Administration Moves to Withdraw Key Health Services from Children and Adults with Mental Illness and Other Disabilities

from The Center on Budget and Policy Priorities

Bipartisan SCHIP Bill Would Temporarily Block Such Action
By Judith Solomon

The bipartisan children’s health insurance legislation unveiled today contains a provision to help preserve essential health care services for poor children and adults with mental illness or other serious disabilities. The legislation, to be considered by Congress this week, includes a six-month moratorium on Administration plans to institute sweeping Medicaid cuts in services for these individuals.

On August 13, 2007, the Centers for Medicare and Medicaid Services issued a proposed regulation that would eliminate federal Medicaid funding for important services provided to adults and children with disabilities (particularly those with mental illness), as well as other beneficiaries. The rule would significantly limit states’ ability to provide rehabilitative services, including those designed to enable individuals with disabilities to improve their mental or physical capacities and remain out of an institution.[1]

In 2004, some 1.5 million people received rehabilitative services through Medicaid, according to a recent report from the Kaiser Commission on Medicaid and the Uninsured. Nearly every state (47 states plus the District of Columbia) provides rehabilitative services for Medicaid beneficiaries.

About three-fourths of the people who receive these rehabilitative services suffer from mental illness.[2] Many states use federal Medicaid funds to help support community-based services for people with mental illness as an alternative to institutionalization. States also provide rehabilitative services to children with mental illness and other special health care needs in school-based settings. [3]

In 2005, the Administration tried — and failed — to persuade Congress to restrict rehabilitative services as part of the Deficit Reduction Act.[4] In its last two budgets, the Administration has announced that it intends to restrict these services anyway, bypassing Congress and acting administratively.

The most significant change in the proposed rule would prohibit the use of federal Medicaid funds for rehabilitative services that are “intrinsic elements” of another program, such as foster care or child welfare. The Administration claims that beneficiaries can get the services through the other program, so Medicaid support is not necessary. The reality is very different. In most cases, the other program has limited funds and expects Medicaid to pay for rehabilitative services for Medicaid beneficiaries. Without Medicaid funding, many beneficiaries would simply not receive these health care services.

The proposed rule also prohibits the use of federal Medicaid funds for therapeutic foster care, designed for children with serious mental illness. For most children, therapeutic foster care — in which children are placed in a private home with foster parents who are specially trained to help them improve their condition — is an alternative to more costly care in a residential treatment program or psychiatric hospital.[5]

Finally, the proposed rule would eliminate coverage for “day habilitation” programs, which are designed to help people with intellectual disabilities (formerly called mental retardation) and other developmental disabilities acquire the skills they need to live in community-based settings and remain out of institutions. For example, these programs help people with their communication and social skills and maximize their ability to perform activities of everyday life.

In 1989, Congress — concerned about efforts to eliminate Medicaid coverage for day habilitation services — barred the Secretary of Health and Human Services from restricting such coverage unless the Secretary also specified which of these services could be covered elsewhere in Medicaid. The Administration’s proposed rule does not do that. Instead, it simply eliminates coverage for all day habilitation services, which is likely to cause many vulnerable Medicaid beneficiaries to lose this critical form of assistance.

The SCHIP compromise legislation being considered by Congress this week includes a temporary, six-month moratorium on restrictions such as these on rehabilitative services, so that states may continue to provide children and adults with mental illness or other disabilities with rehabilitative services they need. If the legislation is not enacted and the Administration issues a final regulation in coming months to institute these cutbacks, a large number of the country’s most vulnerable individuals are likely to face serious consequences. (If the legislation is enacted, further Congressional action will be required to protect access to these health care services beyond the six-month period.)

End Notes:

[1] In Medicaid, rehabilitative services are defined as “medical or remedial services” recommended by a physician or other licensed health care provider “for maximum reduction of physical or mental disability and restoration of an individual to the best possible level.”

[2] Jeffrey S. Crowley and Molly O’Malley, “Medicaid’s Rehabilitation Services Option: Overview and Current Policy Issues,” Kaiser Commission on Medicaid and the Uninsured, August 2007.

[3] Because of the Early and Periodic, Screening, Diagnostic and Treatment (EPSDT) program, which requires that states provide all medically necessary services to children that can be covered under Medicaid, rehabilitative services are required for children. In contrast, states have the option of whether to provide rehabilitative services to adults, though (as noted) nearly every state does so.

[4] Testimony of Dennis Smith, Senate Committee on Finance, June 28, 2005, at http://www.senate.gov/~finance/hearings/testimony/2005test/DStest062805.pdf

[5] Mental Health: A Report of the Surgeon General, 1999 at http://mentalhealth.samhsa.gov/features/surgeongeneralreport/chapter3/sec7_1.asp