reduce state and individual liability.
        • In the case of the RWJ Cash and Counseling Demonstration Projects, an individual/representative who is unsuccessful at managing his or her grant funds directly (using the Fiscal Conduit option) may use the Vendor Fiscal ISO option rather than leave the consumer-directed support service program completely.
      • Overall, implementing ISOs represent a significant commitment of time and effort for state program administrators and the entities who wish to operate as ISOs.