Using Medicaid to Support Working Age Adults with Serious Mental Illnesses in the Community: A Handbook. Endnotes


  1. CMS Medicaid Managed Care Enrollment Report at

  2. Ibid.

  3. P.L. 105-33. The Medicaid Act has long provided that states could contract with HMOs and other managed care entities to furnish services to beneficiaries. States did not have to request waivers for these types of arrangements so long as beneficiaries could freely elect to receive services from such entities. §1915(b) was added to the Act in 1981 (P.L. 97-35) and allowed the Secretary to grant waivers to permit states to mandate that beneficiaries receive their services through a managed care arrangement. The extensive use of the §1115 waiver authority to mandate the enrollment of beneficiaries into managed care arrangements started in the early 1990s.

  4. These provisions are contained in §1932(a) of the Social Security Act. A state may satisfy the requirements concerning beneficiary choice by contracting with two or more managed care organizations and/or contracting with one such organization but offering beneficiaries the alternative of selecting a primary care case manager (PCCM). PCCM services may be covered under the provisions of §1905(t) of Act.

    Under a PCCM arrangement, each beneficiary must select a primary care physician or other health professional to manage his or her care. The underlying rationale for PCCM arrangements is to make sure that beneficiaries have a primary care "medical home." The goal is to reduce emergency room utilization and avoid over-utilization of services. PCCMs are usually paid a monthly stipend for each beneficiary on their caseload. PCCMs are not financially at risk and beneficiaries receive services through traditional fee-for-service arrangements. Prior to BBA-97, states had to request 1915(b) waivers in order to implement a PCCM arrangement.

    §1932(a) prohibits a state from mandating the managed care enrollment of certain children (including children who receive SSI) and Medicare/ Medicaid dual beneficiaries. So far, relatively few states have employed this authority to implement system-wide managed care. Most states continue to employ waiver authorities to mandate the enrollment of beneficiaries into a managed care arrangement. One reason is that §1932(a) does not provide an avenue for states to expand Medicaid eligibility, which may only be accomplished through the 1115 demonstration waiver authority.

  5. The safeguards are contained in §1932(b) of the Act and concern: (a) assuring coverage of emergency services; (b) protection of enrollee-provider communications; (c) grievance procedures; (d) assurances that managed care organizations have adequate capacity and offer sufficient services; (e) anti-discrimination; and, (f) others. Provisions concerning quality assurance standards are in §1932(c) of the Act and dictate that a state develop and implement a "quality assessment and improvement strategy" for services furnished through managed care arrangements that address access standards and monitoring procedures.

    States are also required to arrange for an annual external independent review of the operation of the managed care program. §1932(d) contains provisions concerning fraud and abuse; §1932(e) authorizes states to sanction poorly performing managed care organizations; and, §1932(f) establishes standards for timely payment by managed care organizations to providers. In general, the provisions of §1932(b) -- (f) apply to all Medicaid managed care arrangements, not just those that operate under the provisions of §1932(a).

  6. Located in 42 CFR 438.

  7. A "case rate" is an amount paid for each individual who actually receives services. Case rates differ from "capitation rates" which are paid for each enrollee, regardless of whether an enrollee utilizes services.

  8. In the private sector, it is relatively commonplace for purchasers to use private-sector companies to manage inpatient/outpatient mental health and substance abuse benefits (included in Employee Assistance Programs), or alternatively, for managed health plans to sub-contract with such organizations to furnish mental health services. However, the experience of these companies did not equip them with the expertise to serve individuals with serious mental illnesses, who make up a significant proportion of adult Medicaid beneficiaries. When some of these companies entered the public-sector managed mental heath services arena, problems arose because they lacked the necessary expertise. The companies that have survived are those that improved their capability to manage public sector services.

  9. Bazelon Center for Mental Health Law and Milbank Memorial Fund (2000). Effective Public Management of Mental Health Care: Views from States on Medicaid Reforms That Enhance Service Integration and Accountability. New York: Milbank Memorial Fund. Available at

  10. A greater number of states furnish mental health services through managed care arrangements. However, in many cases, these states exclude SSI recipients from mandatory enrollment in a managed care plan and/or include only basic inpatient and outpatient mental health services in the scope of benefits provided through the managed care plan.

  11. This practice recognizes that the public sector mental health marketplace is different than the physical health market place. The problem often is that there are too few rather than too many providers.

  12. At the time this report was prepared, 12 states were furnishing Medicaid services under the provisions of §1932(a). In almost all instances, these states excluded SSI recipients from mandatory enrollment or excluded mental health services from the scope of services furnished through arrangements permitted under §1932(a). The §1932(a) authority most typically was employed in furnishing services to TANF and TANF-related groups. State-by-state information concerning the use of the §1932(a) authority is at

  13. The BBA-97 provisions did not provide a mechanism for states to expand eligibility to include the uninsured.

  14. There are many examples of states that contract with managed care organizations for the provision of Medicaid services but give beneficiaries the option of obtaining services on a fee-for-service basis instead. One example is the ICare program in Wisconsin where individuals with disabilities may voluntarily elect to obtain services through a managed care entity.

  15. In some cases, limited-purpose demonstration waiver programs may limit the number of beneficiaries who can participate in the demonstration. In health reform demon-strations, states may limit the number of uninsured individuals who are served but not Medicaid beneficiaries.

  16. A central broker is employed to provide information to beneficiaries about their choices of managed care arrangements. Brokers are most commonly employed in conjunction with managed health plans.

  17. All savings must be devoted to enhancing services for Medicaid beneficiaries. In the past, states could use savings to underwrite services for non-Medicaid eligible individuals. This is no longer allowed.

  18. A state may also require contractors to identify additional services that they will furnish out of savings they realize in serving beneficiaries. However, the provision of these additional services is an obligation of the contractor rather than the state. Services that a state adds under the provisions of §1915(b)(3) must be available to all enrolled ben-eficiaries.

  19. In the past, states had the latitude to redirect savings to underwrite services for non-Medicaid eligible individuals. This is no longer the case. States must apply savings to furnish additional services to Medicaid beneficiaries or apply savings in a fashion that will benefit beneficiaries (e.g., by establishing a community reinvestment fund). In addition, previously some states were permitted to redeploy savings under the provisions of §1915(a) of the Act rather than identify the additional uses under §1915(b)(3). This practice also has been terminated.

  20. BBA-97 resulted in the creation of new classifications of managed care organizations (MCOs). Organizations that furnish managed mental health services usually are classified as Prepaid Inpatient Health Plans (PIHPs). A PIHP furnishes a limited range of Medicaid services. When a behavioral health organization's contract includes inpatient hospital services, it is classified as a PIHP. Organizations that furnish a fuller range of health services are classified as MCOs. Organizations that furnish a limited range of services and are not responsible for inpatient hospital services are classified as Prepaid Ambulatory Health Plans or PAHPs.

  21. Colorado Departments of Health Care Policy and Financing and Human Services (2003). Medicaid Mental Health Capitation and Managed Care Program: Proposal for Section 1915(b) Capitated Waiver Program Renewal.

  22. Michigan Department of Community Health, 1915(b) Renewal Application (September 2003).

  23. CMS rules concerning external quality review are located at 42 CFR 438.300 and were promulgated in final form in January 24, 2003 Code of Federal Regulations. The CFR materials are available at

    CMS has also released protocols to guide external quality review. These protocols are located at

    In addition, states are expected to identify and conduct quality improvement projects for the duration of the waiver program.

  24. Encounter data include services actually furnished to beneficiaries. Encounter data serve as a substitute for detailed information derived from Medicaid claims in a fee-for-service system.

  25. The October 2003 RFP soliciting a contractor for the Iowa Plan (a behavioral health specialty managed care plan) was 450 pages.

  26. These relatively long contract periods recognize that a contractor incurs considerable costs in establishing its operations and, thereby, need an extended period to recover such costs. In addition, changing contractors frequently can be disruptive to client-provider relationships. Issues surrounding the procurement and re-procurement of contractors to furnish managed behavioral health services are discussed in: Richard H. Dougherty (2003). Informed Purchasing Series Resource Paper. Re-procurement: The Role of Competition in Changing Public Managed Behavioral Health Systems. Princeton NJ: Center for Health Care Strategies

  27. The table does not include 1915(b) waiver programs that furnish a limited range of outpatient and inpatient services.

  28. In general, only a few states include prescription drugs in the scope of services contracted through managed care organizations of any type. However, in evaluating the cost effectiveness of a managed behavioral health program, CMS requires that states take into account prescription drug costs because such costs may be affected by the practices of managed behavioral health programs.

  29. Hyde, Pamela. (2004). State Mental Health Policy: A unique approach to designing a comprehensive behavioral health system in New Mexico. New York: American Psychiatric Assocation. New Mexico is undertaking a broad restructuring of its mental health system. Restructuring the delivery of Medicaid mental health services is one element of this restructuring. Additional is available at

  30. The material in this section is based on Colorado's 2003-2005 1915(b) waiver renewal application and its 2000 RFP to solicit agencies to serve as contractors. Both documents are located at Also located at the same address are responses to this RFP submitted by MHASAs, as well as other materials. Additional information concerning Colorado's mental health service delivery system is located at

  31. The material in this section is based on Iowa's May 2003 waiver renewal application and the state's October 2003 Request for Proposal to solicit bids for a contractor to operate the Iowa Plan.

  32. For example, the District of Columbia includes mental health benefits in the scope of its 1915(b) DC Managed Care waiver program. These basic benefits are managed by a private-sector behavioral health company. Medicaid mental health rehabilitative services, however, have been excluded from this program and are managed by the District of Columbia Department of Mental Health. Individuals with serious mental illnesses who qualify for and would benefit from rehabilitative services are referred by the behavioral health company and other provider agencies to receive rehabilitative services, which are reimbursed on a fee-for-service basis.

  33. This authority also extends to other specified parts of the Social Security Act, including Title XVI.

  34. For example, HHS, the Robert Wood Johnson Foundation and three states (AR, FL, NJ) collaborated in a demonstration of consumer-directed Medicaid services. The 1115 authority was used to permit the states to implement "cash and counseling" demonstrations. The CMS New Freedom Independence Plus initiative is an outgrowth of this demonstration project.

  35. In 2001, CMS announced the Health Insurance Flexibility and Accountability (HIFA) Demonstration Initiative. This initiative encourages states to seek waivers of provisions of Titles XIX and XXI (the State Children's Health Insurance Program (SCHIP)) of the Social Security Act to expand basic health care coverage to groups not currently eligible to receive benefits. This initiative derives from the 1115 demonstration authority. Through this initiative a state may propose changes in its program that enable it to extend a limited package of basic health care benefits to additional groups of individuals. Such changes may include limiting services for optional eligibility groups and imposing cost-sharing on certain groups.

  36. AZ, DE, HI, KY (not statewide), MD, MA, MN, NY, OK, OR, RI, VT. Other states operate 1115 demonstrations that are narrower in scope. The number of states that operate these demonstrations has not changed appreciably in recent years.

  37. The material in this section is based on: (a) personal communication with Beth Tanzman, MSW, Director, Adult Community Mental Health Programs, Vermont Division of Mental Health, Department of Developmental and Mental Health Services; (b) Vermont Department of Developmental and Mental Health Services (2003). The Statewide System of Care Plan for Adult Mental Health in Vermont: Update -- Fiscal Years 2003-2003. Waterbury, VT; and, (c) Vermont Department of Developmental and Mental Health Services (2002). Description of Programs and Services. Waterbury Vermont.

  38. Originally, there were two MCOs that furnished primary health care services to VHAP beneficiaries. In 1999, both withdrew from the market place and Vermont switched to a PCCM service delivery model.

  39. For example, the Oklahoma Sooner Care demonstration includes mental health benefits in the scope of services that contracted MCOs must furnish. Sooner Care specifically excludes individuals with serious mental illnesses from mandatory enrollment. These individuals continue to receive services on a fee-for-service basis.

  40. Prior to 1982, Arizona did not participate in the Medicaid program. It entered the program under an 1115 demonstration waiver and continues to operate all its Medicaid services under this authority. Mental health services were not originally part of the demonstration. In a similar vein, long-term care services were not originally included but were added in the late 1980s.

  41. More information concerning the operation of Arizona's system is available at the Division of Behavioral Health Services web site:

  42. The default managed care enrollment for SSI beneficiaries is PCCM. SSI beneficiaries may elect to receive their services through a comprehensive MCO.

  43. Section 2176 of P.L. 97-35.

  44. Federal regulations concerning the operation of HCBS waiver programs are located in 42 CFR Subpart G (Sections 441.300 et seq.). State Medicaid Manual materials concerning the operation of HCBS waiver programs are located in Part 4, Sections 4440 et. seq.

  45. At present, there are four 1915(b)/(c) combination waiver programs. One, in Michigan, covers mental health, substance abuse and developmental disabilities services, and a second one covering the same services (Piedmont Cardinal Health Plan) will go into effect in April 2005. A third (Star Plus) is operated by Texas in the Houston area (but is being expanded to other areas). Star Plus furnishes integrated health and long-term care services to older persons and individuals with disabilities. The forth is the Wisconsin Family Care program that integrates health and long-term care services for older persons and individuals with disabilities in five counties. Information about these programs is at

  46. In order to facilitate the community transition of institutionalized persons, a state may arrange for various services in advance of the person's actual transition and obtain federal financial participation in the costs of those services once a person enters the waiver program. Such services include necessary home modifications, equipment, and certain costs associated with a living arrangement for the person. CMS has spelled out how states can facilitate community transition in various letters to State Medicaid Directors. These letters are located on the CMS web site at Specifically, this is addressed in the following letters: (a) Olmstead letter Number 3, dated July 25, 2000; (b) letter #02-008, dated May 9, 2002; and (c) letter # 03-006, dated July 14, 2003.

  47. In the past, states were required to show that operating an HCBS waiver program would reduce institutional utilization and/or avoid growth in institutional services. This requirement was known as the "cold bed rule." When HCFA (now CMS) issued revised HCBS waiver regulations in 1994, the Agency clarified that a state could serve as many individuals as it desired, irrespective of the impact on institutional utilization.

  48. The template is available at

  49. A publication that discusses the use of the HCBS waiver program to support children with serious mental or emotional disorders is: Bazelon Center (2003). An Advocate's Guide to Overcoming State Barriers and Obtaining a Home- and Community-Based Waiver for Children with Mental Health Needs. Washington DC. This publication is available at

  50. The material here summarizes Colorado's rules for the operation of this program and has benefited from personal communications with Denise Ellis at the Colorado Department of Human Services.

  51. §1915(c) specifically provides that a state may offer "day treatment or other partial hospitalization services, psychosocial rehabilitation services, and clinic services (whether or not furnished in a facility) for individuals with chronic mental illness." However, these services are rarely covered as waiver services because many states already cover them as Medicaid state plan services.

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