Using Past Income Data to Verify Current Medicaid Eligibility

Using Past Income Data to Verify Current Medicaid Eligibility Stan Dorn Matthew Buettgens Habib Moody Christopher Hildebrand The Urban Institute Health Policy Center 2100 M St. NW Washington, DC 20037 October 2013

Copyright October 2013. The Urban Institute. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders. Permission is granted for reproduction of this file, with attribution to the Urban Institute.

Executive Summary Context The Patient Protection and Affordable Care Act (ACA) changes the rules for verifying financial eligibility for Medicaid. Beginning in January 2014, such verification must occur automated data matches whenever possible, rather than by requiring consumers to submit paperwork that is manually evaluated, at public expense. This new data-driven approach was adopted to streamline enrollment and retention, increase eligible consumers participation, cut administrative costs, and prevent errors. But when, exactly, do data matches from records showing earlier income verify consumers current financial eligibility for Medicaid? Put differently, what business rules * can states program into their eligibility systems that will identify the precise circumstances under which data matches verify financial eligibility, without any need for documentation from the consumer or manual intervention by caseworkers? To help states develop such rules, we analyze data from the 2008 Survey of Income and Program Participation (SIPP), which tracks the changing circumstances of households over time. We explore the potential usefulness of federal and state tax, employment, and wage records in states that implement the ACA s Medicaid expansion to 138 percent of the federal poverty level (). We estimate, among people with specified prior incomes, wages, and employment histories, the proportion who will qualify for Medicaid under rules in effect in 2014 and later. We use those estimates to develop a set of business rules that would let states verify financial eligibility, without seeking documentation from consumers, both when consumers submit initial Medicaid applications and when Medicaid enrollees eligibility is redetermined. These business rules consider the changing information available to states out each calendar year. During the first few months of any given year, states most important source of financial information is likely to be tax records showing prior-year income. In later months, this information is supplemented by reports about whether particular consumers began new jobs during the current year. By the latter part of the year, states can also access wage records from at least the first calendar quarter of the current year. SIPP lets us establish the probability of current Medicaid eligibility for people with certain levels of past income. But federal guidance on this issue has not been framed in terms of probabilities. For our analysis, we assume that the Centers for Medicare & Medicaid Services (CMS) will give states significant leeway in setting applicable probability thresholds, and we base our business rules on two specific thresholds one for initial applications, and the other for renewals of existing beneficiaries that should be well within the bounds of states permitted flexibility. Initial applications When someone submits an initial application, ACA regulations provide that: (a) the applicant s attestations are verified by reasonably compatible data matches; (b) states have considerable flexibility to define such compatibility; and (c) if both the attestation and the data show income below 138 percent, the applicant is financially eligible. Based on these principles, we assume that if data matches show prior income below 138 percent, and they establish more * Business rules are the operating instructions for computer-driven eligibility determination in the same way that eligibility manuals have traditionally provided operating instructions for caseworker-driven eligibility determination. i

than a 50 percent likelihood of current income at Medicaid levels, a state can define such data as reasonably compatible with an applicant s attestation of Medicaid-level income. To err on the conservative side, we look for data matches that verify attestations of financial eligibility by showing prior income at Medicaid levels and a 70 percent or greater likelihood of current financial eligibility. In 2014, a state that bases initial Medicaid eligibility on monthly income could satisfy those criteria with the business rules shown in Table ES-1. Table ES-1. Possible business rules for initial applications in 2014: applicants whose attestations of current Medicaid-level income are verified by data matches Time frame January April 2014 May August 2014 Sept. Dec. 2014 Source: SIPP 2008. Data that verify an attestation of current financial eligibility 2013 income no higher than 138 percent Either: (a) 2013 income no higher than 138 percent and no new job between 1/1/2014 and 5/1/2014; or (b) 2013 income no higher than 100 percent and a new job begun between 1/1/2014 and 5/1/2014 2013 income at or below 138 percent plus quarterly wages, earlier during 2014, at or below 80 percent Based on the data, the likelihood of current monthly income at Medicaid levels 85% 79% (a) 82% (b) 70% Among all Medicaideligible consumers, the percentage potentially verified by the rule 73% 85% 55% For example, if someone applying in January April 2014 attests to income at Medicaid levels, a data match showing 2013 income at or below 138 percent would establish an 85 percent likelihood of Medicaid-level current monthly income. It would therefore be reasonably compatible with the attestation and verify it, eliminating the need for the applicant to produce paperwork. Such a rule could verify attestations for 79 percent of eligible consumers. Renewals When enrollees are reaching the end of their coverage periods, ACA regulations provide that the Medicaid program must make a redetermination of eligibility without requiring information from the individual if able to do so based on reliable information. When such information shows continuing eligibility, the beneficiary is sent a notice explaining the basis of the decision to continue coverage. The notice makes clear that the beneficiary is legally required to correct any errors. If no corrections are received, coverage continues. This process is termed administrative renewal. CMS has not defined the regulatory phrase reliable information in terms of the likelihood of current eligibility that is needed for administrative renewal. For purposes of this analysis, we assume that states have the flexibility to apply administrative renewal if reliable data sources ii

establish at least an 80 percent likelihood of continuing eligibility. Under such circumstances, administrative renewal is likely to improve the overall accuracy of eligibility determination by reducing the number of eligible people who lose coverage for procedural reasons. To err once again on the conservative side, we look for data matches that establish at least a 90 percent likelihood of current financial eligibility. In 2014, a state that uses such a 90 percent threshold and redetermines Medicaid eligibility based on projected annual income during the current year could use the business rules shown in Table ES-2. Table ES-2. Possible business rules for renewal in 2014: beneficiaries whose eligibility is administratively renewed Time frame January April 2014 May August 2014 Sept. Dec. 2014 Source: SIPP 2008. Data match that triggers administrative renewal 2013 income no higher than 120 percent 2013 income no higher than 120 percent and no new job begun between 1/1/2014 and 5/1/2014 2013 income at or below 138 percent and quarterly wages, earlier during 2014, at or below 80 percent Based on the data match, the likelihood of 2014 annual income at Medicaid levels 90% 71% 92% 63% 98% 60% Among all Medicaid-eligible consumers, the percentage potentially renewed administratively by the rule Under these rules, if someone s eligibility is being redetermined between January and April 2014, data showing 2013 income at or below 120 percent would establish a 90 percent likelihood of 2014 income at Medicaid levels. It would therefore trigger administrative renewal, continuing coverage unless the beneficiary corrects the state s notice. This rule could administratively renew 71 percent of eligible beneficiaries during those months. Conclusion States could craft different business rules, of course, based on different probability thresholds than those we used, different budget periods, and other factors. To aid the development of such alternative rules, both the body of the report and appendices include detailed findings about the relationship between the past and present circumstances of low-income people. We also provide an example of alternative business rules that are premised on different state policy choices. Regardless of a state s rules, many consumers will need to document financial eligibility for Medicaid. Nevertheless, for numerous eligible consumers, data matches will be sufficient under the ACA to verify eligibility in ways that cut red tape for families, save administrative resources for the state and federal government, increase participation among eligible consumers, safeguard program integrity, and reduce the number of incorrect outcomes. iii

Contents Introduction... 1 The level of certainty required for data matches to verify eligibility... 4 Initial application... 4 Renewal... 5 Budget period for current eligibility: monthly vs. annual income... 7 Income data accessible to state Medicaid programs... 7 Prior-year income information... 7 Current-year income data... 9 Initial applications: How Medicaid programs can use past income data to verify attestations of financial eligibility... 9 January April: Verifying financial eligibility when only prior-year income data are available... 10 May August: Verifying financial eligibility when significant new hires data become available... 11 September December: Verifying financial eligibility when wage data become available from earlier quarters... 13 Redeterminations: How Medicaid programs can use past income data to trigger administrative renewal... 15 January April: Verifying financial eligibility when only prior-year income data are available... 15 May August: Verifying financial eligibility when significant new hires data become available... 16 September December: Verifying financial eligibility when wage data become available from earlier quarters... 17 Putting it into practice: How business rules for data-based verification could operate in 2014... 19 Conclusion... 23 Additional Tables... 24 Appendix A: California findings... 33 Appendix B. Methodology... 34 Appendix C. Additional results... 36 About the Authors and Acknowledgments... 39 About the Urban Institute... 40 About the California HealthCare Foundation... 40 Notes... 40 iv

Using past income data to establish current Medicaid eligibility Introduction The Patient Protection and Affordable Care Act (ACA) makes several important changes to the Medicaid program. The best known change involves who is eligible. Beginning in 2014, the ACA expands Medicaid to include all citizens and qualified immigrants with modified adjusted gross income (MAGI) at or below 138 percent of the federal poverty level () 1 an expansion that the U.S. Supreme Court effectively rendered optional for states. 2 As of September 30, 2013, 25 states were moving forward and 26 states were not moving forward with expansion. 3 But the ACA also changes how eligibility is determined, and this change is not optional. If an applicant s statement on a Medicaid form, sworn under penalty of perjury, is reasonably compatible with data from reliable sources (like income tax and quarterly wage records), eligibility is verified without asking the applicant to furnish documentation. Likewise, if such data show that a beneficiary continues to qualify at the end of his or her enrollment period, coverage continues, without any need for the beneficiary to complete and return renewal forms. 4 This new approach to determining eligibility uses 21 st -century information technology (IT) in pursuit of several goals: streamlining enrollment and renewal, thereby increasing participation levels among eligible consumers; reducing state and federal administrative costs; and preventing eligibility errors. The Centers for Medicare & Medicaid Services (CMS) have offered states enhanced federal funding to support the IT development needed to realize this vision. 5 The federal government will also provide multiple sources of information a federal data hub, including tax data from the Internal Revenue Service (IRS), citizenship and benefits information from the Social Security Administration (SSA), immigration status data from the Department of Homeland Security, and information from other sources, including private vendors. Medicaid programs will supplement this information with other data, including from state-specific sources. Under the ACA, states retain the option to base financial eligibility determinations entirely on attestations. However, as in the past, most states expect to require income verification. Such verification must be obtained either at the time of application or soon thereafter. This paper focuses on one question state officials have raised about how to implement the ACA s new approach namely, when do data matches from earlier income records adequately verify that current income is low enough to qualify for Medicaid? That question has a specific operational context. The ACA s move to data-driven eligibility envisions that, whenever possible, states will determine eligibility the use of rules engines computer-operated systems that use clearly articulated business rules that, among other things, define the precise circumstances when data matches and consumer-furnished information suffice to establish eligibility. Business rules are the operating instructions for computer-driven eligibility determination in the same way that eligibility manuals have traditionally provided operating instructions for caseworker-driven eligibility determination. A key goal of this paper is to help states develop business rules they can program into their eligibility systems to identify the precise circumstances under which data matches verify 1

financial eligibility, reducing the need for documentation from consumers and manual intervention by caseworkers. To accomplish this goal, we analyze data from the 2008 Survey of Income and Program Participation (SIPP). This panel of SIPP began tracking a group of respondents in 2008 and followed their changing circumstances for several years; 6 the first full calendar year for which all respondents provided data was 2009. We estimate, among people who had specified levels of income during the prior calendar year, the proportion who would qualify for Medicaid during the current month or year. We do this by examining the relationship, in the SIPP, between annual income during 2009 which we define as prior-year income and monthly or annual income in 2010 which we define as current monthly or annual income. We also estimate the effects of supplementing prior-year income data with information about quarterly wage records and new hires during the current year that is, 2010 in the SIPP. We assume that states implement the ACA s eligibility expansion to 138 percent. This paper begins by analyzing the level of certainty required to rely on data matches in verifying eligibility, both for initial applications and for renewals. We then describe state Medicaid programs access to relevant income and earnings data. We explain our findings that show the relationship between prior-year income and current financial eligibility for Medicaid, estimating the proportion of Medicaid-eligible consumers whose current financial eligibility can be verified based on such records. We also assess the value added by information about quarterly wages and the start of new employment earlier during the current year. Appendices explore whether similar trends apply to the U.S. as a whole and to California, the nation s most populous state; explain our methodology in more detail; and provide additional results. To present our results, we discuss in turn data matches that verify initial applications and those that verify renewals. Within each of these two sections, we proceed chronologically, taking state Medicaid agencies the calendar year, from January December. We begin with early months when nothing but prior-year income data are available; move to the middle of the year, when prior-year data are supplemented by reports indicating whether consumers began new jobs since January 1 of the current year; and conclude with latter part of the year, when all Medicaid programs have access to wage records from at least one quarter during the current year. In the final section of the paper we present two illustrative sets of business rules, which reflect varying policy goals and assumptions. We preface this analysis with several final introductory comments. First, our analysis focuses on SIPP respondents who reported various levels of income in 2009, identifying the proportion who subsequently reported income at or below 138 percent during certain periods in 2010. This was a time of economic difficulty. During 2010, aggregate quarterly personal income was an average of 3.8 percent higher than during the same quarter in 2009. 7 If future economic growth is more rapid than it was from 2009 to 2010, a higher proportion of consumers with low income during one year could be financially ineligible for Medicaid in the next. Second, the business rules we develop in this analysis treat all nonelderly consumers equally, without distinguishing between children and adults. State Medicaid programs could use separate business rules to verify financial eligibility for children and adults: because of the ACA s maintenance-of-effort requirements, children will typically qualify for Medicaid at higher income thresholds than adults, and eligibility could thus be verified via data matching more frequently for children than for adults. However, our analysis combines children and adults. We 2

do so for several reasons: eligibility thresholds for children vary greatly by state, so children s verification rules would need to differ as well; and SIPP does not include large enough samples to produce reliable state-level estimates out the country, so it does not permit developing state-specific rules. States in the future may be able to use administrative data to craft different verification rules for children and parents, but in the near-term, many states that cover both adults and children up to 138 percent are likely to use the same verification procedures for all residents under age 65 whose eligibility is based on modified adjusted gross income (MAGI). Finally, our focus here is exclusively on the relationship between income tax data, quarterly wage records, and new hire reports, on the one hand, and current financial eligibility, on the other. But other data can also verify that particular consumers qualify for Medicaid. For example, earnings reports from private vendors can supplement publicly maintained income records to provide states with additional certainty about current eligibility. The Federal Data Hub will make information available from The Work Number, a subsidiary of Equifax that provides real-time payroll information about workers in more than 2,000 large firms, which may suffice to verify current monthly income levels for numerous consumers. As another example, CMS has made clear that receipt of public benefits can be used as part of a state s verification plan. 8 For example, 97 percent of beneficiaries of the Supplemental Nutritional Assistance Program (SNAP) will qualify for Medicaid under the ACA s 2014 rules. 9 Data showing receipt of SNAP is thus more than sufficient to verify a new applicant s attestation of financial eligibility for Medicaid or to justify administrative renewal of a beneficiary already receiving Medicaid. Ultimately, Medicaid programs will operate with business rules that use a broad variety of data matches to verify eligibility. This report focuses on one subset of such rules namely, those that use publicly-maintained records of past income, wages, and the start of new employment to verify current financial eligibility. It seeks to build part of what will become a much larger repertoire of rubrics specifying when data matches have eliminated the need for further documentation. 3

Data-driven eligibility in Oklahoma: a real-world example. The one state that, before October 2013, operated an ACA-style Medicaid application and renewal system Oklahoma takes applications on-line and uses a rules engine to provide real-time eligibility determinations, based on data matches whenever possible. Some data, such as citizenship verification from SSA, is obtained in real time, but other data sources, such as wage records from the state workforce agency, are queried after the application is submitted and eligibility has been initially determined based on the applicant s attestations. The latter determinations are subject to Oklahoma s right to revise its decision after accessing relevant data. If available data are inconsistent with or insufficient to support the applicants attestations, the state contacts the consumer for additional information. Data matches fully verify eligibility for about 55 percent of online applications, so slightly more than half of applicants do not have to provide any documentation to enroll. For renewals, 80 to 85 percent of beneficiaries qualify based on data matches, without any need for new documentation. Although the system has created some new administrative costs, net administrative savings amount to $1.5 million per year. These improvements occurred without any increase in the state s federally measured error rate, according to state officials. 10 The level of certainty required for data matches to verify eligibility Here, we describe the rules CMS has articulated for using data to verify eligibility at initial application and renewal. We also explore the implications of those rules for this paper s analysis. Initial application The ACA s final Medicaid regulations require that, beginning in 2014, if a sworn attestation on a Medicaid application form and data matches are reasonably compatible with one another, eligibility is determined accordingly, without seeking further verification. 11 In guidance, CMS defines reasonable compatibility to mean that [i]nformation is relatively consistent and does not vary significantly or in a way that is meaningful for eligibility. 12 For example: If both an attestation and data matches show MAGI below the applicable income standard, 13 they are reasonably compatible. When an attestation and relevant data matches are not reasonably compatible, the state asks the applicant for more information, such as a statement which reasonably explains the discrepancy or documentation to the extent electronic data are not available 14 State Medicaid programs have significant flexibility to define the differences between attestation and data that are consistent with reasonable compatibility. 15 Each state must provide CMS with a verification plan that includes, among other things, the state s definition of reasonable compatibility. 16 If a state determines eligibility for a particular consumer by correctly applying the rules specified in its Medicaid State Plan and verification plan, and those rules meet the requirements of federal law, the state decision is not classified as erroneous for purposes of federal payment error review. So long as the correct process was followed, given the information available to the Medicaid program at the time, the state is not penalized. 17 CMS has issued no hard-and-fast rules that define the timeliness of income data, instead emphasizing the role played by state flexibility. For example, CMS explained that current-year wage records need not be examined if the state finds that prior-year income data furnish 4

sufficient verification because they are reasonably compatible with applicant attestations about current income. 18 CMS s instructions for state verification plans thus ask states to consider whether the age of the data (up to date, 1 month old, 3 months old, a year old) [is] useful for determining current income, 19 without articulating any criteria for determining when data has become too old to be useful. Here, we define the relevance of financial data based on the probability it establishes of current Medicaid eligibility, taking into account both the age and the content of the data. In this paper, we estimate the probability of current financial eligibility established by data showing past levels of income, wages, and the start of new employment. Unfortunately for purposes of this analysis, CMS s guidance has not yet defined verification standards in terms of probability. The plain meaning of reasonable compatibility suggests that, if a data match with income records makes current eligibility more likely than not that is, if such records establish more than a 50 percent likelihood of current financial eligibility a state could classify the data as reasonably compatible with an attestation of income low enough to qualify for Medicaid, particularly if the data shows prior income at Medicaid levels. Under such circumstances, both the data and the attestation would show income below 138 percent, which fits the federal definition of reasonable compatibility. In this paper, we do not explore this possible outer boundary of permitted state flexibility. Instead, we develop business rules based on the conservative assumption that a Medicaid program can verify attestations of financial eligibility with data matches that: (a) show income low enough to qualify for Medicaid during the most recent period of time for which information is available; and (b) establish a 70 percent or greater likelihood of current income at Medicaid levels. Such matches, combined with an applicant s sworn statement under penalty of perjury that current income falls below 138 percent, could qualify the applicant for Medicaid without any need to provide pay stubs or other documentation that supplements the data. Renewal Administrative renewal In 2014 and beyond, ACA regulations provide that, if reliable information 20 demonstrates that a Medicaid beneficiary receiving coverage continues to qualify, the state must renew the individual s Medicaid eligibility. 21 The beneficiary is sent a notice describing the basis of the decision and explaining that the beneficiary is legally required to correct any errors. If no corrections are received, coverage continues. This process is termed administrative renewal. When available data make beneficiary s ongoing qualification for Medicaid appear uncertain or unlikely, the default under the ACA in case of consumer inaction is termination. The state sends the beneficiary a pre-populated form containing information known to the Medicaid program and asks for whatever additional information is required to determine eligibility. 22 Coverage ends unless the beneficiary provides that information. The ACA thus changes the default from termination to continued coverage whenever reliable information shows ongoing eligibility. This feature of the ACA reflects the insights of behavioral economics about the powerful role that default arrangements play in shaping participation levels for both public and private benefits. 23 5

In the past, eligible beneficiaries often lost Medicaid or CHIP by default. Failure to complete and return renewal forms has caused numerous procedural terminations, often because of confusion, lost paperwork, procrastination, or other behavioral factors. 24 The ACA s administrative renewal procedures address this problem by requiring Medicaid programs to make a redetermination of eligibility without requiring information from the individual if able to do so based on reliable information. 25 But where do states draw the line? What flexibility do states have to define reliable information? How likely must continuing eligibility be for states to set the default at administrative renewal rather than termination? CMS has not specifically addressed this question, but several basic points are clear. First, it is appropriate to require the establishment of a higher probability of current eligibility with administrative renewal than in verifying applicant attestations. With administrative renewal, the state receives some information from the beneficiary s failure to correct the state s eligibility notice, but less than is provided by an applicant s sworn attestation of income. Since the state receives less information, it is reasonable that the data match must be more conclusive to verify financial eligibility. Second, if it is applied to beneficiaries who are known to have at least an 80 percent likelihood of continued eligibility, administrative renewal is likely to increase the overall accuracy of eligibility redetermination. Under a broad range of assumptions, administrative renewal used with such beneficiaries prevents the mistaken termination of eligible consumers more often than it causes the mistaken renewal of ineligible consumers. 26 Put differently, changing the default, in the event of consumer inaction, from termination to renewal makes sense when the vast majority of enrollees are eligible. We therefore assume that states could apply administrative renewal to beneficiaries who are known to have at least an 80 percent probability of continuing eligibility. However, as with verification of applicants financial eligibility, our development of business rules below does not press the outer bounds of permitted state discretion. Rather, we look for rules that will trigger administrative renewal based on data showing a 90 percent or greater likelihood of ongoing eligibility. This approach is broadly consistent with CMS s authorization of states to enroll some or all of their uninsured SNAP recipients into Medicaid, even though, in some states, the proportion of SNAP recipients who are financially eligible for Medicaid can be low as 93 percent for all recipients and 89 percent for adults. 27 6

Streamlined renewals in Louisiana: a real-world example. Louisiana s renewal policies for Medicaid and CHIP children illustrate the potential offered by administrative renewal under the ACA. When children s eligibility periods are drawing to a close, the Medicaid system gathers data from multiple sources. If they show that continued eligibility is reasonably certain, coverage is renewed without requesting any information from the family. Under this policy: 75 percent of renewals take place without requiring information from beneficiaries, and fewer than 1 percent of children are terminated for procedural reasons. 28 More than 95 percent of Medicaid and CHIP children continue receiving coverage. 29 The state s most recent eligibility error rate was 0.3 percent one-tenth the national average. Only one case in Louisiana s entire payment error sample had an eligibility error. 30 Manual renewal Even if administrative renewal is not available for a particular enrollee, data matches can still expedite redetermination of eligibility. CMS s final Medicaid regulations specify that, at renewal, a Medicaid program may request from beneficiaries only the information needed to renew eligibility. 31 The regulations further provide that the same reasonable compatibility standards that are used for initial applications also govern manual renewals. 32 Accordingly, if continued eligibility is not sufficiently certain for administrative renewal, but data matches with income information meet the state s definition of reasonable compatibility, a beneficiary should be able to renew coverage by simply attesting, under penalty of perjury, that current income does not exceed 138 percent. Medicaid regulations make clear that consumers can provide such renewal attestations by phone, on-line, by mail, or in person. 33 Budget period for current eligibility: monthly vs. annual income The ACA s Medicaid regulations base financial eligibility for applicants on their current monthly income. At renewal, states have the option to base eligibility on either current monthly income or projected annual income for the remainder of the calendar year. 34 However, CMS officials have indicated that states might be able to determine initial financial eligibility based on projected annual income or average rather than current monthly income. 35 The use of annual or average monthly budget periods can reduce the instability created by fluctuations in month-to-month income. Also, by increasing a state s ability to predict ongoing eligibility, basing eligibility on projected annual income or average monthly income may reduce a state s exposure to federal findings of qualify control errors. Based on these considerations, we assume for the purposes of this analysis that a state (a) determines the initial eligibility of new applicants based on current monthly income but then (b) uses projected annual income to redetermine eligibility of existing beneficiaries. Income data accessible to state Medicaid programs Prior-year income information States will have access to information about prior-year income, as recorded on federal income tax returns, in several ways: 7

State Medicaid programs can access the ACA s new federal data hub, which will provide the most recent information available from the Internal Revenue Service (IRS) about household size and MAGI. States may also be able to obtain information about prior-year income tax returns systems that were in place before ACA enactment. These include the Income Eligibility Verification System, created by Social Security Act Section 1137, 36 and the Social Security Administration s Beneficiary & Earnings Data Exchange. 37 IRS data are available for numerous Medicaid-eligible people. Most low-income households file federal income tax returns, often in order to claim the Earned Income Tax Credit (EITC) and Child Tax Credit or to obtain refunds of withheld wages. Even among the uninsured, 86 percent file federal income tax returns, including 75 percent of those with incomes below poverty. 38 Whether the federal hub or pre-aca sources, one year s tax return information should be available to state Medicaid programs soon after the next year begins, since most low-income households file their federal income tax returns well before April 15. Among returns claiming the EITC, for example, more than four in five (81 percent) are filed by the end of March (Figure 1). Figure 1. Among federal income tax returns that claimed an EITC for 2006, the proportion that were filed by various dates in 2007 32% 48% 57% 64% 69% 73% 76% 79% 81% 83% 86% 95% 95% 96% 99% 100% 2-Feb 9-Feb 16-Feb 23-Feb 2-Mar 9-Mar 16-Mar23-Mar30-Mar 6-Apr 13-Apr 20-Apr 27-Apr 4-May 24-Aug Oct. 26 Source: Authors calculation, IRS, Tax Year 2006 Taxpayer Usage Study. Note: Calculation assumes that all applicable returns were filed by October 26. EITC refers to the Earned Income Tax Credit. IRS officials have stated that, the federal data hub, tax return information will be available to verify eligibility for insurance affordability programs (IAP) under the ACA as soon as such information has been posted within the IRS system. 39 Presumably, this means that tax return information will be available to Medicaid programs within weeks after returns are filed, just as that information is already available to authorize the payment of other benefits. For example, within two weeks of filing, electronic returns which are used by 90 percent of EITC claimants 40 are available to verify eligibility for Pell Grants and other federally-funded college student aid. 41 Along similar lines, IRS sends refund checks within three weeks of taxpayers filing of electronic returns. 42 Of course, not all low-income consumers file federal income tax returns. To verify eligibility of non-filers, states may be able to access information about prior-year income from quarterly wage records, 1099 tax forms that some employers and banks file with IRS and state tax departments, data from other public agencies showing the receipt of cash assistance, private vendor data, and 8

other sources. But for some consumers who do not file tax returns, state Medicaid programs will be unable to compile a comprehensive picture of prior-year income. The analysis presented below, which shows the levels of prior-year income that verify current eligibility, is thus relevant to many but not all Medicaid applicants and beneficiaries. Current-year income data All else equal, more recent income data that is, from the current year can provide a more reliable indicator of current financial circumstances than prior-year IRS filings. States have several options for supplementing prior-year income records with information about earnings during the current year. Under Social Security Act Section 1137, states can access quarterly wage data from their workforce agencies. However, these records are not fully comprehensive: they do not include earnings received as a contractor, earnings from employment in other states, federal earnings, or unearned income. Further, it takes time for state workforce agencies to organize the information and make it available to Medicaid. In California, for example, the Medicaid program cannot obtain data about the first quarter s wages until the start of the fourth quarter, six months after the first quarter s end. 43 Section 1137 also provides Medicaid programs with reports of new hires within the state; unlike quarterly wage data, these reports are typically available within weeks. However, in addition to the limitations that apply to quarterly wage records, new hires reports are typically unavailable from multi-state employers, who are required to send new hire reports only to a single state. 44 Many states obtain near- real time wage records for a number of employers, The Work Number. Provided by a subsidiary of the credit reporting firm Equifax, The Work Number makes available information from payroll records of subscribing large employers, which together include more than 2,000 firms. Although this service is costly to states, most Medicaid agencies and other benefit programs used it before the ACA. It will be offered to all states starting in 2014 the federal data hub. In sum, state Medicaid programs have access to significant but incomplete records about wages received and new employment begun during the current year. Under current law, they will not hear of new hires at multi-state companies, employers across state lines, or federal agencies. Many of these gaps, but not all, could be filled by state or federal contracts with private vendors, like The Work Number. 45 Initial applications: How Medicaid programs can use past income data to verify attestations of financial eligibility In this section of the paper, we analyze SIPP data to identify the applicants whose attestations of financial eligibility can be verified by data matches that show two things: prior income at Medicaid levels; and a 70 percent or greater likelihood of current monthly income at or below 138 percent, the threshold that will apply in states that expand eligibility. We explore three periods during the calendar year in which Medicaid agencies have access to varying sources of data about consumers financial eligibility. For each period, we identify a business rule that meets the above criteria and then assess its potential impact by estimating the percentage of all eligible consumers whose financial eligibility could be verified by the rule. 9

January April: Verifying financial eligibility when only prior-year income data are available Some Medicaid programs have long permitted the previous year s income tax return to verify income for applications filed during the first months of the year. 46 But prior-year income records will become even more relevant to current Medicaid eligibility in 2014, due to eligibility reaching 138 percent, data-driven verification procedures, and Medicaid s implementation of MAGI rules that use federal tax definitions to determine financial eligibility for Medicaid. We find that, among consumers whose prior-year incomes did not exceed 138 percent, 85 percent have monthly incomes at Medicaid levels during January April of the current year (figure 2, table 5). Put differently, if someone s annual income was low enough to qualify for Medicaid last year, there is an 85 percent chance that the consumer s monthly income is still below Medicaid s income eligibility threshold during January April of the current year. Figure 2. Financial eligibility for Medicaid in January April among people with prior-year incomes at or below 138 percent Current monthly MAGI of people with prior-year incomes at or below 138 percent Monthly MAGI above Medicaid levels, 15% n=80.5 million Monthly MAGI at Medicaid levels, 85% Source: SIPP 2008. Note: Assumes expanded Medicaid eligibility. In addition, children with current income above 138 percent are counted as financially eligible if they qualify for Medicaid or CHIP under their state s pre-aca eligibility standards. Results are limited to U.S. citizens and qualified aliens under age 65. As noted earlier, we are seeking to identify business rules that can verify attestations of Medicaid-level income based on data matches that show prior income at Medicaid levels and that establish at least a 70 percent likelihood of current financial eligibility. These criteria are satisfied by a rule that automatically verifies such attestations in January April whenever applicants had prior-year income at or below 138 percent, because the probability of having current financial eligibility in that circumstance exceeds 70 percent. Such a rule could have considerable impact. Among all consumers who are eligible for Medicaid based on current monthly income in January April, fully 79 percent had prior-year income at or below 138 percent (figure 3, table 6). 10

Figure 3. Among all people eligible for Medicaid based on monthly MAGI during January April, the percentage who had prior-year income at or below 138 percent Percentage of all currently eligible consumers n=86.0 million 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 79% Prior-year income at or below 138 percent Source: SIPP 2008. Note: See note to figure 2. Not everyone with prior-year income under 138% can verify their prior-year income with federal income tax records, of course. Some indigent consumers do not file returns, as noted earlier. Others may apply for Medicaid before they have filed a federal tax return. Nevertheless, the fact that 79 percent of all eligible consumers during these early months had prior-year incomes low enough for data-based verification suggests that this business rule could greatly streamline enrollment for many if not most eligible consumers who apply during January April, increasing their participation levels while lowering administrative costs and reducing opportunities for human error. May August: Verifying financial eligibility when significant new hires data become available During the first six to nine months of the year, depending on the state, Medicaid programs may not have yet gained access to quarterly wage records from the current year. However, states have obtained reports about new hires during the current year, which supplement information about the previous year s annual income. This combination of data can help Medicaid programs estimate the likelihood of current eligibility. Prior-year income is more likely to predict current income for consumers who did not change jobs since the start of the year. A new job may pay different wages than the old job. This common-sense intuition is confirmed by SIPP data, as shown in table 7. For example, someone with prior-year income at or below 138 percent has an 82 percent likelihood of income at Medicaid levels in May August of the current year if he or she did not begin a new job before May 1. If he or she did begin such a job, however, the likelihood of current monthly income at Medicaid levels during May August falls to 67 percent. To meet our criterion and establish a 70 percent or greater likelihood of current monthly eligibility in May August, data matches would need to show either (a) prior-year income at or below 138 percent and no new job before May 1 of the current year; or 11

(b) prior-year income at or below 100 percent and a new job begun before May 1 of the current year. These two fact combinations would respectively establish an 82 percent and a 70 percent likelihood of monthly income at Medicaid levels during May August (figures 4 and 5, table 7). Figure 4. Financial eligibility for Medicaid in May August among people with prior-year incomes at or below 138 percent who did not begin a currentyear new job before May 1 Monthly MAGI above Medicaid levels, 18% Current monthly MAGI of people with prior-year incomes at or below 138 percent who did not begin a current-year new job before 5/1 n = 61.7 million Monthly MAGI at Medicaid levels, 82% Source: SIPP 2008. Note: See note to figure 2 Figure 5. Financial eligibility for Medicaid in May August among people with prior-year incomes at or below 100 percent who began a current-year new job before May 1 Current monthly MAGI among people with prioryear incomes at or below 100 percent who began a current-year new job before 5/1 Monthly MAGI above Medicaid levels, 30% n = 14.3 million Monthly MAGI at Medicaid levels, 70% Source: SIPP 2008. Note: See note to figure 2 12

In terms of impact, among all consumers who qualify for Medicaid during May August, 67 percent had prior-year income at Medicaid levels and did not begin a new job before May 1 of the current year. An additional 6 percent had prior-year income at or below 100 percent and began a new job during the current year before May 1 (fig. 6, table 8). Accordingly, a total of 73 percent of eligible consumers could potentially have their attestations of current financial eligibility during May August verified, using this business rule. Figure 6. Among all people eligible for Medicaid based on monthly MAGI during May August, the percentage who had various combinations of prior-year income and the start of a current-year new job before May 1 100% 90% 80% Percentage of all currently eligible consumers 70% 60% 50% 40% 30% 6% 67% Prior-year income at or below 100 percent, current-year new job before 5/1 Prior-year income at or below 138 percent, no currentyear new job before 5/1 20% 10% n = 86.0 million 0% Source: SIPP 2008. Note: See note to figure 2. At this juncture, it may be important to remind the reader of an earlier caveat. These results come from survey data gathered during 2009 and 2010. In future years, more people may begin new jobs. If so, the business rule described here would verify attestations of financial eligibility for a smaller proportion of all eligible consumers. September December: Verifying financial eligibility when wage data become available from earlier quarters It takes time for state workforce agencies to organize their quarterly wage records and make them available in a form that state Medicaid agencies can use. The resulting lag varies among states. In some states, the first quarter s data is available by the start of the third quarter. In others, including California, it is not available until the fourth quarter. But all states have access to quarterly wage records during the final months of the year. For this analysis, we use earnings during January April as a proxy for quarterly wage records. We find that, for consumers whose wages during January April exceeded 80 percent, neither their prior-year income nor whether they began a new job earlier during the current year matters. Consumers with wages that exceeded 80 percent during January 13

April have less than a 70 percent likelihood of current financial eligibility for Medicaid during September December, regardless of their other characteristics (table 9). However, among consumers whose wages during January April did not exceed 80 percent, those with prior-year incomes below 138 percent have an 85 percent likelihood of eligibility (figure 7, table 9). In terms of impact, 55 percent of all consumers who qualify for Medicaid during September December had prior-year incomes at or below 138 percent and wages during January April of the current year at or below 80 percent (figure 8, table 10). Figure 7. Financial eligibility for Medicaid in September December among people with prior-year incomes at or below 138 percent and current-year wages in January April that did not exceed 80 percent Current monthly MAGI of people with prior-year incomes at or below 138 percent and current-year wages in January April that did not exceed 80 percent Monthly MAGI above Medicaid levels, 15% n = 56.2 million Monthly MAGI at Medicaid levels, 85% Source: SIPP 2008. Note: See notes to figure 2. Figure 8. Among all people eligible for Medicaid based on monthly MAGI during September December, the percentage who had prior-year income at or below 138 percent and current-year wages during January April at or below 80 percent Percentage of all currently eligible consumers n = 86.0 million 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 55% Prior-year income at or below 138 percent and current-year wages in January-April at or below 80 percent Source: SIPP 2008. Note: See note to figure 2. 14

In using these final results to formulate business rules involving quarterly wage records, state Medicaid agencies need to consider several limitations. For technical reasons involving SIPP data, 47 we could not reliably analyze wages received during three-month periods. Instead, we used four-month periods as proxies for calendar quarters. Our goal was to approximate what a state could verify using quarterly wage records from roughly four to seven months in the past. The level of verification shown here could be somewhat higher than what states would achieve with three-month wage records, for several reasons. Four months of wage data may be a more reliable indicator of ongoing income than three months of information can provide. Also, as explained earlier, some quarterly earnings and new hires are outside the records accessible to Medicaid programs. That said, our results are sufficiently powerful to suggest that quarterly wage records, combined with information about prior-year income from all sources, could verify current financial eligibility for a large proportion of applicants who qualify for Medicaid. Redeterminations: How Medicaid programs can use past income data to trigger administrative renewal In this section of the paper, we define the Medicaid beneficiaries whose administrative renewal can be triggered by data matches that show two things: (a) Medicaid-level income during most recent prior period for which information is available; and (b) a 90 percent or greater likelihood of current annual income at Medicaid levels. (As explained earlier, it makes sense to require data to establish a greater likelihood of current financial eligibility for administrative renewal than for verifying initial applications, since beneficiaries experiencing administrative renewal do not make sworn attestations about income like those made by applicants.) As with the previous section, this section identifies, for three periods during the calendar year, business rules that meet the above criteria. We also measure such rules potential impact by estimating the percentage of all eligible consumers whose continuing financial eligibility the rules would verify. January April: Verifying financial eligibility when only prior-year income data are available We find that, among consumers whose prior-year incomes did not exceed 120 percent, 90 percent have Medicaid-level annual incomes during the current year (figure 9, table 11). Consistent with the criteria stated earlier, a state could apply a business rule that administratively renews beneficiaries who had such prior-year income. 15