American Journal of Law & Medicine

Modernizing Medicaid eligibility criteria for children with significant disabilities: moving from a disabling to an enabling paradigm.

Children with significant disabilities may qualify for Medicaid benefits, regardless of household income, if their state elects to offer the Tax Equity Fiscal Responsibility Act (TEFRA) option. However, a significant number of children with serious medical problems presently are being denied eligibility for, or terminated from, this Medicaid program. This Article describes the ways in which the existing health insurance system inadequately meets the needs of children with significant disabilities, recounts the history and development of the TEFRA Medicaid coverage option, and analyzes the eligibility criteria used by the various states. It proceeds to consider how disability should be legally defined in the health care context and proposes reforms to modernize the eligibility standards so that these benefits can be more effectively, efficiently, and fairly allocated. To accomplish this goal, the federal statute and regulation that define disability, as well as corresponding state laws, must be reformed so that the law can keep pace with advances in modern medical science, and people with disabilities are not, in effect, penalized for receiving currently accepted preventative care that maintains health but will never cure the underlying disease.

I. INTRODUCTION

Escalating costs, along with the burgeoning number of people without medical insurance, have brought health care reform to the forefront of current domestic policy debates. (1) The existing health care system, with access to private insurance primarily linked to employment (2) and benefits packages based upon the paradigm of a typical healthy individual, presents particular challenges for children with significant disabilities. (3) These children are "twice as likely to have unmet health needs as children in the general population." (4)

Consider a child with Crohn's disease, a chronic condition that causes inflammation of the digestive tract. (5) Without treatment, she is at risk of intestinal obstruction, abscesses, fistulas, and malnutrition, any one of which can be life-threatening. (6) While no cure exists, modern drugs, administered by an intravenous infusion during a day in the hospital every four to six weeks, can essentially trigger remission. (7) Even with private health insurance, families may not be able to afford this expensive treatment, totaling tens to hundreds of thousands of dollars each year. In a representative case, one day's intravenous drug treatment alone totaled $11,312.00. (8) Yet, without the drugs, the child would experience severe complications from the disease, requiring hospitalization and even more expensive treatments.

For the past twenty-seven years, the Medicaid program has offered states the opportunity to address such a situation by providing health insurance coverage to children with significant disabilities. Children who are "sick enough" can qualify for Medicaid benefits, regardless of household income, if their state elects to offer this eligibility category. (9) As of July 2005, twenty states included this option as part of their Medicaid programs. (10) According to the independent research that forms the basis of this Article, eighteen states did so as of 2010. (11)

The existing system of Medicaid coverage for children with significant disabilities, however, makes clear that the current federal and corresponding state laws create a significant dilemma for these children and their families, raising fundamental questions about how a "child with a disability" should be defined, particularly when access to life-sustaining medical care hinges upon that determination. Under the current eligibility standards, once such a child's symptoms are controlled through regular intensive medical treatment, she is at risk of losing her Medicaid eligibility because her health has improved. (12) The program standards do not account for the fact that her underlying disease still exists, and without continuing treatment (and the means to pay for it), her health will certainly deteriorate. Ironically, were this to happen, the child would regain Medicaid eligibility once her symptoms reemerged due to lack of treatment, but only until she again responded to treatment, creating a vicious cycle. (13)

Two aspects of the Medicaid eligibility criteria for children with significant disabilities are particularly problematic. First, in order to be considered eligible for Medicaid benefits, the program's criteria require children to qualify for institutionalization if they do not receive Medicaid benefits. (14) The institutionalization requirement results in a system that tends to provide coverage only for expensive acute crises and not for preventative or maintenance care, which is often the more cost-effective alternative. (15) Moreover, because children with disabilities are no longer routinely institutionalized, this standard is antiquated and does not provide a useful benchmark for evaluating eligibility.

Second, to establish a qualifying disability, the eligibility criteria often require children to exhibit symptoms that can be alleviated by modern medical care, reflecting deficiencies in the law's ability to keep pace with scientific advances. (16) Such children need Medicaid coverage to maintain health, but ironically, once they access the program, they become "too healthy" to continue to receive benefits, putting them at risk of decompensating after eligibility is terminated.

This Article considers how "disability" should be legally defined in the health insurance context. In so doing, it seeks to contribute to the conversation about challenging and changing the paradigm of what it means to be a "person with a disability," as well as to suggest reforms to make the public benefits system in this area more functional. Part II describes the ways in which the existing health care system inadequately meets the needs of children with significant disabilities. Part III recounts the history and development of the TEFRA Medicaid option, provides examples of state implementation, and identifies and analyzes problematic aspects of the current eligibility criteria that define "disability" and thereby govern access to Medicaid benefits for children with significant disabilities. Part IV proposes reforms to modernize the eligibility standards so that these benefits can be more effectively, efficiently, and fairly allocated. Specifically, the federal statute and regulation that define what it means to be a "child with a disability," as well as corresponding state law, must be revised in light of current medical advances. Beyond the Medicaid context, a model for covering children with disabilities that additionally results in health care provision cost savings can inform decisions about health care reform on a more general level.

II. THE EXPERIENCE OF CHILDREN WITH SIGNIFICANT DISABILITIES IN THE CURRENT HEALTH INSURANCE SYSTEM

Advances in medical science and technology have resulted in a new population of children with significant disabilities who are living longer. These children are not only surviving beyond infancy but also are able to enjoy a higher quality of life than ever before. "For children with cystic fibrosis, congenital heart disease, spina bifida, and other conditions that once were often or always fatal in infancy or childhood, what might earlier have seemed a fantasy of the future--planning for college and work life--is now a reality for many families." (17) This new reality places demands on a health care system that is not designed to meet this population's needs. While "[s]ociety now expects that children with chronic illness and disabilities will be cared for by their families ... [t]he cost of health care for children with special needs has increased beyond the financial reach of many families." (18)

Children with significant disabilities constitute a sizeable population. One or more children with special health care needs lives in 21.8 percent of American households. (19) The National Survey of Children with Special Health Care Needs reports that as of 2005-2006, nearly fourteen percent of children in the United States "have or are at increased risk for a chronic physical, developmental, behavioral, or emotional condition and ... also require health and related services of a type or amount beyond that required by children generally." (20) This number is constant across households with incomes from zero to four hundred percent of the federal poverty level, (21) with the result that a considerable number of children with special health care needs do not qualify financially for traditional Medicaid coverage.

These children exist in a health care system that is not designed to meet their needs. Private health insurance coverage often proves inadequate. (22) While access to some health insurance is preferable to being uninsured, existing private insurance coverage is frequently insufficient for children with significant disabilities. The "presence of benefit limits or diagnostic exclusions can mean that some children effectively become uninsured if they require more intensive services than those covered." (23) This is demonstrated by a Maternal and Child Health Bureau study that analyzed the most common policies of the largest private insurers in each state to determine whether hypothetical children with disabilities could access necessary medical care. (24) Even assuming "that insurers would be lenient in coverage, rather than restrictive," most of the profiled children "would rarely have access to coverage for all of their recommended services." (25)

For example, a thirty-month-old toddler with cerebral palsy and seizure disorder would have full coverage for all necessary medical services (except for a fitted stroller) in only three percent of plans, with physical, occupational, and speech language therapy available only "rarely." (26) A five-year-old child with spina bifida could access full coverage in only one percent of plans, with coverage gaps for home health services, wheelchair replacement, and medical supplies. (27) Children and adolescents with mental health disabilities would experience difficulty accessing medications, psychotherapy, and inpatient and outpatient treatment. (28)

Other research confirms that children with significant disabilities typically require intensive therapies and other services that are excluded or are covered inadequately under private insurance policies. One study of private insurance plans found that children with disabilities were typically able to access needed coverage for inpatient hospitalizations, prescription drugs, and specialists. (29) However, children with disabilities had difficulty accessing special health services and medical equipment related to their disabilities. (30) "Inadequate coverage may occur due to interpretation of unclear insurance policies, lack of specialists in the network, stringent gatekeepers with limited knowledge of rare diseases, or providers' financial incentives within health plans." (31)

Another study found that, while seventy nine percent of Medicaid eligible children with significant disabilities in Minnesota had private insurance, "a third of the policies had coverage exclusions or limitations related to the child's needs." (32) The services least likely to be available under private insurance plans "in the amounts considered necessary by medical experts who routinely treat children with special needs" include physical, occupational, and speech therapy, and mental health services. (33) Sometimes, covered benefits are subject to exclusions, making them unavailable to treat certain conditions, such as developmental disabilities or mental health conditions. (34) The consequence, as bankruptcy expert Elizabeth Warren points out, is that "[c]osts not borne by insurance, such as rehabilitation therapy and at-home care, can ... quickly absorb every spare dollar in a 2001 median household income of $42,151." (35)

Even when needed services are included in a health plan's benefits package, private health insurance policies "typically have limitations on rehabilitative services and other care needed by individuals with disabilities and chronic illnesses." (36) Such limits "affect children disproportionately" because "children are more likely than adults to exceed the limits." (37) For example, private policies customarily offer services such as physical therapy for a finite period of time, such as sixty days, or require that therapy "be used to restore lost functioning associated with an illness or injury." (38) The private health insurance model is based on the paradigm of a healthy individual, who may experience an injury for which treatment is provided and who then recovers normal functioning. By contrast, children with significant disabilities often require intensive ongoing therapies for longer periods of time. (39) and need therapy to improve functioning where "congenital problems have prevented functioning from being established" (40) in the first place.

Children with significant disabilities also may exceed the maximum coverage limits on their parents' private health insurance policies, due to the extent of their medical needs. For example, the "[m]edical costs from a child born with a serious heart defect or one who develops leukemia can easily outrun a family's lifetime insurance cap of $1,000,000." (41) One parent observed that "[m]ental health coverage on both our policies has exceeded lifetime maximum coverage ... As our child has suicidal tendencies, the lack of medical treatment due to financial limitations could result in her death." (42)

In addition, the out-of-pocket costs associated with private insurance for care required by children with significant disabilities are often substantially burdensome. The study of Medicaid-eligible children with significant disabilities in Minnesota found that those "[f]amilies paid annual out-of-pocket medical expenses averaging $2,300 per child, more than eleven percent of their average-adjusted gross income." (43) This is nearly five times the amount of out-of-pocket costs incurred by families without children with special health care needs. (44) Elizabeth Warren observes that a twenty percent insurance co-payment means that "[f]ive days in the hospital for a child with a serious bout of pneumonia or abdominal surgery can cost an insured family ... tens of thousands" of dollars. (45)

When families become the payor of last resort for medical care for children with significant disabilities, their households experience other negative effects, such as debt, bankruptcy, marital and family stress, and less money for food, clothing, housing, and education. (46) Elizabeth Warren's research demonstrates that out-of-pocket medical costs are a significant financial stressor for families, finding that "[a]pproximately 240,000 families with continuous medical insurance file for bankruptcy every year at least in part because of outstanding medical bills." (47) A 2007 study of bankruptcy filings revealed that "nearly two-thirds were caused by medical bills" even though "[t]hree-quarters had health insurance." Most of these debtors "were well-educated, owned homes, and had middle-class occupations." (48)

One family's story vividly illustrates the tenuous nature of financial stability once chronic health care needs arise:

   My daughter Stephanie spent her first two weeks of life hooked
   up to a respirator, heart monitor, feeding tube, and IV in the
   neonatal intensive care unit ... In addition to being "in survival
   mode," we also had to worry about health costs even though we
   had double coverage. The first bill for Stephanie's NICU stay was
   $28,000 and I figured we were already up to $60,000 by the
   time we brought her home. I was on a 10-month leave of absence
   and another 4-month leave 6 months later... We didn't qualify
   for ... any ... programs because we both worked and made too
   much money. We went into debt and almost lost the house ...
   [I]t took me 1 1/2 years to resolve her first claim for physical
   therapy even though it was listed as a covered expense in both
   employee handbooks, and I was assured over the phone that it
   was covered. (49)

Staggering costs associated with a significant disability can arise unexpectedly. Children who have been healthy can suddenly contract diseases that change the course of their lives. Consider the ease of Gretchen Sidell, who at age fifteen contracted meningococcal meningitis and suffered a brainstem stroke, leaving her paralyzed and unable to feel sensation from the neck down. (50) She is unable to breath, talk or swallow, is one hundred percent ventilator dependent, and cannot regulate her internal body temperature. (51) Despite her physical disabilities, she is "cognitively intact" and takes community college courses. (52) Illinois' Medicaid program for technology dependent children provided the private duty nursing hours and other medical care that Gretchen needs to survive, until she turned twenty-one. (53)

In addition, some children with significant disabilities may not have access to any private insurance coverage (54)--their parents' employers may not offer health insurance, the cost of private coverage may be prohibitive, (55) or their parents may earn (just) too much to qualify for the State Children's Health Insurance Program (SCHIP). (56) Children in "excellent or good" health are more likely to have private insurance than children in "fair or poor" health. (57) The National Survey of Children with Special Health Care Needs reports that 8.8 percent of children and youth with special health care needs lacked health insurance at some point in the past year, and 33.1 percent were underinsured or inadequately covered. (58) Without some alternative, such as Medicaid, these children's medical needs would go unmet.

The alternatives, other than Medicaid, particularly in the mental health context, are far from optimal. Parents whose household income exceeds traditional Medicaid limits are faced with relinquishing custody to the child welfare system so their child can obtain Medicaid coverage, thereby breaking the family apart. (59) The National Alliance for the Mentally Ill reports that "approximately one of every five families of children with mental or emotional disorders [is] advised to give up custody to get help." (60) Other commentators have criticized the exclusion of children with mental illness from health care coverage because, without other options, parents can be forced to relinquish custody as the only means to obtain treatment services for their children. (61)

The other alternative for children who do not receive necessary mental health services through Medicaid or private health insurance is the juvenile justice system. (62) For many children with mental health disabilities, the community integration movement has not led to deinstitutionalization but rather confinement in juvenile detention facilities instead of mental hospitals. (63) A Bazelon Center survey revealed that thirty six percent of families "reported that their children were in the juvenile justice system because mental health services were not available." (64) Thus, instead of accessing medically necessary health care while living at home, these children are relegated to the child welfare and juvenile justice systems where treatment outcomes may be far less successful and at great cost, both financially and in terms of family emotional health and well-being.

The Patient Protection and Affordable Care Act (PPACA) offers some improvements to health insurance access and coverage for children with significant disabilities, as well as the opportunity to remedy many of the inadequacies of the current system. First, the expansion of health insurance options under the PPACA will help many uninsured children with significant disabilities to access coverage. The PPACA calls for health insurance exchanges to be established by 2014, to provide insurance options for people who do not have access to private employer-based coverage and who do not qualify for Medicaid or SCHIP. (65) Health insurance exchanges, to be run by government or non-profit entities, will certify and offer health insurance plans for purchase. Along with the individual mandate to obtain health insurance, the PPACA offers premium and cost-sharing subsidies (in the form of federal tax credits) to help individuals with incomes up to 400 percent of the federal poverty level to purchase coverage. (66) Another important provision for children with significant disabilities is the PPACA's prohibition, effective September 23, 2010, that prevents new and existing group plans from denying coverage to children with pre-existing conditions. (67)

The PPACA also addresses some of the cost-sharing and coverage limitations that currently burden children with significant disabilities on private insurance. As of September 23, 2010, plans are prohibited from imposing lifetime limits on "essential benefits" (68) and restricted in imposing annual dollar limits on coverage. (69) By 2014, annual dollar limits on coverage in new and existing group plans will be entirely eliminated. (70) These reforms will help alleviate burdens disproportionately borne by children with significant disabilities in the current private insurance market.

Perhaps the area that offers the most promise for this population is the contents of the "essential benefits" package under the PPACA. Significantly, "rehabilitation and habilitative services and devices" will be required to be covered as "essential benefits" in "qualified health plans." (71) Although the terms still require further regulatory definition, they are broad enough to include all of the services required by children with significant disabilities, including those not offered by existing private insurance options but currently available through the Medicaid program. A crucial issue in health care reform implementation will be to ensure that the regulations fleshing out these important provisions do not dilute the statutory terms.

At this point, it is unclear whether the PPACA will be a panacea for children with significant disabilities. Aside from the unanswered questions about the details of substantive implementation, legislators already are calling for the Act's amendment or repeal. (72) Moreover, litigation seeking to have the PPACA found unconstitutional has been initiated in several states and is considered likely to reach the U.S. Supreme Court. (73) Assuming that the PPACA survives these challenges, the implementation of health care reform provides an important opportunity to revisit the roles of private versus public health insurance. In the new reality in which all citizens have access to health insurance, should the costs of care for children with significant disabilities be shared through private insurance premiums and federal personal income tax subsidies or through federal and state funding of the Medicaid program? Will the medically necessary services required by this population be available and accessible on the private insurance market, or will the need for the Medicaid benefits package continue?

III. PROBLEMATIC ASPECTS OF THE CURRENT LEGAL DEFINITION OF "DISABILITY" FOR CHILDREN IN OR SEEKING ACCESS TO THE MEDICAID PROGRAM

A. MEDICAID ACCESS FOR CHILDREN WITH SIGNIFICANT DISABILITIES

Medicaid is typically regarded as health insurance for people who are poor. A lesser known fact is that it is also an important source of coverage for people with disabilities. Medicaid is the "single largest source of health insurance coverage, public or private, for people with disabilities--covering over 8 million people under age sixty-five with disabilities" (74) in the United States. Among this group of beneficiaries are children with significant disabilities whose household income exceeds the traditional Medicaid program limits.

The Medicaid program is jointly funded and administered by the Centers for Medicare and Medicaid Services on the federal level and a designated state Medicaid agency on the local level. Medicaid participation is voluntary, but all states presently choose to participate. The Medicaid Act (75) contains the basic structure of the program and defines the eligibility categories. States are required to cover some groups, such as children under age six whose family incomes are at or below 133 percent of the federal poverty level and children ages six through nineteen whose family incomes are at or below 100 percent of the federal poverty level. (76) Additional groups, such as infants and pregnant women up to 185 percent of the federal poverty level, among others, may be included at state option. (77)

The PPACA expands the Medicaid program (with enhanced federal matching funds for states), so that by 2014, nearly all uninsured individuals with incomes up to 133 percent of the federal poverty level will be covered. (78) The PPACA eliminates resource tests for Medicaid eligibility and includes a flat five percent income disregard, effectively expanding Medicaid financial eligibility to 138 percent of the federal poverty level. (79) Consequently, some children with significant disabilities will become financially eligible for Medicaid, solely based on their household income and without regard to their disability status.

States have multiple alternatives to extend Medicaid coverage to children with significant disabilities whose household incomes exceed traditional Medicaid financial eligibility criteria. A popular option is a Medicaid home and community-based services (HCBS) waiver under section 1915(i) of the Medicaid Act. (80) The research conducted for this Article revealed that thirty-seven states currently offer Medicaid coverage to children with significant disabilities in this manner. (81) HCBS waivers present the opportunity to offer specialized services targeted to individuals with particular disabilities with incomes higher than the limits for traditional Medicaid. Unlike services offered through the traditional Medicaid program which must be available to all participants, HCBS can be provided in differing amount, duration and scope to specified groups. People are eligible for HCBS waivers "if there has been a determination that but for the provision of such services the individuals would require the level of care provided in a hospital or a nursing facility or intermediate care facility for the mentally retarded. …

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