Opportunities under the Affordable Care Act for Human Services Programs to Modernize Eligibility Systems and Expedite Eligibility Determination. Background of enhanced federal funding and the cost-allocation exception


When the ACA was signed into law in 2010, outdated eligibility systems for Medicaid and the Children’s Health Insurance Program (CHIP) presented a serious obstacle to effective implementation. Not only were those systems expected to handle an influx of significant numbers of new applicants, the ACA substantially changed the rules for eligibility determination. For example:

  • Whenever possible, verification will now be based on data from reliable, electronic sources;
  • Consumer-provided documentation will be a last resort, requested only when data are unavailable or insufficient to demonstrate eligibility;
  • Regardless of the agency at which a consumer applies for coverage, data must be exchanged seamlessly “behind the scenes” to determine the program for which the consumer qualifies; and
  • When eligibility is being renewed, if information in the beneficiary’s case record combined with data from reliable external sources show continuing qualification for Medicaid, eligibility is renewed administratively, without requesting documentation from beneficiaries.3

This new approach seeks to lower ongoing administrative costs, increase participation levels among eligible consumers by streamlining enrollment and retention, and reduce the proportion of erroneous eligibility determinations.

However, satisfying the ACA’s call for integrated and data-driven eligibility determination presented a daunting challenge for states operating outdated, “legacy” IT systems. Unlike the optional Medicaid eligibility expansion, the transformation of Medicaid eligibility from paper-driven to data-driven methods remains in effect nationwide. Such a major transition has required massive overhauls or complete replacement of Medicaid programs’ archaic eligibility systems. To make this possible, the federal government has been providing substantial funding to states for modernizing eligibility systems. Specifically, states can access 100 percent federal grant funding through December 31, 2014, for IT activities related to building a state-based marketplace. Under special federal financing rules for Medicaid Management Information Systems (MMIS),4 states can also receive 90 percent federal matching funds for developing Medicaid eligibility IT through December 31, 2015. Seventy-five percent matching funds will be available for operating such automated systems, including for eligibility workers interacting with the eligibility system, for the indefinite future.

By themselves, these steps were not sufficient to fund the necessary modernization of Medicaid eligibility systems, however. Cost allocation rules, under Office of Management and Budget (OMB) Circular A-87,5 generally require that all programs benefiting from an investment must share in its cost.6 If that principle had applied in this case, the eligibility systems that serve Medicaid programs would have received considerably less than the 90 percent federal funding that CMS sought to provide. All but five states use their Medicaid eligibility systems for human services programs as well—most commonly the Supplemental Nutrition Assistance Program (SNAP) and Temporary Assistance to Needy Families (TANF).7 Altogether, 39 states and the District of Columbia have systems that are fully integrated between Medicaid and SNAP, and an additional seven states integrate the two programs for certain populations or geographic areas.8 Normal cost-allocation rules would thus have required the cost of IT upgrades to be shared between Medicaid, for which the federal government pays a 90 percent match; SNAP, for which the federal government pays a 50 percent match; and TANF, which funds IT from the state’s block grant, presumably by reducing other expenses covered by the grant.

Operating under normal cost-allocation rules, Medicaid programs typically paid 40 to 60 percent of eligibility system costs.9 The 90 percent matching percentage would have applied only to that Medicaid share of eligibility system upgrades, so states would have been asked to pay significantly more than 10 percent of IT modernization costs. States may not have modernized Medicaid eligibility systems, endangering accomplishment of the ACA’s core goals.

To avoid this result, OMB created an exception to the normal application of cost-allocation rules, for a limited period of time. The exception is described in a letter from the U.S. Departments of Health and Human Services (HHS) and Agriculture (USDA), dated August 2011, explaining that federally funded human services programs, such as SNAP, TANF, the Child Care and Development Fund (CCDF), the Low Income Home Energy Assistance Program (LIHEAP), and the Special Supplemental Nutrition Program for Women, Infants and Children (WIC), can benefit from investments made to modernize eligibility systems for Medicaid, CHIP and state-based marketplaces, without allocating the system development costs across all benefiting programs. That letter, along with other relevant policy documents establishing the terms of the cost-allocation exception, are discussed in the next section.

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